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|
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abrdn
Funds |
|
Prospectus
|
|
February
29, 2024 |
|
abrdn
Focused U.S. Small Cap Equity Fund (formerly, abrdn U.S. Sustainable Leaders Smaller Companies Fund)
Class
A - MLSAX
■
Class R - GLSRX
■
Institutional Class - GGUIX
■
Institutional Service Class - AELSX
abrdn
U.S. Small Cap Equity Fund
Class
A - GSXAX
■
Class C - GSXCX
■
Class R - GNSRX
■
Institutional Class - GSCIX
■
Institutional Service Class - GSXIX
abrdn
China A Share Equity Fund
Class
A - GOPAX
■
Class C - GOPCX
■
Class R - GOPRX
■
Institutional Class - GOPIX
■
Institutional Service Class - GOPSX
abrdn
Emerging Markets Sustainable Leaders Fund
Class
A - GIGAX
■
Class C - GIGCX
■
Class R - GIRRX
■
Institutional Class - GIGIX
■
Institutional Service Class - GIGSX
abrdn
Emerging Markets ex-China Fund
Class
A - GLLAX
■
Class C - GLLCX
■
Class R - GWLRX
■
Institutional Class - GWLIX
■
Institutional Service Class - GLLSX
abrdn
Emerging Markets Fund
Class
A - GEGAX
■
Class C - GEGCX
■
Class R - GEMRX
■
Institutional Class - ABEMX
■
Institutional Service Class - AEMSX
abrdn
Infrastructure Debt Fund (formerly, abrdn Global Absolute Return Strategies Fund)
Class
A – CUGAX
■
Institutional Class – AGCIX
■
Institutional Service Class – CGFIX
abrdn
International Small Cap Fund
Class
A – WVCCX
■
Class C – CPVCX
■
Class R – WPVAX
■
Institutional Class – ABNIX
abrdn
Intermediate Municipal Income Fund
Class
A – NTFAX
■
Institutional
Class – ABEIX
■
Institutional Service Class – ABESX
abrdn
U.S. Sustainable Leaders Fund
Class
A – GXXAX
■
Class C – GXXCX
■
Institutional Class – GGLIX
■
Institutional Service Class – GXXIX
abrdn
Dynamic Dividend Fund
Class
A – ADAVX
■
Institutional Class – ADVDX
abrdn
Global Infrastructure Fund
Class
A – AIAFX
■
Institutional Class – AIFRX
abrdn
Short Duration High Yield Municipal Fund
Class
A – AAHMX
■
Class C – ACHMX
■
Institutional Class – AHYMX
abrdn
Realty Income & Growth Fund
Class
A – AIAGX
■
Institutional Class – AIGYX
abrdn
Ultra Short Municipal Income Fund
Class
A – ATOAX
■
Class A1 – ATOBX
■
Institutional Class – ATOIX
abrdn
Emerging Markets Dividend Fund (formerly, abrdn International Sustainable Leaders Fund)
Class
A – BJBIX
■
Institutional Class – JIEIX
abrdn
Global Equity Impact Fund
Class
A – JETAX
■
Institutional Class – JETIX
abrdn
High Income Opportunities Fund (formerly, abrdn Global High Income Fund)
Class
A – BJBHX
■
Institutional Class – JHYIX
As
with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these Funds’ shares or determined
whether this prospectus is complete or accurate.
To state otherwise is a crime.
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Summary
- abrdn Focused U.S.
Small Cap Equity Fund |
|
|
|
abrdn
Focused U.S. Small Cap Equity Fund |
|
Objective
The abrdn Focused U.S.
Small Cap Equity Fund (formerly, abrdn U.S. Sustainable Leaders Smaller Companies Fund) (the “Focused
U.S. Small Cap Equity Fund “ or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the
fees and expenses that you may pay when you buy, hold and sell shares of the Focused U.S. Small
Cap Equity Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $50,000
in abrdn Funds.
More information about these and other discounts is available from your financial advisor
and in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164
and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases and
Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages 110 and 111
of the Fund’s
Statement of Additional Information, respectively. You may pay other fees, such as brokerage commissions and other
fees to financial intermediaries, which are not reflected in the table and example below.
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Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares
|
Class
R Shares
|
Institutional
Class Shares
|
Institutional
Service Class
Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage
of offering price) |
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Maximum
Deferred Sales Charge (Load) (as a percentage of offering
or sale price, whichever is less) |
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Small
Account Fee(2)
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Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees |
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Distribution
and/or Service (12b-1) Fees |
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Other
Expenses |
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Total
Annual Fund Operating Expenses |
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Less:
Amount of Fee Limitations/Expense Reimbursements(3)
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Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
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(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class
A shares redeemed within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the
quarterly fee. See the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.90% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services
fees, transfer agent out-of-pocket expenses for Class A shares, Class R shares and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided,
however, that any reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time
the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped
by the Adviser. |
Example
This Example is intended
to help you compare the cost of investing in the Focused U.S. Small Cap Equity Fund with the cost
of investing in other mutual funds.
Summary
- abrdn Focused U.S. Small Cap Equity Fund 1
Summary
- abrdn Focused U.S. Small Cap Equity Fund
The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same (taking
into account the contractual fee limitation until its expiration, which impacts the 1-Year figures listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$694
|
$1,162
|
$1,655
|
$3,008
|
CLASS
R SHARES |
$156
|
$711
|
$1,293
|
$2,873
|
INSTITUTIONAL
CLASS SHARES |
$92
|
$548
|
$1,031
|
$2,365
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$107
|
$565
|
$1,049
|
$2,386
|
Portfolio
Turnover
The Focused U.S. Small
Cap Equity Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 16.83%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy,
under normal circumstances, the Focused U.S. Small Cap Equity Fund invests at least 80% of
the value of its net assets, plus any borrowings for investment purposes, in equity securities issued by U.S. small-cap companies.
The Fund will be managed pursuant to a “focused” strategy whereby the Fund’s investment adviser will typically
invest the Fund’s assets in a small number of issuers. Generally, the Fund expects to hold approximately 35 to 45 issuers.
For purposes of the Fund’s
80% policy, a company is considered to be a U.S. company if Fund management determines that
the company meets one or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in the United States; |
● |
the
company has its principal securities trading market in the United States; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in the United States. |
The Fund considers small-cap
companies to be companies that have market capitalizations similar to those of companies
include in the Russell 2000®
Index at the time of investment. The range of the Russell 2000®
Index was $16.95 million
to $15.04 billion as of December 31, 2023.
Some companies may outgrow
the definition of a small company after the Fund has purchased their securities or may no
longer fall within the range of a reconstituted index. These companies continue to be considered small for purposes of the
Fund’s minimum 80% allocation to small company equities. While the Fund may sell a security if its market capitalization
exceeds the definition of small-cap company, it is not required to sell solely because of that fact.
Equity securities include,
but are not limited to, common stock, preferred stock and depositary receipts.
The Fund may invest in
securities of any market sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the industrials
sector.
The Fund may invest in
securities denominated in U.S. Dollars and the currencies of any foreign countries in which it is permitted
to invest. The Fund typically has full currency exposure to those markets in which it invests. The Fund may also invest
in non-U.S. companies, including primarily Canadian companies.
In seeking to achieve the
Fund’s investment objective, the Adviser invests in quality companies and is an active, engaged owner.
The Adviser evaluates every company against its own quality criteria and builds conviction using a team-based
approach and peer review process. The quality assessment covers five key factors: 1) the durability of the business
model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management, and 5)
the most material environmental, social and governance (“ESG”) factors impacting a company. As ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any investment decision made
by the Adviser. Through fundamental research, supported by a global research presence, the Adviser seeks to identify
companies whose quality and future prospects are not yet fully recognized by the market.
Principal
Risks
The
Focused U.S. Small Cap Equity Fund cannot guarantee that it will achieve its investment objective.
2 Summary
- abrdn Focused U.S. Small Cap Equity Fund
Summary
- abrdn Focused U.S. Small Cap Equity Fund
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of
the principal risks of investing in the Fund (in alphabetical order after the first six risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk
– The stock
or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management Risk
– The Fund
is subject to the risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
Focus Risk –
Funds that invest a greater proportion of their assets in the securities of a smaller number of issuers will be subject
to greater volatility with respect to their investments than funds that invest in a larger number of securities.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Currency Exposure
Risk – The
value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk
– Foreign
countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Industrials
Sector Risk. The
value of securities issued by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Summary
- abrdn Focused U.S. Small Cap Equity Fund 3
Summary
- abrdn Focused U.S. Small Cap Equity Fund
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Focused U.S. Small Cap Equity Fund.
The bar chart shows how
the Fund’s annual total returns for Class A have varied from year to year. The
returns in the bar chart do not
reflect the impact of sales charges, if any. If the applicable sales charges were included, the annual total returns would
be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average annual total returns to the returns of the Russell 3000®
Index, a broad-based
securities index, and the Russell 2000®
Index. Effective February 29, 2024, in anticipation of new regulatory requirements,
the Fund’s broad-based securities market index has changed from the Russell 2500®
Index to the Russell 3000®
Index in the Fund’s total return table. Also effective February 29, 2024, the Russell 2000®
Index became the Fund’s secondary
benchmark to reflect the change in the Fund’s investment strategy. Pursuant to federal rules and regulations, the
Russell 2500®
Index will continue to be shown for twelve months following its removal as the Fund’s primary benchmark.
Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the
Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment
strategy effective February 29, 2024 from a U.S. sustainable leaders smaller companies strategy
to a U.S. focused small cap equity strategy. In connection with the change in investment strategy, the Fund changed
its name from abrdn U.S. Sustainable Leaders Smaller Companies Fund to abrdn Focused U.S. Small Cap Equity Fund.
On December 1, 2020, the Fund changed its investment strategy from a focused U.S. equity strategy to a U.S. sustainable
leaders smaller companies strategy. In connection with the change in investment strategy, the Fund changed
its name from Aberdeen Focused U.S. Equity Fund to Aberdeen U.S. Sustainable Leaders Smaller Companies Fund.
In addition, the Fund changed its investment strategy effective November 15, 2017 from a long-short equity strategy
to a focused U.S. equity strategy. In connection with the change in investment strategy, the Fund changed its name
from Aberdeen Equity Long-Short Fund to Aberdeen Focused U.S. Equity Fund. Performance information for periods
from December 1, 2020 to February 29, 2024, from November 15, 2017 to December 1, 2020 and prior to November
15, 2017 reflect different investment strategies than the current investment strategy.
4 Summary
- abrdn Focused U.S. Small Cap Equity Fund
Summary
- abrdn Focused U.S. Small Cap Equity Fund
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 18.48%
- 2nd
quarter 2020
Lowest
Return: -18.81%
- 2nd
quarter 2022
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated
using the historical highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
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1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
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Class
A shares – After Taxes on Distributions |
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Class
A shares – After Taxes on Distributions and Sales of Shares(1)
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Class
R shares – Before Taxes |
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Institutional
Class shares – Before Taxes |
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Institutional
Service Class shares – Before Taxes |
|
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Russell
3000®
Index (reflects no deduction for fees, expenses or taxes) |
|
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Russell
2000®
Index (reflects
no deduction for fees, expenses or taxes) |
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Russell
2500®
Index (reflects no deduction for fees, expenses or taxes) |
|
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(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves as the Focused U.S. Small Cap Equity Fund ‘s investment adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
Summary
- abrdn Focused U.S. Small Cap Equity Fund 5
Summary
- abrdn Focused U.S. Small Cap Equity Fund
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|
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Name
|
Title
|
Served
on the Fund Since |
Christopher
Colarik |
Head
of U.S. Smaller Companies |
|
Scott
Eun |
Senior
Investment Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
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CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
6 Summary
- abrdn Focused U.S. Small Cap Equity Fund
|
|
|
Summary
- abrdn U.S. Small Cap Equity Fund
|
|
|
|
abrdn
U.S. Small Cap Equity Fund |
|
Objective
The abrdn U.S. Small Cap Equity Fund (the “U.S.
Small Cap Equity Fund” or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the U.S. Small Cap Equity
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional
Class Shares
|
Institutional
Service Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases
(as a percentage of offering price) |
|
|
|
None
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage
of offering or sale price, whichever is less)
|
|
|
|
None
|
|
Small
Account Fee(3) |
|
|
|
$
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses |
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.99% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares, Class R shares and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided, however, that any
reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time the fees were limited
or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
Summary
- abrdn U.S. Small Cap Equity Fund 7
Summary
- abrdn U.S. Small Cap Equity Fund
Example
This Example is intended to help you compare
the cost of investing in the U.S. Small Cap Equity Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the U.S. Small Cap Equity Fund for the time periods indicated and then sell
all of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses
remain the same (taking
into account the contractual fee limitation until its expiration, which impacts the 1-Year
figures listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$708
|
$998
|
$1,308
|
$2,186
|
CLASS
C SHARES |
$303
|
$659
|
$1,141
|
$2,471
|
CLASS
R SHARES |
$167
|
$526
|
$909
|
$1,984
|
INSTITUTIONAL
CLASS SHARES |
$102
|
$348
|
$614
|
$1,374
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$115
|
$368
|
$640
|
$1,417
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$203
|
$659
|
$1,141
|
$2,471
|
Portfolio
Turnover
The U.S. Small Cap Equity Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when
Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or
in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was
29.74%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the U.S. Small Cap Equity Fund invests at least 80% of the value
of its net assets, plus any borrowings for investment purposes, in equity securities issued by U.S. small-cap companies.
A company is considered to be a U.S. company if Fund management determines that the company meets one
or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in the United States; |
● |
the
company has its principal securities trading market in the United States; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in the United States. |
The Fund considers small-cap companies to be
companies that have market capitalizations similar to those of companies
included in the Russell 2000®
Index at the time of investment. The range of the Russell 2000®
Index was $16.95
million to $15.04
billion as of December 31, 2023.
Some companies may outgrow the definition of
a small company after the Fund has purchased their securities or may no
longer fall within the range of a reconstituted index. These companies continue to be considered small for purposes of the
Fund’s minimum 80% allocation to small company equities. The Fund also may invest in foreign securities and securities
of larger companies. Equity securities include, but are not limited to, common stock, preferred stock and depositary
receipts.
While the Fund may sell a security if its market
capitalization exceeds the definition of small-cap company, it is not required
to sell solely because of that fact.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the industrials
sector.
The Fund may invest in securities denominated
in U.S. Dollars and the currencies of any foreign countries in which it is permitted
to invest. The Fund typically has full currency exposure to those markets in which it invests. The Fund invests predominantly
in securities of U.S. issuers.
The Fund may also invest in non-U.S. companies, including primarily Canadian companies.
In seeking to achieve the Fund’s investment
objective, the Adviser invests in quality companies and is an active, engaged owner.
The Adviser evaluates every company against quality criteria and builds conviction using a team-based approach
and peer review process. The quality assessment covers five key factors: 1) the durability of the business
8 Summary
- abrdn U.S. Small Cap Equity Fund
Summary
- abrdn U.S. Small Cap Equity Fund
model, 2) the attractiveness of the industry,
3) the strength of financials, 4) the capability of management, and 5) the most
material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just one
investment consideration, ESG considerations generally are not solely determinative in any investment decision made
by the Adviser. Through fundamental research,
supported by a global research presence, the Adviser seeks to identify
companies whose quality and
future prospects are not yet fully recognized
by the market.
Principal
Risks
The
U.S. Small Cap Equity Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first five risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates
Summary
- abrdn U.S. Small Cap Equity Fund 9
Summary
- abrdn U.S. Small Cap Equity Fund
may adversely affect the performance of companies
in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the U.S. Small Cap Equity Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the annual total returns would be lower
than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average
annual total returns to the returns of the Russell 3000®
Index, a broad-based securities index,
and the Russell 2000®
Index. Effective February
29, 2024, in anticipation of new regulatory requirements, the
Fund’s broad-based securities index has changed from the Russell 2000®
Index to the Russell 3000®
Index in the Fund’s
total return table. Remember,
however, that past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 29.29%
- 2nd
quarter 2020
Lowest
Return: -23.76%
- 1st
quarter 2020
10 Summary
- abrdn U.S. Small Cap Equity Fund
Summary
- abrdn U.S. Small Cap Equity Fund
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
Russell
3000®
Index (reflects
no deduction for fees, expenses or taxes) |
|
|
|
Russell
2000®
Index (reflects no deduction for fees, expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves
as the U.S. Small Cap Equity Fund’s investment adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Christopher
Colarik |
Head
of U.S. Smaller Companies |
|
Scott
Eun |
Senior
Investment Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Summary
- abrdn U.S. Small Cap Equity Fund 11
Summary
- abrdn U.S. Small Cap Equity Fund
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
12 Summary
- abrdn U.S. Small Cap Equity Fund
|
|
|
Summary
- abrdn China A Share Equity Fund
|
|
|
|
abrdn
China A Share Equity Fund |
|
Objective
The abrdn China A Share Equity Fund (the “China
A Fund” or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the China A Fund. You
may qualify for sales charge discounts if
you and your family invest, or agree to invest in the future, at least $50,000
in abrdn Funds.
More information about these and other discounts is available from your financial advisor and in the “Reduction
and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies” sections
on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases and
Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages 110
and 111 of the Fund’s Statement of
Additional Information, respectively. You may pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional
Class Shares
|
Institutional
Service Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases
(as a percentage of offering price) |
|
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage
of offering or sale price, whichever is less)
|
|
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses |
|
|
|
|
|
Acquired
Fund Fees and Expenses(4)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses(5)
|
|
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(6)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements(5)
|
|
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
Acquired
fund fees and expenses are indirect fees and expenses that the Fund incurs from investing in the shares of other mutual funds, including
money market funds and exchange traded funds. |
(5) |
The
Total Annual Fund Operating Expenses and Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate
to the Fund’s Ratio of Expenses (Prior
to Reimbursements) to Average Net Assets and Ratio of Expenses to Average Net Assets, respectively, included in the
Fund’s Financial Highlights in the Fund’s prospectus, as those ratios do not reflect indirect expenses, such as Acquired
Fund Fees and Expenses. |
(6) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.99% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares, Class R shares and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided, however, that any
reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time the fees were limited
or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
Summary
- abrdn China A Share Equity Fund 13
Summary
- abrdn China A Share Equity Fund
Example
This Example is intended to help you compare
the cost of investing in the China A Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000
in the China A Fund for the time periods indicated and then sell all of your shares
at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$708
|
$1,071
|
$1,458
|
$2,538
|
CLASS
C SHARES |
$306
|
$734
|
$1,288
|
$2,801
|
CLASS
R SHARES |
$171
|
$615
|
$1,086
|
$2,388
|
INSTITUTIONAL
CLASS SHARES |
$106
|
$429
|
$775
|
$1,751
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$115
|
$446
|
$801
|
$1,800
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$206
|
$734
|
$1,288
|
$2,801
|
Portfolio
Turnover
The China A Fund pays transaction costs, such
as commissions, when it buys and sells securities (or “turns over” its portfolio).
A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 36.32%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the China A Fund invests at least 80% of the value of its net assets,
plus any borrowings for investment purposes, in equity securities of mainland China-based companies that are denominated
in Renminbi and listed on the Shenzhen and Shanghai stock exchanges (“China A Shares”). For the purposes
of the Fund meeting its 80% investment policy, the Fund will include investments in exchange-traded funds (“ETFs”)
that have policies to invest 80% or more of their assets in China A Shares.
China A Shares are only available to non-mainland
China investors like the Fund through the Shanghai-Hong Kong and Shenzhen-Hong
Kong Stock Connect programs (collectively, “Stock Connect”) or the Qualified Foreign Institutional Investor
and Renminbi Qualified Foreign Institutional Investor systems (collectively, the “QFII Programs”). Stock Connect and
the QFII Programs are subject to regulatory changes and specified quota limitations. The Shanghai and Shenzhen stock
exchanges may close for extended periods for holidays or otherwise, which impacts the Fund’s ability to trade in China
A Shares during those periods.
The Fund may invest in securities denominated
in U.S. Dollars and the currencies of the foreign countries in which it is permitted
to invest. The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest without limit in the equity
securities of companies of any size, including small-cap and mid-cap companies.
Equity securities include, but are not limited to, common stock, preferred stock and depositary receipts. The Fund
also may invest in equity-linked notes. An equity-linked note is a security whose performance is generally tied to a single
stock, a stock index or a basket of stocks. For purposes of the Fund’s 80% policy described above, equity-linked notes
are classified according to their underlying or referenced security or securities. The Fund may invest in securities of any
market sector and may hold a significant amount of securities of companies, from time to time, within a single sector. The
Fund currently anticipates that it will have significant exposure to the consumer staples and
industrials sectors.
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-adviser invest in quality companies and are an active,
engaged owners. The Adviser and Sub-adviser evaluate every company against quality criteria and build conviction
using a team-based approach and peer review process. The quality assessment covers five key factors: 1) the durability
of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management,
and 5) the most material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser and Sub-adviser.
Through fundamental research, supported by a global research
presence, the Adviser and Sub-adviser seek to identify companies whose quality and
future prospects are not yet
fully recognized by the market.
14 Summary
- abrdn China A Share Equity Fund
Summary
- abrdn China A Share Equity Fund
Principal
Risks
The
China A Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first nine
risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Emerging Markets Risk –
Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
China Risk.
Significant exposure to China and Hong Kong securities subjects the Fund to additional risks, and may make
it significantly more volatile than more geographically diverse mutual funds. Additional risks associated with investments
in China and Hong Kong include exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation,
nationalization, exchange control regulations (including currency blockage), trading halts, imposition of tariffs, limitations
on repatriation and differing legal standards. Any spread of an infectious illness, public health threat or similar issue
could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and
generally have a significant impact on the Chinese economy, which in turn could adversely affect the Fund’s investments.
China A
Shares Risk. Trading in China A Shares
through Stock Connect and the QFII Programs involves additional risks.
Stock Connect is subject to a daily quota (the “Daily Quota”), which limits the maximum net purchases under Stock Connect
each day and, as such, buy orders for China A Shares would be rejected once the Daily Quota is exceeded (although
the Fund will be permitted to sell China A Shares regardless of the Daily Quota balance). Further, Stock Connect,
which relies on the connectivity of the Shanghai or Shenzhen markets with Hong Kong, is subject to operational risk,
regulations that are relatively untested and are subject to change, and extended market closures for holidays or otherwise.
During an extended market closure, the Fund’s ability to trade in China A Shares will be impacted which may affect
the Fund’s performance. The QFII Programs are subject to the risk that the Adviser may have its QFII Programs license
revoked or restricted with respect to the Fund or the Fund may be impacted by the rules, restrictions and quota limitations
connected to reliance on a QFII Programs license.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid securities and relatively less liquid securities may also
be difficult to value.
Summary
- abrdn China A Share Equity Fund 15
Summary
- abrdn China A Share Equity Fund
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Impact of Large Redemptions
and Purchases of Fund Shares –
Occasionally, shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Equity-Linked Notes –
The Fund may invest in equity-linked notes, which are generally subject to the same risks as the foreign
equity securities or the basket of foreign securities they are linked to. If the linked security(ies) declines in value, the
note may return a lower amount at maturity. The trading price of an equity-linked note also depends on the value of the
linked security(ies).
Exchange-Traded Fund Risk –
To the extent that the Fund invests in ETFs, the Fund may be subject to, among other risks, tracking
error risk and passive and, in some cases, active management investment risk. An active secondary market in ETF
shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual
market conditions or other reasons. There can be no assurance that an ETF’s shares will continue to be listed on an
active exchange. In addition, Fund shareholders bear both their proportionate share of the Fund’s expenses and similar
expenses incurred through the Fund’s ownership of the ETF.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Consumer
Staples Sector Risk. Companies in the
consumer staples sector may be adversely affected by changes in
the global economy, consumer spending, competition, demographics and consumer preferences, and production spending.
Companies in the consumer staples sector may also be affected by changes in global economic, environmental
and political events, economic conditions, the depletion of resources, and government regulation. For instance,
government regulations may affect the permissibility of using various food additives and production methods of companies
that make food products, which could affect company profitability. In addition, tobacco companies may be adversely
affected by the adoption of proposed legislation and/or by litigation. Companies in the consumer staples sector
also may be subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials
fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support
programs, exchange rates, import and export controls, changes in international agricultural and trading policies, and
seasonal and weather conditions. Companies in the consumer staples sector may be subject to severe competition, which
may also have an adverse impact on their profitability.
Industrials
Sector Risk. The
value of securities issued by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors.
16 Summary
- abrdn China A Share Equity Fund
Summary
- abrdn China A Share Equity Fund
Companies in the industrials
sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the China A Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the impact of
sales charges. If the applicable sales charges were included, the annual total returns would be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average
annual total returns to the returns of the MSCI China A (Onshore) Index (Net Daily Total Return), a broad-based
securities index. Remember,
however, that past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future.
For updated performance information, please visit https://www.
abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment strategies effective
June 13, 2019. The performance information for periods before June 13, 2019 does not reflect the Fund’s current investment
strategies. In connection with the change in investment strategies, the Fund changed its name from Aberdeen
China Opportunities Fund to Aberdeen China A Share Equity Fund.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Summary
- abrdn China A Share Equity Fund 17
Summary
- abrdn China A Share Equity Fund
Highest
Return: 24.28%
- 4th
quarter 2020
Lowest
Return: -19.21%
- 3rd
quarter 2022
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
MSCI
China A (Onshore) Index (Net Daily Total Return) (reflects
no deduction for fees
or expenses) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the China A Fund’s investment adviser and abrdn Asia Limited (“aAL”)
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Pruksa
Iamthongthong, CFA®
|
Senior
Investment Director |
|
Jim
Jiang |
Investment
Manager |
|
Elizabeth
Kwik, CFA® |
Investment
Director |
|
Nicholas
Yeo, CFA® |
Director
and Head of Equities – China |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
18 Summary
- abrdn China A Share Equity Fund
Summary
- abrdn China A Share Equity Fund
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn China A Share Equity Fund 19
|
|
|
Summary
- abrdn Emerging Markets Sustainable Leaders
Fund |
|
|
|
abrdn
Emerging Markets Sustainable Leaders Fund |
|
Objective
The abrdn Emerging Markets Sustainable Leaders
Fund (the “Emerging Markets Sustainable Leaders Fund” or the “Fund”) seeks
long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Emerging Markets
Sustainable Leaders Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest
in the future, at least $50,000
in abrdn Funds. More information
about these and other discounts is available from your
financial advisor and in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales
Charge Waiver Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional
Information on Purchases and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges”
sections on pages 110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other
fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and
example below.
|
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional Class
Shares |
Institutional Service
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases
(as a percentage of offering price) |
|
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage
of offering or sale price, whichever is less)
|
|
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses |
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 1.10% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares, Class R shares, and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided, however, that any
reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time the fees were limited
or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
20 Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Example
This Example is intended to help you compare
the cost of investing in the Emerging Markets Sustainable Leaders Fund with
the cost of investing in other mutual funds.
The Example assumes that you invest $10,000
in the Emerging Markets Sustainable Leaders Fund for the time periods indicated
and then sell all of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s
operating expenses remain the same
(taking into account the contractual limitation until its expiration, which impacts
the 1-Year figures listed below). Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$720
|
$1,068
|
$1,440
|
$2,481
|
CLASS
C SHARES |
$314
|
$735
|
$1,283
|
$2,779
|
CLASS
R SHARES |
$177
|
$594
|
$1,037
|
$2,268
|
INSTITUTIONAL
CLASS SHARES |
$113
|
$419
|
$747
|
$1,675
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$119
|
$418
|
$740
|
$1,650
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$214
|
$735
|
$1,283
|
$2,779
|
Portfolio
Turnover
The Emerging Markets Sustainable Leaders Fund
pays transaction costs, such as commissions, when it buys and sells securities
(or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result
in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating
expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio
turnover rate was 27.11%
of the average value of its portfolio.
Principal
Strategies
The Emerging Markets Sustainable Leaders Fund
seeks to achieve its investment objective of seeking long-term capital appreciation
by investing primarily in equity securities of emerging market companies that the Adviser deems to have sound
and improving prospects and which demonstrate that they are current or emerging sustainable leaders through their
management of environmental, social and governance (“ESG”) risks and opportunities in accordance with the Adviser’s
criteria.
In pursuing the Fund’s investment strategies,
the Adviser invests in quality companies and is an active, engaged owner and
takes into consideration a company’s management of ESG risks and opportunities and the company’s ESG performance.
The Adviser evaluates every company against quality criteria and builds conviction using a team-based approach
and peer review process. Through
fundamental research, supported by a global research presence, the Adviser
seeks to identify companies whose quality and
future prospects are not yet fully recognized
by the market. The Adviser’s overall
quality assessment covers five key factors: (1) durability of the business model, (2) the attractiveness of the
industry, (3) the strength of financials, (4) the capability of management, and (5) the most material ESG factors impacting
a company.
When assessing the most material ESG factors
impacting a company, the Adviser evaluates the ownership structure and governance
of the company as well as potential environmental and social risks and opportunities that the company may face.
The Adviser will assign each company an ESG-quality rating ranging from 1 to 5 (1 indicating best
in class and 5 indicating
laggards) – enabling the Fund’s investment team to identify current and emerging sustainable leaders. Companies
eligible for investment by the Fund must be rated 3 or better by the Adviser. In limited circumstances, for example,
in a corporate action or an initial public offering, the Fund may purchase or receive securities of companies that have
not been assigned an ESG quality rating by the Adviser so long as one is assigned to the company within the time period
required by the Adviser’s internal process.
Examples of areas under scope when assessing
a company’s ESG quality include the following:
● |
Water
& Wastewater Management |
● |
Waste
& Hazardous Materials Management |
Summary
- abrdn Emerging Markets Sustainable Leaders Fund 21
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
● |
Human
Rights & Community Relations |
● |
Product
Quality & Safety |
● |
Selling
Practices & Product Labelling |
● |
Employee
Health & Safety |
● |
Product
Design & Lifecycle Management |
● |
Business
Model Resilience |
● |
Supply
Chain Management |
● |
Materials
Sourcing & Efficiency |
● |
Physical
Impacts of Climate Change |
● |
Management
of the Legal & Regulatory Environment |
● |
Critical
Incident Risk Management |
● |
Systemic
Risk Management |
The foregoing list is not exhaustive and may
change; in addition, not all areas in the foregoing list are relevant to every company
in which the Fund may invest. The Adviser focuses its analysis on those areas that it believes will materially impact
a company’s reputation or operational or financial performance.
In carrying out its assessments of ESG quality,
the Adviser’s equity analysts incorporate internal data sources, including a proprietary
quantitative house score (“House Score”), external sources (e.g. MSCI reports), thematic expertise from the Adviser’s
Investment
Sustainability Group and stock-specific expertise from the Adviser’s equity ESG analysts. The Adviser
relies heavily on its own in-depth research and analysis over third party ESG ratings.
In addition, the Adviser excludes the 10%
lowest scoring companies in the Fund’s benchmark index using the Adviser’s House
Score. In limited circumstances, for example, in a corporate action or an initial public offering, the Fund may purchase
or receive securities of companies that have not been assigned a House Score by the Adviser so long as one is assigned
to the company within the time period required by the Adviser’s internal process.
Binary exclusions are also applied to exclude
a defined list of unacceptable activities. Based on MSCI business involvement
screening research and
the Adviser’s analysis,
the Fund will seek to not invest in companies that
have:
● |
failed
to uphold one or more principles of the UN Global Compact; |
● |
an
industry tie to (including companies that provide support systems and services, as well as those with direct (i.e., owners
and producers) and indirect (i.e., parents and subsidiaries) involvement in) controversial weapons (cluster munitions,
landmines, biological / chemical weapons, depleted uranium weapons, blinding laser weapons, incendiary weapons,
and/or non-detectable fragments); |
● |
a
revenue contribution of 10% or more from the manufacture or sale of conventional weapons or weapons systems; |
● |
a
revenue contribution of 10% or more from tobacco or are tobacco manufacturers; |
● |
a
revenue contribution of 10% or more from the extraction of unconventional oil and gas (including oil sands, oil shale (kerogen-rich
deposits), shale gas, shale oil, coal seam gas, and coal bed methane and excluding conventional oil and gas
productions); |
● |
or
a revenue contribution from thermal coal extraction. |
The Fund targets a lower Weighted Average Carbon
Intensity (“WACI”) than its benchmark based on third-party data, or third-party
estimates when an issuer does not report Scope 1 and 2 emissions.
22 Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
The Fund will measure compliance with its principal
investment strategies at the time of investment. Third party data by which
the Fund measures compliance with its binary exclusions, WACI target, and House Score threshold is updated at regular
intervals. If a company no longer meets the Fund’s principal strategies, the Adviser will make a determination as to
whether to sell such security, in accordance with the Adviser’s internal process.
As a non-fundamental policy, under normal circumstances,
the Fund invests at least 80% of the value of its net assets, plus
any borrowings for investment purposes, in equity securities of emerging market companies that the Adviser considers
to be current or emerging sustainable leaders in accordance with the Adviser’s criteria. Equity securities include,
but are not limited to, common stock, preferred stock and depositary receipts.
An emerging market country is any country determined
by the Adviser or Sub-adviser to have an emerging market economy,
considering factors such as the country’s credit rating, its political and economic stability and the development of
its financial and capital markets. Emerging market countries include every nation in the world except the United States, the
United Kingdom, Canada, Japan, Australia, New Zealand, Israel, Hong Kong, Singapore and most countries located in Western
Europe. A company is considered to be an emerging market company if Fund management determines that the
company meets one or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in an emerging market country; |
● |
the
company has its principal securities trading market in an emerging market country; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in an emerging market country. |
At times, the Fund may have a significant amount
of its assets invested in a country or geographic region. The Fund currently
anticipates that it will invest a significant amount of its assets in securities economically tied to Mainland China,
including through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect program or by any other available
means. The Fund may invest in securities denominated in U.S. Dollars and currencies of emerging market countries
in which it is permitted to invest. The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest in securities of any market
capitalization.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the financials
and information technology sectors.
Principal
Risks
The
Emerging Markets Sustainable Leaders Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first seven risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Sustainable Investing Risk –
The Fund’s “Sustainable Leaders” strategy could cause it to perform differently compared to funds
that do not have such strategy. ESG considerations may be linked to long-term rather than short-term returns. The criteria
related to the Fund’s Sustainable Leaders strategy, including the exclusion of securities of companies that engage in
certain business activities, may result in the Fund forgoing opportunities to buy certain securities when it might otherwise
be advantageous to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous for
it to do so. In addition, there is a risk that the companies identified as sustainable leaders by the Adviser do not operate as
expected when addressing ESG issues. There are significant differences in interpretations of what it means for a company
to have positive ESG characteristics. While the Adviser believes its definitions are reasonable, the portfolio decisions
it makes may differ with other investors’ or advisers’ views.
Summary
- abrdn Emerging Markets Sustainable Leaders Fund 23
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
China Risk.
Significant exposure to China and Hong Kong securities subjects the Fund to additional risks, and may make
it significantly more volatile than more geographically diverse mutual funds. Additional risks associated with investments
in China and Hong Kong include exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation,
nationalization, exchange control regulations (including currency blockage), trading halts, imposition of tariffs, limitations
on repatriation and differing legal standards. Any spread of an infectious illness, public health threat or similar issue
could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and
generally have a significant impact on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Shanghai-Hong
Kong and Shenzhen-Hong Kong Stock Connect Risk.
Investing in China A shares through Stock Connect
involves various considerations and risks, including, but not limited to, illiquidity risk; currency risk; greater price volatility;
legal and regulatory uncertainty risk; execution risk; operational risk; tax risk; credit risk; and economic, social and
political instability of the stock market in the People’s Republic of China.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Impact of Large Redemptions and Purchases
of Fund Shares – Occasionally,
shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Financials
Sector Risk. To the extent that the financials
sector represents a significant portion of the Fund’s portfolio, the
Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the financials
sector may be adversely impacted by many factors, including, among
others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased
liquidity in credit markets as well as cyber-attacks.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
24 Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Emerging Markets Sustainable Leaders Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges. If the applicable sales charges were included, the annual total returns would
be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average annual total returns to the returns of the MSCI Emerging Markets Index (Net
Daily Total Return), a broad-based securities index.
The Fund changed its investment strategy effective
December 1, 2020 from an international equity strategy to an emerging
markets sustainable leaders strategy. In connection with the change in investment strategy, the Fund changed its
name from the Aberdeen International Equity Fund to Aberdeen Emerging Markets Sustainable Leaders Fund. Performance
information for periods prior to December 1, 2020 does not reflect the Fund’s current investment strategy. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the Fund will perform
in the future. For updated
performance information, please visit https://www.abrdn.com/en-us/us/investor/
fund-centre#literature
or call 866-667-9231.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 17.86%
- 4th
quarter 2020
Summary
- abrdn Emerging Markets Sustainable Leaders Fund 25
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Lowest
Return: -18.04%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
MSCI
Emerging Markets Index (Net Daily Total Return) (reflects
no deduction for fees
or expenses) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Emerging Markets Sustainable Leaders Fund’s investment adviser and abrdn Investments
Limited (“aIL”)
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Nick
Robinson, CFA®
|
Senior
Investment Director |
|
Nina
Petry, CFA®
|
Investment
Manager |
|
Kristy
Fong, CFA®
|
Senior
Investment Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
26 Summary
- abrdn Emerging Markets Sustainable Leaders Fund
Summary
- abrdn Emerging Markets Sustainable Leaders Fund
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Emerging Markets Sustainable Leaders Fund 27
|
|
|
Summary
- abrdn Emerging Markets ex-China Fund
|
|
|
|
abrdn
Emerging Markets ex-China Fund |
|
Objective
The abrdn Emerging Markets ex-China Fund (the
“Emerging Markets ex-China Fund” or the “Fund”) seeks long-term capital
growth.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Emerging Markets
ex-China Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor
and in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver
Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information
on Purchases and Sales — Waiver of
Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional Class
Shares |
Institutional
Service Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases
(as a percentage of offering price) |
|
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage
of offering or sale price, whichever is less)
|
|
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(4)
|
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses |
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(5)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(5) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.99% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services
fees, transfer agent out-of-pocket expenses for Class A shares, Class R shares and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided,
however, that any reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time
the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped
by the Adviser. |
28 Summary
- abrdn Emerging Markets ex-China Fund
Summary
- abrdn Emerging Markets ex-China Fund
Example
This Example is intended to help you compare
the cost of investing in the Emerging Markets ex-China Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000
in the Emerging Markets ex-China Fund for the time periods indicated and then
sell all of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses
remain the same (taking
into account the contractual limitation until its expiration, which impacts the 1-Year figures
listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$705
|
$1,158
|
$1,637
|
$2,954
|
CLASS
C SHARES |
$303
|
$848
|
$1,517
|
$3,308
|
CLASS
R SHARES |
$172
|
$722
|
$1,299
|
$2,867
|
INSTITUTIONAL
CLASS SHARES |
$102
|
$537
|
$998
|
$2,276
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$111
|
$539
|
$994
|
$2,254
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$203
|
$848
|
$1,517
|
$3,308
|
Portfolio
Turnover
The Emerging Markets ex-China Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 36.00%
of the average value of its portfolio.
Principal
Strategies
The Emerging Markets ex-China Fund will invest
primarily in common stocks, but may also invest in other types of equity securities,
including, but not limited to, preferred stock and depositary receipts. As a non-fundamental policy, under normal
circumstances, the Fund invests at least 80% of the value of its net assets, plus any borrowings for investment purposes,
in equity securities of emerging market (excluding China) companies. An emerging market (excluding China) country
is any country determined by the Adviser or abrdn Investments Limited (the
“Sub-adviser”) to have an emerging market
economy, considering factors such as the country’s credit rating, its political and economic stability and the development
of its financial and capital markets. Emerging market (excluding China) countries include every nation in the
world except the United States, United Kingdom, Canada, Japan, Australia, New Zealand, Israel, Hong Kong, Singapore and
most countries located in Western Europe. A company is considered to be an emerging market company if Fund management
determines that the company meets one or more of the following criteria:
● |
the
company is organized under the laws of or has its principal office in an emerging market country (excluding China);
|
● |
the
company has its principal securities trading market in an emerging market country (excluding China); and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in an emerging market country (excluding China). |
At times, the Fund may have a significant amount
of its assets invested in a country or geographic region. The Fund currently
anticipates that it will invest a significant amount of its assets in securities economically tied to India. The Fund may
invest in securities denominated in U.S. Dollars and currencies of emerging market countries in which it is permitted to
invest. The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest in securities of any market
capitalization, including small and mid-cap securities.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the information
technology and financials sectors.
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-adviser invest in quality companies and are an active,
engaged owners. The Adviser and Sub-adviser evaluate every company against quality criteria and build conviction
using a team-based approach and peer review process. The quality assessment covers five key factors: 1) the durability
of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management,
and 5) the most material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any
Summary
- abrdn Emerging Markets ex-China Fund 29
Summary
- abrdn Emerging Markets ex-China Fund
investment decision made
by the Adviser and Sub-adviser. Through fundamental
research, supported by a global research presence,
the Adviser and Sub-adviser seek to identify companies whose quality and
future prospects are not yet
fully recognized by the market.
Principal
Risks
The
Emerging Markets ex-China Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first six risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
India Risk.
The value of the Fund’s assets may be adversely affected by political, economic, social and religious factors,
changes in Indian law or regulations and the status of India’s relations with other countries. In addition, the economy
of India may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth of gross
domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
The Indian government has exercised and continues to exercise significant influence over many aspects of the economy,
and the number of public sector enterprises in India is substantial. Accordingly, Indian government actions in the
future could have a significant effect on the Indian economy, which could affect private sector companies and the Fund,
market conditions, and prices and yields of securities in the Fund’s portfolio.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
30 Summary
- abrdn Emerging Markets ex-China Fund
Summary
- abrdn Emerging Markets ex-China Fund
Impact of Large Redemptions and Purchases
of Fund Shares – Occasionally,
shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Financials
Sector Risk. To the extent that the financials
sector represents a significant portion of the Fund’s portfolio, the
Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the financials
sector may be adversely impacted by many factors, including, among
others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased
liquidity in credit markets as well as cyber-attacks.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Emerging Markets ex-China Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges. If the applicable sales charges were included, the annual total returns would be lower
than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average
annual total returns to the returns of the MSCI Emerging Markets ex-China Index (Net Daily
Total Return), a broad-based securities index.
The Fund changed its investment strategy effective
February 28, 2022 from a global equity strategy to an emerging markets
ex-China strategy. In connection with the change in investment strategy, the Fund changed its name from Aberdeen
Global Equity Fund to abrdn Emerging Markets ex-China Fund. Performance information for periods prior to February
28, 2022 does not reflect the Fund’s current investment strategy. Remember,
however, that past performance (before and
after taxes) is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please
visit https://www.abrdn.com/en-us/us/investor/
fund-centre#literature#literature
or call 866-667-9231.
Summary
- abrdn Emerging Markets ex-China Fund 31
Summary
- abrdn Emerging Markets ex-China Fund
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 17.54%
- 2nd
quarter 2020
Lowest
Return: -20.39%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
MSCI
Emerging Markets ex-China Index (Net Daily Total Return) (reflects
no deduction for fees,
expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Emerging Markets ex-China Fund’s investment adviser and abrdn Investments Limited
(“aIL”)
serves as the Fund’s sub-adviser.
32 Summary
- abrdn Emerging Markets ex-China Fund
Summary
- abrdn Emerging Markets ex-China Fund
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Kristy
Fong, CFA®
|
Senior
Investment Director |
|
Nick
Robinson, CFA®
|
Senior
Investment Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Emerging Markets ex-China Fund 33
|
|
|
Summary
- abrdn Emerging Markets Fund
|
|
|
|
abrdn
Emerging Markets Fund |
|
Objective
The abrdn Emerging Markets Fund (the “Emerging
Markets Fund” or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Emerging Markets
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional Class
Shares |
Institutional
Service Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases
(as a percentage of offering price) |
|
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage
of offering or sale price, whichever is less)
|
|
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses |
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 1.10% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares, Class R shares and Institutional Service Class shares and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid
by the Adviser, provided, however, that any
reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the
contract at the time the fees were limited
or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
34 Summary
- abrdn Emerging Markets Fund
Summary
- abrdn Emerging Markets Fund
Example
This Example is intended to help you compare
the cost of investing in the Emerging Markets Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Emerging Markets Fund for the time periods indicated and then sell all
of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain
the same (taking into
account the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$728
|
$1,051
|
$1,396
|
$2,366
|
CLASS
C SHARES |
$313
|
$679
|
$1,171
|
$2,526
|
CLASS
R SHARES |
$178
|
$551
|
$949
|
$2,062
|
INSTITUTIONAL
CLASS SHARES |
$112
|
$369
|
$646
|
$1,435
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$127
|
$397
|
$686
|
$1,511
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$213
|
$679
|
$1,171
|
$2,526
|
Portfolio
Turnover
The Emerging Markets Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 30.01%
of the average value of its portfolio.
Principal
Strategies
The Emerging Markets Fund will invest primarily
in common stocks, but may also invest in other types of equity securities, including,
but not limited to, preferred stock and depositary receipts. As a non-fundamental policy, under normal circumstances,
the Fund invests at least 80% of the value of its net assets, plus any borrowings for investment purposes, in equity
securities of emerging market companies. An emerging market country is any country determined by the Adviser or
Sub-adviser to have an emerging market economy, considering factors such as the country’s credit rating, its political and
economic stability and the development of its financial and capital markets. Emerging market countries include every
nation in the world except the United States, the United Kingdom, Canada, Japan, Australia, New Zealand, Israel, Hong
Kong, Singapore and most countries located in Western Europe. A company is considered to be an emerging market
company if Fund management determines that the company meets one or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in an emerging market country; |
● |
the
company has its principal securities trading market in an emerging market country; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in an emerging market country. |
At times, the Fund may have a significant amount
of its assets invested in a country or geographic region. The Fund currently
anticipates that it will invest a significant amount of its assets in securities economically tied to Mainland China,
including through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect program or by any other available
means. The Fund may invest in securities denominated in U.S. Dollars and currencies of emerging market countries
in which it is permitted to invest. The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest in securities of any market
capitalization, including small and mid-cap securities.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the financials
and information technology sectors.
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-advisers invest in quality companies and are an
active, engaged owners. The Adviser and Sub-advisers evaluate every company against quality criteria and build conviction
using a team-based approach and peer review process. The quality assessment covers five key factors: 1) the durability
of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management,
and 5) the most material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any
Summary
- abrdn Emerging Markets Fund 35
Summary
- abrdn Emerging Markets Fund
investment decision made
by the Adviser and Sub-advisers. Through fundamental
research, supported by a global research presence,
the Adviser and Sub-advisers seek to identify companies whose quality and
future prospects are not yet
fully recognized by the market.
Principal
Risks
The
Emerging Markets Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first six risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-advisers may make poor security selections.
The Adviser or Sub-advisers and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-advisers may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
China Risk.
Significant exposure to China and Hong Kong securities subjects the Fund to additional risks, and may make
it significantly more volatile than more geographically diverse mutual funds. Additional risks associated with investments
in China and Hong Kong include exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation,
nationalization, exchange control regulations (including currency blockage), trading halts, imposition of tariffs, limitations
on repatriation and differing legal standards. Any spread of an infectious illness, public health threat or similar issue
could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and
generally have a significant impact on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Shanghai-Hong
Kong and Shenzhen-Hong Kong Stock Connect Risk.
Investing in China A shares through Stock Connect
involves various considerations and risks, including, but not limited to, illiquidity risk; currency risk; greater price volatility;
legal and regulatory uncertainty risk; execution risk; operational risk; tax risk; credit risk; and economic, social and
political instability of the stock market in the People’s Republic of China.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or
36 Summary
- abrdn Emerging Markets Fund
Summary
- abrdn Emerging Markets Fund
financial instability. To the extent the Fund
focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Financials
Sector Risk. To the extent that the financials
sector represents a significant portion of the Fund’s portfolio, the
Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the financials
sector may be adversely impacted by many factors, including, among
others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased
liquidity in credit markets as well as cyber-attacks.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Emerging Markets Fund.
The bar chart shows how the Fund’s
annual total returns for the Institutional Class have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the annual total returns would
be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average annual total returns to the returns of the MSCI Emerging Markets Index (Net
Daily Total Return), a broad-based securities index. Remember,
however, that past performance (before and after taxes)
is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please
visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
Class A, Class C and Class R returns prior to
the commencement of operations of Class A, Class C and Class R (inception date:
May 21, 2012) are based on the previous performance of the Fund’s Institutional Class shares. Excluding the effect of
any fee waivers or reimbursements, this performance is substantially similar to what each individual class would have produced
because all classes invest in the same portfolio of securities. Returns would only differ to the extent of the differences
in expenses between the two classes.
Summary
- abrdn Emerging Markets Fund 37
Summary
- abrdn Emerging Markets Fund
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
Highest
Return: 25.95%
- 4th
quarter 2020
Lowest
Return: -26.14%
- 1st
quarter 2020
After-tax
returns are shown in the following table for the Institutional Class shares only and will vary for other classes. After-tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not
reflect the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may
differ from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
MSCI
Emerging Markets Index (Net Daily Total Return) (reflects
no deduction for fees
or expenses) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Emerging Markets Fund’s investment adviser and abrdn Asia Limited (“aAL”)
and abrdn Investments Limited (“aIL”)
serve as the Fund’s sub-advisers.
38 Summary
- abrdn Emerging Markets Fund
Summary
- abrdn Emerging Markets Fund
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Kristy
Fong, CFA® |
Senior
Investment Director |
|
Joanne
Irvine |
Deputy
Head of Global Emerging Markets |
|
Devan
Kaloo |
Global
Head of Public Markets |
|
Nick
Robinson, CFA®
|
Senior
Investment Director |
|
* |
Includes
Predecessor Fund (inception date: May 11, 2007) |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Emerging Markets Fund 39
|
|
|
Summary
- abrdn Infrastructure
Debt Fund |
|
|
|
abrdn
Infrastructure Debt Fund |
|
Objective
The abrdn Infrastructure
Debt Fund (formerly, abrdn Global Absolute Return Strategies Fund) (the “Infrastructure Debt Fund”
or the “Fund”) seeks a high level of current income with a secondary objective of capital appreciation.
Fees
and Expenses of the Fund
This table describes the
fees and expenses that you may pay when you buy, hold and sell shares of the Fund. You
may qualify for sales
charge discounts if you and your family invest, or agree to invest in the future, at least $100,000
in abrdn Funds.
More information about these and other discounts is available from your financial advisor and in the “Reduction and
Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies” sections on pages 164 and 221 of
the Fund’s prospectus,
respectively, and in the “Additional Information on Purchases and Sales — Waiver of Class A and Class A1 Sales Charges”
and “Reduction of Sales Charges” sections on pages 110 and 111 of the Fund’s Statement of Additional Information,
respectively. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries,
which are not reflected in the table and example below.
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares
|
Institutional
Class Shares
|
Institutional
Service Class
Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering
price) |
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price,
whichever is less) |
|
|
|
Small
Account Fee(2)
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
Other
Expenses |
|
|
|
Acquired
Fund Fees and Expenses(3)
|
|
|
|
Total
Annual Fund Operating Expenses(4)
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(5)
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(4)
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class
A shares redeemed within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the
quarterly fee. See the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
Acquired
fund fees and expenses are indirect fees and expenses that the Fund incurs from investing in the shares of other mutual funds, including
money market funds and
exchange traded funds. |
(4) |
The
Total Annual Fund Operating Expenses and Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate
to the Fund’s
Ratio of Expenses (Prior to Reimbursements) to Average Net Assets and Ratio of Expenses to Average Net Assets, respectively, included
in the Fund’s
Financial Highlights in the Fund’s prospectus, as those ratios do not reflect indirect expenses, such as Acquired Fund Fees and
Expenses. |
(5) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.65% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services
fees, transfer agent out-of-pocket expenses for Class A shares and Institutional Service Class shares and extraordinary expenses. The
Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid by the Adviser,
provided, however, that
any reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees or reimbursed the
expenses and the reimbursements
do not cause a Class to exceed the lesser of the applicable expense limitation in the contract at the time the fees were
limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
Example
This Example is intended
to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
40 Summary
- abrdn Infrastructure Debt Fund
Summary
- abrdn Infrastructure Debt Fund
The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same (taking
into account the contractual limitation until its expiration, which impacts the 1-Year figures listed below). Although
your actual costs may
be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$405
|
$720
|
$1,058
|
$2,010
|
INSTITUTIONAL
CLASS SHARES |
$68
|
$337
|
$626
|
$1,450
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$81
|
$349
|
$638
|
$1,460
|
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher
portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held
in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect
the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 140.60%
of the average value
of its portfolio investment.
Principal
Strategies
Under normal circumstances,
at least 80% of the Fund’s net assets (plus the amount of any borrowings for investment purposes)
will be invested in U.S. and non-U.S. infrastructure-related debt issuers and/or securities intended primarily to finance
infrastructure-related activities. Infrastructure-related securities include securities issued to finance any assets or projects
that support the operation, function, growth or development of a community or economy.
The infrastructure investments
in which the Fund may invest include, without limitation, fixed or floating-rate debt instruments,
loans or other income-producing instruments issued:
● |
by
companies or other issuers to finance (or re-finance) the ownership, development, construction, maintenance, renovation,
enhancement, or operation of infrastructure assets; |
● |
by
companies or other issuers that invest in, own, lease or hold infrastructure assets; and |
● |
by
companies or other issuers that operate infrastructure assets or provide services, products or raw materials related to
the development, construction, maintenance, renovation, enhancement or operation of infrastructure assets. |
The Fund may hold instruments
issued by a wide range of entities including, among others, operating companies, holding companies,
special purpose vehicles, including vehicles created to hold or finance infrastructure assets, municipal issuers,
and governments and government agencies, authorities or instrumentalities.
The infrastructure assets
to which the Fund may have exposure through its investments include, without limitation, assets related
to:
● |
transportation
(e.g., airports, metro systems, subways, railroads, ports, toll roads); |
● |
transportation
equipment (e.g., shipping, aircraft, railcars, containers); |
● |
electric
utilities and power (e.g., power generation, transmission and distribution); |
● |
energy
(e.g., exploration and production, pipeline, storage, refining and distribution of energy), including renewable energies
(e.g., wind, solar, hydro, geothermal); |
● |
communication
networks and equipment; |
● |
water
and sewage treatment; |
● |
social
infrastructure (e.g., health care facilities, government buildings and other public service facilities); and |
● |
metals,
mining, and other resources and services related to infrastructure assets (e.g., cement, chemical companies). |
The Fund may invest up
to 20% of its assets on non-infrastructure-related securities.
For purposes of the Fund’s
80% policy, debt securities include fixed income securities of any type; however, the Fund intends
to invest primarily in municipal debt and corporate debt, with municipal debt comprising no less than 50% of its assets,
and typically approximately 60% of its assets.
Generally, the Fund intends
to invest in bonds issued by both domestic and foreign issuers, including foreign issuers from emerging
market countries. While the Fund’s investments will generally be denominated in U.S. dollars, the Fund may also invest
in non-dollar denominated instruments.
The Fund may also invest
in securities having a variable or floating interest rate. The Fund may invest in fixed-income securities
of any maturity or duration.
Under normal market conditions,
the Fund will maintain a weighted average credit rating of “BBB–” or above by Standard &
Poor’s Rating Service (“S&P”), or “Baa3” or above by Moody’s Investors Service, Inc. (“Moody’s”),
or a comparable rating by
another nationally recognized statistical rating organization. Although the Fund typically invests in investment grade
Summary
- abrdn Infrastructure Debt Fund 41
Summary
- abrdn Infrastructure Debt Fund
debt, the Fund may also
invest in high income producing instruments, rated at the time of purchase below “BBB–” by S&P, or
below “Baa3” by Moody’s, or below a comparable rating by another nationally recognized statistical rating organization,
or unrated bonds determined by the Adviser to be of comparable quality. Split rate bonds will be considered to
have the higher credit rating. The Fund may invest in securities rated in the lowest ratings category or in default (i.e., “junk
bonds”, which are speculative).
The Fund’s investments
may include bonds that are labeled as social, sustainability or green.
In selecting investments
for the Fund, the Adviser and Sub-adviser examine the material risks of an investment across a spectrum
of considerations including financial metrics, regional and national conditions and industry specific factors. The Adviser
and Sub-adviser will also consider the most material potential ESG (Environmental, Social and Governance) risks and
opportunities impacting issuers, where relevant. As ESG information is just one investment consideration, ESG considerations
generally are not solely determinative in any investment decision made by the Adviser and Sub-adviser. The
materiality of ESG factors to the investment process varies across issuers and instrument types.
In selecting the Fund’s
municipal debt securities, the Adviser and Sub-adviser generally look for a wide range of U.S. issuers
and securities that provide high current income, including unrated bonds and securities of smaller issuers that offer
high current income and might be overlooked by other investors and funds. The Adviser and Sub-adviser also focus on
securities with coupon interest or accretion rates, current market interest rates, callability and call prices that might change
the effective maturity of particular securities. The Adviser and Sub-adviser may consider selling a security if any of
these factors no longer applies to a security purchased for the Fund, but is not required to do so.
In selecting the Fund’s
corporate debt securities, the Adviser and Sub-adviser seek to invest in securities of issuers that are
expected to exhibit stable to improving credit characteristics based on industry trends, company positioning, and management
strategy, taking into account the potential positive impact of any restructurings or other corporate reorganizations.
The Fund may use derivatives
under certain market conditions to manage duration and to hedge currency exposure. The
Fund expects that derivative instruments will include the purchase and sale of U.S. treasury futures contracts and forward
foreign exchange contracts.
All distributions by the
Fund, including any distributions derived from tax-exempt municipal obligations, may be includible in
taxable income for purposes of the federal alternative minimum tax. The Fund does not seek to provide income exempt
from federal income tax.
Principal
Risks
The
Infrastructure Debt Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Infrastructure Debt Fund’s investments – and therefore, the value of Fund shares –
may fluctuate. The following
is a list of the principal risks of investing in the Fund (in alphabetical order after the first eight risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Fixed Income Securities
Risk – Fixed
income securities fluctuate in price based on changes in an issuer’s financial condition and
overall market and economic conditions. The value of a fixed income security may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. Fixed income securities are subject to, among
other risks, credit risk, extension risk, issuer risk, interest rate risk, market risk and prepayment risk.
Active Management Risk
– The Fund is subject to the risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Infrastructure-Related
Investments Risk
– Because the Fund concentrates its investments in infrastructure-related entities, the
Fund has greater exposure to the potential adverse economic, regulatory, political and other changes affecting such entities.
Infrastructure related entities are subject to a variety of factors that may adversely affect their business or operations,
including high interest costs in connection with capital construction programs, costs associated with environmental
and other regulations, the effects of economic slowdown and surplus capacity, increased competition from
other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy
conservation policies and other factors. Additionally, infrastructure-related entities may be subject to regulation by
various governmental authorities and may also be affected by governmental regulation of rates charged to customers,
service interruption due to environmental, operational or other mishaps, the imposition of special tariffs and changes
in tax laws, regulatory policies and accounting standards.
42 Summary
- abrdn Infrastructure Debt Fund
Summary
- abrdn Infrastructure Debt Fund
Municipal Securities
Risk - Municipal
bonds can be significantly affected by political and economic changes, including inflation,
as well as uncertainties in the municipal market related to taxation, legislative changes, or the rights of municipal security
holders. Municipal bonds have varying levels of sensitivity to changes in interest rates. Interest rate risk is generally lower
for shorter-term Municipal bonds and higher for long term Municipal bonds.
Municipal
Bond Tax Risk - A
municipal bond that is issued as tax-exempt may later be declared to be taxable. In addition,
if the federal income tax rate is reduced, the value of the tax exemption may be less valuable, causing the value of
a municipal bond to decline.
Municipal
Market Volatility and Illiquidity Risk -
The municipal bond market can be susceptible to unusual volatility, particularly
for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic
conditions or credit tightening. During times of reduced market liquidity, the Fund may not be able to readily sell
bonds without the sale significantly changing the market value of the bond. If the Fund needed to sell large blocks of bonds
to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
Municipal
Sector Risk - From
time to time the Fund may invest a substantial amount of its assets in municipal securities
whose interest is paid solely from revenues of similar projects. If the Fund concentrates its investments in this manner,
it assumes the economic risks relating to such projects and this may have a significant impact on the Fund’s investment
performance.
High-Yield Bonds and
Other Lower-Rated Securities Risk –
The Fund’s investments in high-yield bonds (commonly referred to
as “junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. Investments in high–yield
bonds are speculative and issuers of these securities are generally considered to be less financially secure and less able
to repay interest and principal than issuers of investment-grade securities. Prices of high-yield bonds tend to be very volatile.
These securities are less liquid than investment-grade debt securities and may be difficult to price or sell, particularly
in times of negative sentiment toward high-yield securities.
Green, Social and Sustainability
Bond Risk –
The Fund’s performance may differ from the performance of other funds that do
not invest green, social and sustainability bonds because the Fund’s investment strategy may select or exclude securities
of certain issuers for reasons in addition to performance. Investing in green, social and sustainability bonds is qualitative
and subjective by nature, and there is no guarantee that the factors utilized by the Adviser or any judgment exercised
by the Adviser will reflect the opinions of any particular investor.
Bank Loan Risk –
There are a number of risks associated with an investment in bank loans including credit risk, interest rate risk,
illiquid securities risk, and prepayment risk. There is also the possibility that the collateral securing a loan, if any, may be
difficult to liquidate or be insufficient to cover the amount owed under the loan. Bank loans have significantly longer settlement
periods (e.g., longer than seven days) than more traditional investments resulting in the proceeds from the sale
of such loans not being readily available to make additional investments or to meet a Fund’s redemption obligations. In
addition, loans are not registered under the federal securities laws like stocks and bonds, so investors in loans have less protection
against improper practices than investors in registered securities. These risks could cause the Fund to lose income
or principal on a particular investment, which in turn could affect the Fund’s returns.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Derivatives Risk (including
Options, Futures and Swaps) –
Derivatives are speculative and may hurt the Fund’s performance.
The potential benefits to be derived from the Fund’s options, futures and derivatives strategy are dependent
upon the portfolio managers’ ability to discern pricing inefficiencies and predict trends in these markets, which
decisions could prove to be inaccurate.
Speculative
Exposure Risk –
To the extent that a derivative or practice is not used as a hedge, the Fund is directly exposed
to its risks. Gains or losses from speculative positions in a derivative may be much greater than the derivative’s original
cost. For example, potential losses from writing uncovered call options and from speculative short sales are unlimited.
Hedged
Exposure Risk –
Losses generated by a derivative or practice used by the Fund for hedging purposes should be
substantially offset by gains on the hedged investment. However, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Correlation
Risk – The
Fund is exposed to the risk that changes in the value of a hedging instrument will not match those
of the investment being hedged.
Counterparty
Risk – Derivative
transactions depend on the creditworthiness of the counterparty and the counterparty’s
ability to fulfill its contractual obligations.
Summary
- abrdn Infrastructure Debt Fund 43
Summary
- abrdn Infrastructure Debt Fund
Other
Derivatives Risks
– Fixed income derivatives are subject to interest rate risk. In addition, certain derivatives may
be subject to illiquid securities risk, mispricing or valuation complexity, market risk and management risk. The Fund may
need to sell portfolio securities at inopportune times to satisfy margin or payment obligations under derivatives investments.
Changes in regulation relating to the Fund’s use of derivatives and related instruments could potentially limit or
impact the Fund’s ability to invest in derivatives, limit the Fund’s ability to employ certain strategies that use derivatives
and/or adversely affect
the value of derivatives and the Fund’s performance.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Currency Exposure
Risk – The
value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk
– Foreign
countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid and relatively less liquid securities may also be difficult
to value. Over recent years, the capacity of dealers to make markets in fixed income securities has been outpaced
by the growth in the size of the fixed income markets. Illiquid securities risk may be magnified in a rising interest rate
environment or when investor redemptions from fixed income funds may be higher than normal, due to the increased
supply in the market that would result from selling activity.
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Interest Rate Risk –
The Fund’s fixed income investments are subject to interest rate risk, which generally causes the value of
a fixed income portfolio to decrease when interest rates rise resulting in a decrease in the Fund’s net assets. Interest rate
fluctuations tend to have a greater impact on fixed income-securities with a greater time to maturity and/or lower coupon.
A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with
a shorter average portfolio duration. In periods of market volatility, the market values of fixed income securities may be
more sensitive to changes in interest rates.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater
44 Summary
- abrdn Infrastructure Debt Fund
Summary
- abrdn Infrastructure Debt Fund
than expected loss or lesser
than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
Variable and Floating
Rate Securities Risk –
For floating and variable rate obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an interest payment of such an obligation,
which could harm or benefit the Fund, depending on the interest rate environment or other circumstances. Variable
rate demand obligations (“VRDOs”) are floating rate securities that combine an interest in a long term municipal bond
with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution
is unable to pay, the Fund may lose money.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Fund.
The bar chart shows how the Fund’s annual
total returns for Institutional Service Class have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the annual total returns would be lower than
those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the
Fund’s average annual total returns to the returns of the Bloomberg U.S. Aggregate Bond Index, a broad-based
securities index, and the ICE BofA Merrill Lynch 3-Month US Treasury Note Index, the Fund’s prior performance
benchmark. Remember,
however, that past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment
objective and strategies effective August 18, 2023, November 15, 2019 and August 15, 2016.
In connection with the changes effective August 18, 2023, the Fund transitioned from an “absolute return” strategy with
a global focus to a focus on U.S. and non-U.S. infrastructure-related debt. Performance information for periods prior to
August 18, 2023, November 15, 2019 and August 15, 2016 reflect different investment strategies.
In connection with the
change in investment objective and strategy on August 18, 2023, the Fund changed its name from abrdn
Global Absolute Return Strategies Fund to abrdn Infrastructure Debt Fund, and changed its benchmark index from the
ICE BofA Merrill Lynch 3-Month U.S. Treasury Note Index to the Bloomberg U.S. Aggregate Bond Index to provide a more
meaningful comparison given the Fund’s new investment strategies and holdings. Pursuant to federal rules and regulations,
the ICE BofA Merrill Lynch 3-Month U.S. Treasury Note Index will continue to be shown for twelve months following
its removal as the Fund’s primary benchmark. In connection with the change in investment objective and strategy
on November 15, 2019, the Fund changed its name from Aberdeen Global Unconstrained Fixed Income Fund to Aberdeen
Global Absolute Return Strategies Fund. In connection with the change in investment objective and strategy on August
15, 2016, the Fund changed its name from Aberdeen Global Fixed Income Fund to Aberdeen Global Unconstrained
Fixed Income Fund.
Summary
- abrdn Infrastructure Debt Fund 45
Summary
- abrdn Infrastructure Debt Fund
Annual
Total Returns – Institutional Service Class Shares
(Years
Ended Dec. 31)
Highest
Return: 6.93%
- 4th
quarter 2023
Lowest
Return: -5.24%
- 1st
quarter 2022
After-tax
returns are shown in the following table for Institutional Service Class shares only and will vary for other classes. After-tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not
reflect the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may
differ from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – After Taxes on Distributions |
|
|
|
Institutional
Service Class shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Bloomberg
U.S. Aggregate Bond Index (reflects
no deduction for fees, expenses or taxes)
|
|
|
|
ICE
BofA Merrill Lynch 3-Month US Treasury Note Index (reflects no deduction for fees,
expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Infrastructure Debt Fund’s investment adviser and abrdn Investments Limited (“aIL”)
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Infrastructure Debt Fund is managed using a team-based approach, with the following team members being jointly and
primarily responsible for the day-to-day management of the Infrastructure Debt Fund:
46 Summary
- abrdn Infrastructure Debt Fund
Summary
- abrdn Infrastructure Debt Fund
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Matthew
Kence |
Investment
Director |
|
Jonathan
Mondillo |
Head
of U.S. Fixed Income |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Infrastructure Debt Fund 47
|
|
|
Summary
- abrdn International Small Cap Fund
|
|
|
|
abrdn
International Small Cap Fund |
|
Objective
The abrdn International Small Cap Fund (the
“International Small Cap Fund” or the “Fund”) seeks long-term growth of capital.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the International Small
Cap Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Class
R Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage
of offering price) |
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering
or sale price, whichever is less) |
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
Other
Expenses |
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.99% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares and Class R shares and extraordinary expenses. The Trust is authorized
to reimburse the Adviser for management fees previously limited and/or for expenses previously paid by the Adviser, provided, however,
that any reimbursements must be paid at a
date not more than three years after the date when the Adviser limited the fees or reimbursed the expenses and the
reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the contract at the time the fees were
limited or expenses are paid or the applicable
expense limitation in effect at the time the expenses are being recouped by the Adviser. |
48 Summary
- abrdn International Small Cap Fund
Summary
- abrdn International Small Cap Fund
Example
This Example is intended to help you compare
the cost of investing in the International Small Cap Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$704
|
$1,005
|
$1,328
|
$2,240
|
CLASS
C SHARES |
$302
|
$693
|
$1,210
|
$2,631
|
CLASS
R SHARES |
$163
|
$536
|
$935
|
$2,050
|
INSTITUTIONAL
CLASS SHARES |
$101
|
$369
|
$657
|
$1,478
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$202
|
$693
|
$1,210
|
$2,631
|
Portfolio
Turnover
The International Small Cap Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when
Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or
in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was
35.89%
of the average value of its portfolio.
Principal
Strategies
The International Small Cap Fund seeks to achieve
its objective by investing primarily in equity securities of small non-U.S. companies.
Equity securities include, but are not limited to, common stock, preferred stock and depositary receipts. As a non-fundamental
policy, under normal market conditions, the Fund will invest at least 80% of the value of its net assets, plus
any borrowings for investment purposes, in equity securities of non-U.S. small companies. For purposes of the Fund’s 80%
policy, a company is considered to be a non-U.S. company if Fund management determines that the company meets
one or more of the following criteria:
● |
the
company is organized under the laws of or has its principal office in a country outside the U.S.; |
● |
the
company has its principal securities trading market in a country outside the U.S.; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in a country outside the U.S. |
The Fund considers a “small” company
to be one whose market capitalization is within the range of capitalizations of companies
in the MSCI All Country World ex-USA Small Cap Index at the time of purchase. As of December 31, 2023,
the MSCI All Country World ex-USA Small Cap
Index included companies with market capitalizations up to $9.80
billion.
Some companies may outgrow the definition of
a small company or may no longer fall within the range of a reconstituted
index after the Fund has purchased their securities. These companies will continue to be considered small for
purposes of the Fund’s minimum 80% allocation to small company equities. In addition, the Fund may invest in companies
of any size once the Fund’s 80% policy is met. As a result, the Fund’s average market capitalization may sometimes
exceed that of the largest company in the MSCI All Country World ex-USA Small Cap Index.
Under normal circumstances, a number of countries
around the world will be represented in the Fund’s portfolio, some of which
may be considered to be emerging market countries. At times, the Fund may have a significant amount of its assets
invested in a country or geographic region. The Fund currently anticipates that it will invest a significant amount of its
assets in securities economically tied to Japan.
The Fund may invest in securities denominated
in U.S. Dollars and the currencies of the foreign countries in which it may invest.
The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the industrials
and information technology sectors.
● |
up
to 20% of net assets in debt securities; |
Summary
- abrdn International Small Cap Fund 49
Summary
- abrdn International Small Cap Fund
● |
up
to 10% of net assets in private funds that invest in private equity and in venture-capital companies; |
● |
up
to 35% of net assets in emerging markets securities; and |
● |
without
limit in foreign securities. |
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-adviser (together, the “Advisers”) select stocks for
the Fund using the portfolio management team’s quality, growth and momentum approach, which aims to identify companies
that, in the Advisers’ view, exhibit a range of high-quality characteristics, the ability to deliver sustainable, multi-year
growth and upwards momentum. When assessing quality, the Adviser and Sub-adviser evaluate every company
against quality criteria and build conviction using a team-based approach and peer review process. The quality
assessment covers five key factors: 1) the durability of the business model, 2) the attractiveness of the industry, 3) the
strength of financials, 4) the capability of management, and 5) the most material environmental, social and governance
(“ESG”) factors impacting a company. As
ESG information is just one investment consideration, ESG considerations
generally are not solely determinative in any investment decision made by the Advisers. In
assessing the growth outlook for stocks, the
Advisers consider the industry backdrop, as well as management’s strategy to drive sales and
profitability over the medium to long term. When looking at momentum, the Advisers consider both price momentum
and earnings momentum. The investment team generally allows the weight of stocks with positive price and earnings
momentum, which also meet its quality and growth criteria, to increase.
Principal
Risks
The
International Small Cap Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first eight risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
50 Summary
- abrdn International Small Cap Fund
Summary
- abrdn International Small Cap Fund
Japan Risk.
The Japanese economy is heavily dependent upon international trade and may be subject to considerable
degrees of economic, political and social instability, which could negatively affect the Fund. The Japanese yen
has fluctuated widely during recent periods and may be affected by currency volatility elsewhere in Asia, especially Southeast
Asia. In addition, the yen has had a history of unpredictable and volatile movements against the U.S. dollar. The performance
of the global economy could have a major impact upon equity returns in Japan. Since the mid-2000s, Japan’s
economic growth has remained relatively low. A recent economic recession was likely compounded by an unstable
financial sector, low domestic consumption, and certain corporate structural weaknesses, which remain some of
the major issues facing the Japanese economy. Japan has also experienced natural disasters, such as earthquakes and
tidal waves, of varying degrees of severity, which could negatively affect the Fund.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Mid-Cap Securities Risk
– Securities
of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Summary
- abrdn International Small Cap Fund 51
Summary
- abrdn International Small Cap Fund
Performance
The
bar chart and table below can help you evaluate potential risks of the International Small Cap Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges. If the applicable sales charges were included, the annual total returns would be lower than
those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
The table compares the Fund’s average
annual total returns to the returns of the MSCI AC
World Ex USA Index (Net Total Return),
a broad-based securities index, and the MSCI All
Country World ex-USA Small Cap Index (Net Daily Total Return). Effective
February 29, 2024, in anticipation of new regulatory requirements, the Fund’s broad-based securities market index
has changed from the MSCI All Country World ex-USA Small Cap Index (Net Daily Total Return) to the MSCI AC World
Ex USA Index (Net Total Return) in the Fund’s total return table. Remember,
however, that past performance (before and
after taxes) is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please
visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment strategy effective
February 29, 2016. Performance information for periods prior to February
29, 2016 does not reflect the current investment strategy. In connection with the change in investment strategy, the
Fund changed its name from Aberdeen Global Small Cap Fund to Aberdeen International Small Cap Fund.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 26.44%
- 2nd
quarter 2020
Lowest
Return: -25.81%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
52 Summary
- abrdn International Small Cap Fund
Summary
- abrdn International Small Cap Fund
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Class
R shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
MSCI
AC World Ex USA Index (Net Total Return) (reflects no deduction for fees, expenses
or taxes) |
|
|
|
MSCI
AC World Ex USA Small Cap Index (Net Total Return) (reflects
no deduction for fees,
expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the International Small Cap Fund’s investment adviser and abrdn Investments Limited
(“aIL”)
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Kirsty
Desson |
Investment
Director |
|
Liam
Patel |
Investment
Analyst Asia/GEM |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
CLASS
R SHARES |
To
open an account |
No
Minimum |
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Summary
- abrdn International Small Cap Fund 53
Summary
- abrdn International Small Cap Fund
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
54 Summary
- abrdn International Small Cap Fund
|
|
|
Summary
- abrdn Intermediate Municipal Income Fund
|
|
|
|
abrdn
Intermediate Municipal Income Fund |
|
Objective
The abrdn Intermediate Municipal Income Fund
(the “Intermediate Municipal Income Fund” or the “Fund”) seeks a high level
of current income that is exempt from federal income taxes.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Intermediate Municipal
Income Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $100,000
in abrdn Funds. More information
about these and other discounts is available from your financial
advisor and in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge
Waiver Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information
on Purchases and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections
on pages 110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such
as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example
below.
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares
|
Institutional
Class Shares
|
Institutional
Service Class
Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage
of offering price) |
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or
sale price, whichever is less) |
|
|
|
Small
Account Fee(2)
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
Other
Expenses |
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(3)
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 0.75%
will be charged on Class A shares redeemed
within 12 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.50% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services fees, transfer agent
out-of-pocket expenses for Class A shares and Institutional Service Class shares and extraordinary expenses. The
Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid by the Adviser,
provided, however, that any reimbursements
must be paid at a date not more than three years after the date when the Adviser limited the fees or reimbursed the expenses
and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation in the contract at the time the
fees were limited or expenses are paid or
the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
Summary
- abrdn Intermediate Municipal Income Fund 55
Summary
- abrdn Intermediate Municipal Income Fund
Example
This Example is intended to help you compare
the cost of investing in the Intermediate Municipal Income Fund with the cost
of investing in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$330
|
$589
|
$868
|
$1,664
|
INSTITUTIONAL
CLASS SHARES |
$52
|
$263
|
$491
|
$1,148
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$52
|
$257
|
$478
|
$1,115
|
Portfolio
Turnover
The Intermediate Municipal Income Fund pays
transaction costs, such as commissions, when it buys and sells securities (or
“turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating
expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio
turnover rate was 79.85%
of the average value of its portfolio.
Principal
Strategies
As a fundamental policy, under normal circumstances,
the Fund invests at least 80% of the value of its net assets, plus any borrowings
for investment purposes, in investment grade fixed income securities that qualify as tax-exempt municipal obligations.
Tax-exempt municipal obligations include municipal obligations that pay interest that is free from U.S. federal income
tax. These obligations are issued by states, U.S. territories and their political subdivisions, such as counties, cities and
towns. For purposes of the Fund’s 80% policy, the Fund may, but is not required to, sell a security whose rating falls below
investment grade.
Under normal market circumstances, the Fund
will maintain an investment portfolio with a weighted average effective duration
of 4 – 7 years and a dollar-weighted average maturity of more than 3 years but less than 10 years. However, the Fund
can buy securities of any maturity. The Adviser expects to increase or decrease the portfolio’s effective duration based
on its outlook for the market and interest rates. Duration measures the sensitivity of bond prices to changes in interest
rates. The longer the duration of a bond, the longer it will take to repay the principal and interest obligations and the
more sensitive it will be to changes in interest rates. Because of events affecting the bond markets and interest rate changes,
the duration of the portfolio may not meet the target at all times.
The Fund may invest in specific types of municipal
obligations, including tax-exempt zero-coupon securities, auction rate securities,
floating- and variable-rate bonds and tender option bonds. Tender option bonds are created when a holder deposits
tax-exempt or other bonds into a special purpose trust (“TOB trust”). The TOB trust issues two types of securities: floating
rate notes (“floaters” or “TOBs”) and a residual security junior to the floaters (“inverse floaters”).
The TOB trust would sell the floater and the
Fund would retain the inverse floater.
The Fund may invest, without limitation, in
municipal obligations whose interest income is a tax-preference item for purposes
of the federal alternative minimum tax.
The Fund may invest in municipal obligations
of any state, city, county or other governmental entity. The Fund currently anticipates
that it will have significant exposure to Texas and New York municipal securities.
Additionally, up to 20% of the Fund’s
net assets may be invested in fixed income securities that qualify as tax-exempt municipal
obligations that are considered below investment grade (sometimes referred to as “junk bonds” or high yield securities).
A bond is considered below investment grade if rated below investment grade by Moody’s Investors Services, Inc.
(“Moody’s”) (below Baa3), S&P Global Ratings (“S&P”) (below BBB-), or Fitch, Inc. (“Fitch”)
(below BBB-) or, if unrated, determined by
the Adviser to be of comparable quality. In the event that a security receives different ratings from different
nationally recognized statistical rating organizations (“NRSROs”), the Adviser will treat the security as being rated in
the highest rating category received from an NRSRO.
In selecting securities for the Fund, the Adviser
employs an opportunistic approach that takes advantage of changing market
conditions. The Adviser’s process focuses on credit market, sector, security and yield curve analysis. The Adviser also
examines the material risks of an investment across a spectrum of considerations including financial metrics, regional
and national conditions and industry specific factors. The Adviser may also consider the most material potential ESG
(Environmental, Social and Governance) risks and opportunities impacting issuers, where relevant. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser. The relevance
of ESG factors to the investment process varies across issuers and
instrument types.
56 Summary
- abrdn Intermediate Municipal Income Fund
Summary
- abrdn Intermediate Municipal Income Fund
A security may be sold to take advantage of
more favorable opportunities.
Principal
Risks
The
Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first six
risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Fixed Income Securities Risk –
Fixed income securities fluctuate
in price based on changes in an issuer’s financial condition and
overall market and economic conditions. The value of a fixed income security may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. Fixed income securities are
subject to, among other risks, credit risk,
extension risk, issuer risk, interest rate risk, market risk and prepayment risk.
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Municipal Securities Risk
– Municipal bonds can be significantly affected by political and economic changes, including inflation,
as well as uncertainties in the municipal market related to taxation, legislative changes, or the rights of municipal security
holders. Municipal bonds have varying levels of sensitivity to changes in interest rates. Interest rate risk is generally lower
for shorter-term Municipal bonds and higher for long term Municipal bonds.
Municipal
Bond Tax Risk – A municipal bond
that is issued as tax-exempt may later be declared to be taxable. In addition,
if the federal income tax rate is reduced, the value of the tax exemption may be less valuable, causing the value of
a municipal bond to decline.
Municipal
Market Volatility and Illiquidity Risk
– The municipal bond market can be susceptible to unusual volatility, particularly
for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic
conditions or credit tightening. During times of reduced market liquidity, the Fund may not be able to readily sell
bonds without the sale significantly changing the market value of the bond. If the Fund needed to sell large blocks of bonds
to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
Municipal
Sector Risk – From time to time
the Fund may invest a substantial amount of its assets in municipal securities
whose interest is paid solely from revenues of similar projects. If the Fund concentrates its investments in this manner,
it assumes the economic risks relating to such projects and this may have a significant impact on the Fund’s investment
performance.
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid and relatively less liquid securities may also be difficult
to value. Over recent years, the capacity of dealers to make markets in fixed income securities has been outpaced
by the growth in the size of the fixed income markets. Illiquid securities risk may be magnified in a rising interest rate
environment or when investor redemptions from fixed income funds may be higher than normal, due to the increased
supply in the market that would result from selling activity.
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Impact of Large Redemptions
and Purchases of Fund Shares –
Occasionally, shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Auction Rate Securities
Risk - Auction rate
securities are variable rate bonds whose interest rates are reset at specified intervals
through a “Dutch” auction process. A “Dutch” auction is a competitive bidding process designed to determine
a single uniform clearing
rate that enables purchases and sales of the auction rate securities to take place at par. All
Summary
- abrdn Intermediate Municipal Income Fund 57
Summary
- abrdn Intermediate Municipal Income Fund
accepted bids and holders
of the auction rate securities receive the same rate. Auction rate securities holders rely on the liquidity
generated by the auction. There is a risk that an auction will fail due to insufficient demand for the securities. If an auction
fails, an auction rate security may become illiquid until a subsequent successful auction is conducted, the issuer redeems
the issue, or a secondary market develops.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
High-Yield Bonds and Other Lower-Rated Securities
Risk – The Fund’s investments
in high-yield bonds (commonly referred to
as “junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. Investments in high–yield
bonds are speculative and issuers of these securities are generally considered to be less financially secure and less able
to repay interest and principal than issuers of investment-grade securities. Prices of high-yield bonds tend to be very volatile.
These securities are less liquid than investment-grade debt securities and may be difficult to price or sell, particularly
in times of negative sentiment toward high-yield securities.
Interest Rate Risk
– The Fund’s fixed income investments are subject to interest rate risk, which generally causes the value of
a fixed income portfolio to decrease when interest rates rise resulting in a decrease in the Fund’s net assets.
For example, if interest rates increase by 1%,
assuming a current portfolio duration of 7 years, and all other factors being equal,
the value of the Fund’s investments would be expected to decrease by 7%.
Interest rate fluctuations tend to have a greater
impact on fixed income-securities with a greater time to maturity and/or lower
coupon. A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund
with a shorter average portfolio duration. In periods of market volatility, the market values of fixed income securities may
be more sensitive to changes in interest rates.
Tender Option Bonds Risk –
Tender option bonds are synthetic floating-rate or variable-rate securities issued when long–term
bonds are purchased in the primary or secondary market and then deposited into a trust. Tender option bonds may be
considered derivatives, and may expose the Fund to the same risks as investments in derivatives, as well as risks associated
with leverage, especially the risk of increased volatility.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
Variable and Floating Rate Securities Risk
– For floating and variable rate
obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an interest payment of such an obligation,
which could harm or benefit the Fund, depending on the interest rate environment or other circumstances. Variable
rate demand obligations (“VRDOs”) are floating rate securities that combine an interest in a long term municipal bond
with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution
is unable to pay, the Fund may lose money.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Intermediate Municipal Income Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges. If the applicable sales charges were included, the annual total returns would be lower
than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
58 Summary
- abrdn Intermediate Municipal Income Fund
Summary
- abrdn Intermediate Municipal Income Fund
The table compares the Fund’s average
annual total returns to the returns of the Bloomberg
Municipal Bond Index, a broad-based
securities index, and the ICE BofA Merrill
Lynch 1-22 Year U.S. Municipal Securities Index.
Effective February 29,
2024, in anticipation of new regulatory requirements, the Fund’s
broad-based securities market
index has changed from
the ICE BofA Merrill Lynch 1-22 Year U.S. Municipal Securities Index to the Bloomberg Municipal Bond Index in the Fund’s
total return table. Remember,
however, that past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment strategy effective
February 28, 2019 to adopt a target average weighted effective duration.
Performance information for periods prior to February 28, 2019 does not reflect such investment policy. In connection
with the change in investment policy, the Fund changed its name from Aberdeen Tax-Free Income Fund to Aberdeen
Intermediate Municipal Income Fund.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 6.74%
- 4th
quarter 2023
Lowest
Return: -5.51%
- 1st
quarter 2022
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Summary
- abrdn Intermediate Municipal Income Fund 59
Summary
- abrdn Intermediate Municipal Income Fund
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
Bloomberg
Municipal Bond Index (reflects
no deduction for fees, expenses or taxes)
|
|
|
|
ICE
BofA Merrill Lynch 1-22 Year U.S. Municipal Securities Index (reflects no deduction
for fees, expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves
as the Intermediate Municipal Income Fund’s investment adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Miguel
Laranjeiro |
Investment
Director |
|
Jonathan
Mondillo |
Head
of U.S. Fixed Income |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund intends to distribute dividends exempt from regular federal income tax and capital gains distributions; although, a
portion of the Fund’s distributions may be subject to federal income tax or alternative minimum tax.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial
60 Summary
- abrdn Intermediate Municipal Income Fund
Summary
- abrdn Intermediate Municipal Income Fund
advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Intermediate Municipal Income Fund 61
|
|
|
Summary
- abrdn U.S. Sustainable Leaders Fund
|
|
|
|
abrdn
U.S. Sustainable Leaders Fund |
|
Objective
The abrdn U.S. Sustainable Leaders Fund (the
“U.S. Sustainable Leaders Fund” or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that you may
pay when you buy, hold and sell shares of the U.S. Sustainable Leaders Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000
in abrdn Funds. More information about
these and other discounts is available from your financial advisor and in the “Reduction and Waiver of Class A and
Class A1 Sales Charges” and “Broker-Defined
Sales Charge Waiver Policies” sections on pages 164
and 221
of the Fund’s prospectus, respectively,
and in the “Additional Information on Purchases and Sales — Waiver of Class A and Class
A1 Sales Charges” and “Reduction
of Sales Charges” sections on pages 110
and 111
of the Fund’s Statement of Additional
Information, respectively. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are
not reflected in the table and example below.
|
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Institutional
Class Shares
|
Institutional
Service Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage
of offering price) |
|
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering
or sale price, whichever is less) |
|
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(4)
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
Other
Expenses |
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(5)
|
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense
Reimbursements |
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed.
|
(4) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(5) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.90% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses, Rule 12b-1 fees,
administrative services
fees, transfer agent out-of-pocket expenses for Class A shares and Institutional Service Class shares and extraordinary expenses. The
Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously paid by the Adviser,
provided, however, that
any reimbursements must be paid at a date not more than three years after the date when the Adviser limited the fees or reimbursed the
expenses and the reimbursements
do not cause a Class to exceed the lesser of the applicable expense limitation in the contract at the time the fees were
limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser. |
62 Summary
- abrdn U.S. Sustainable Leaders Fund
Summary
- abrdn U.S. Sustainable Leaders Fund
Example
This Example is intended to help you compare
the cost of investing in the U.S. Sustainable Leaders Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the U.S. Sustainable Leaders Fund for the time periods indicated and then
sell all of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses
remain the same (taking
into account the contractual limitation until its expiration, which impacts the 1-Year figures
listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$689
|
$937
|
$1,204
|
$1,965
|
CLASS
C SHARES |
$293
|
$626
|
$1,085
|
$2,358
|
INSTITUTIONAL
CLASS SHARES |
$92
|
$306
|
$538
|
$1,205
|
INSTITUTIONAL
SERVICE CLASS SHARES |
$98
|
$312
|
$544
|
$1,210
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$193
|
$626
|
$1,085
|
$2,358
|
Portfolio
Turnover
The U.S. Sustainable Leaders Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 31.62%
of the average value of its portfolio.
Principal
Strategies
The U.S. Sustainable Leaders Fund seeks to achieve
its investment objective of seeking long-term capital appreciation by investing
primarily in equity securities of U.S. companies that the Adviser deems to have sound and improving prospects and
which demonstrate that they are current or emerging sustainable leaders through their management of environmental,
social and governance (“ESG”) risks and opportunities in accordance with the Adviser’s criteria.
In pursuing the Fund’s investment strategies,
the Adviser invests in quality companies and is an active, engaged owner and
takes into consideration a company’s management of ESG risks and opportunities and the company’s ESG performance.
The Adviser evaluates every company against quality criteria and builds conviction using a team-based approach
and peer review process. Through
fundamental research, supported by a global research presence, the Adviser
seeks to identify companies whose quality and
future prospects are not yet fully recognized
by the market. The Adviser’s overall
quality assessment covers five key factors: (1) durability of the business model, (2) the attractiveness of the
industry, (3) the strength of financials, (4) the capability of management, and (5) the most material ESG factors impacting
a company.
When assessing the most material ESG factors
impacting a company, the Adviser evaluates the ownership structure and governance
of the company as well as potential environmental and social risks and opportunities that the company may face.
The Adviser will assign each company an ESG-quality rating ranging from 1 to 5 (1 indicating best
in class and 5 indicating
laggards) – enabling the Fund’s investment team to identify current and emerging sustainable leaders. Companies
eligible for investment by the Fund must be rated 3 or better by the Adviser. In limited circumstances, for example,
in a corporate action or an initial public offering, the Fund may purchase or receive securities of companies that have
not been assigned an ESG quality rating by the Adviser so long as one is assigned to the company within the time period
required by the Adviser’s internal process.
Examples of areas under scope when assessing
a company’s ESG quality include the following:
● |
Water
& Wastewater Management |
● |
Waste
& Hazardous Materials Management |
● |
Human
Rights & Community Relations |
Summary
- abrdn U.S. Sustainable Leaders Fund 63
Summary
- abrdn U.S. Sustainable Leaders Fund
● |
Product
Quality & Safety |
● |
Selling
Practices & Product Labelling |
● |
Employee
Health & Safety |
● |
Product
Design & Lifecycle Management |
● |
Business
Model Resilience |
● |
Supply
Chain Management |
● |
Materials
Sourcing & Efficiency |
● |
Physical
Impacts of Climate Change |
● |
Management
of the Legal & Regulatory Environment |
● |
Critical
Incident Risk Management |
● |
Systemic
Risk Management |
The foregoing list is not exhaustive and may
change; in addition, not all areas in the foregoing list are relevant to every company
in which the Fund may invest. The Adviser focuses its analysis on those areas that it believes will materially impact
a company’s reputation or operational or financial performance.
In carrying out its assessments of ESG quality,
the Adviser’s equity analysts incorporate internal data sources, including a proprietary
quantitative house score (“House Score”), external sources (e.g. MSCI reports), thematic expertise from the Adviser’s
Investment
Sustainability Group and stock-specific expertise from the Adviser’s equity ESG analysts. The Adviser
relies heavily on its own in-depth research and analysis over third party ESG ratings.
In addition, the Adviser excludes the 10%
lowest scoring companies in the Fund’s benchmark index using the Adviser’s House
Score. In limited circumstances, for example, in a corporate action or an initial public offering, the Fund may purchase
or receive securities of companies that have not been assigned a House Score by the Adviser so long as one is assigned
to the company within the time period required by the Adviser’s internal process.
Binary exclusions are also applied to exclude
a defined list of unacceptable activities. Based on MSCI business involvement
screening research and
the Adviser’s analysis,
the Fund will seek to not invest in companies that
have:
● |
failed
to uphold one or more principles of the UN Global Compact; |
● |
an
industry tie to (including companies that provide support systems and services, as well as those with direct (i.e., owners
and producers) and indirect (i.e., parents and subsidiaries) involvement in) controversial weapons (cluster munitions,
landmines, biological / chemical weapons, depleted uranium weapons, blinding laser weapons, incendiary weapons,
and/or non-detectable fragments); |
● |
a
revenue contribution of 10% or more from the manufacture or sale of conventional weapons or weapons systems; |
● |
a
revenue contribution of 10% or more from tobacco or are tobacco manufacturers; |
● |
a
revenue contribution of 10% or more from the extraction of unconventional oil and gas (including oil sands, oil shale (kerogen-rich
deposits), shale gas, shale oil, coal seam gas, and coal bed methane and excluding conventional oil and gas
productions); |
● |
or
a revenue contribution from thermal coal extraction. |
The Fund targets a lower Weighted Average Carbon
Intensity (“WACI”) than its benchmark based on third-party data, or third-party
estimates when an issuer does not report Scope 1 and 2 emissions.
The Fund will measure compliance with its principal
investment strategies at the time of investment. Third party data by which
the Fund measures compliance with its binary exclusions, WACI target, and House Score threshold is updated at regular
intervals. If a company no longer meets the Fund’s principal strategies, the Adviser will make a determination as to
whether to sell such security, in accordance with the Adviser’s internal process.
64 Summary
- abrdn U.S. Sustainable Leaders Fund
Summary
- abrdn U.S. Sustainable Leaders Fund
As a non-fundamental policy, under normal circumstances,
the U.S. Sustainable Leaders Fund invests at least 80% of the value
of its net assets, plus any borrowings for investment purposes, in equity securities issued by U.S. companies that the Adviser
considers to be current or emerging sustainable leaders in accordance with the Adviser’s criteria. Equity securities
include, but are not limited to, common stock, preferred stock and depositary receipts. The Fund seeks to invest in
securities of U.S. companies. For purposes of the Fund’s 80% policy, a company is considered to be a U.S. company if Fund
management determines that the company meets one or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in the United States; |
● |
the
company has its principal securities trading market in the United States; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in the United States. |
The Fund may also invest in non-U.S. companies,
including primarily Canadian companies.
The Fund will invest in companies across a broad
spectrum of market capitalizations.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the information
technology,
industrials and healthcare sectors.
The Fund may invest in securities denominated
in U.S. Dollars and the currencies of any foreign countries in which it is permitted
to invest. The Fund typically has full currency exposure to those markets in which it invests.
Principal
Risks
The
U.S. Sustainable Leaders Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first five risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
Sustainable Investing Risk –
The Fund’s “Sustainable Leaders” strategy could cause it to perform differently compared to funds
that do not have such strategy. ESG considerations may be linked to long-term rather than short-term returns. The criteria
related to the Fund’s Sustainable Leaders strategy, including the exclusion of securities of companies that engage in
certain business activities, may result in the Fund forgoing opportunities to buy certain securities when it might otherwise
be advantageous to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous for
it to do so. In addition, there is a risk that the companies identified as sustainable leaders by the Adviser do not operate as
expected when addressing ESG issues. There are significant differences in interpretations of what it means for a company
to have positive ESG characteristics. While the Adviser believes its definitions are reasonable, the portfolio decisions
it makes may differ with other investors’ or advisers’ views.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Summary
- abrdn U.S. Sustainable Leaders Fund 65
Summary
- abrdn U.S. Sustainable Leaders Fund
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Healthcare
Sector Risk. To the
extent that the healthcare sector represents a significant portion of the Fund, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the healthcare sector may be adversely impacted by many factors, including, among
others, government regulation. restrictions on government reimbursement for medical expenses, changes to the costs
of medical products and services, pricing pressure, increased emphasis on outpatient services, a limited number of products,
industry innovation, changes in technologies, and other market developments.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk.
Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the U.S. Sustainable Leaders Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges. If the applicable sales charges were included, the annual total returns would be lower than
those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable sales charges.
66 Summary
- abrdn U.S. Sustainable Leaders Fund
Summary
- abrdn U.S. Sustainable Leaders Fund
The table compares the Fund’s average
annual total returns to the returns of the Russell 3000®
Index, a broad-based securities index.
Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the
Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment strategy effective
December 1, 2020. In connection with the change in investment strategy,
the Fund changed its name from Aberdeen U.S. Multi-Cap Equity Fund to Aberdeen U.S. Sustainable Leaders Fund.
Performance information for periods prior to December 1, 2020 do not reflect the current investment strategy.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 22.32%
- 2nd
quarter 2020
Lowest
Return: -17.23%
- 2nd
quarter 2022
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Class
C shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Service Class shares – Before Taxes |
|
|
|
Russell
3000®
Index (reflects
no deduction for fees, expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves
as the U.S. Sustainable Leaders Fund’s investment adviser.
Summary
- abrdn U.S. Sustainable Leaders Fund 67
Summary
- abrdn U.S. Sustainable Leaders Fund
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Dominic
Byrne, CFA®
|
Deputy
Head of Developed Markets |
|
Chris
Haimendorf, CFA®
|
Senior
Investment Director |
|
Joanna
McIntyre, CFA®
|
Investment
Director |
|
Jamie
Mills O’Brien, CFA®
|
Investment
Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
|
|
INSTITUTIONAL
SERVICE CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
68 Summary
- abrdn U.S. Sustainable Leaders Fund
|
|
|
Summary
- abrdn Dynamic Dividend Fund
|
|
|
|
abrdn
Dynamic Dividend Fund |
|
Objective
The abrdn Dynamic Dividend Fund (the “Dynamic
Dividend Fund” or the “Fund”) seeks high current dividend income that qualifies
for the reduced U.S. federal income tax rates created by the “Jobs and Growth Tax Relief Reconciliation Act of 2003,”
while also focusing on total return for long-term growth of capital.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Dynamic Dividend
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Institutional Class
Shares |
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2) |
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(3)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(4)
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. |
(3) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 1.50% for Class A shares and 1.25%
for Institutional Class shares. This contractual limitation may not be terminated without the approval of the Independent Trustees before
February
28, 2025.
This limit includes Rule 12b-1 Fees, but excludes certain expenses, including any interest, brokerage commissions, Acquired Fund Fees
and Expenses, and extraordinary expenses.
The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees or reimbursed the
expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped by the Adviser. |
(4) |
The
Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate to the Fund’s Ratio of Expenses
to Average Net Assets
(Net of Reimbursements/Waivers), included in the Fund’s Financial Highlights in the Fund’s prospectus, as this ratio does
not reflect non-recurring expenses,
such as extraordinary expenses. |
Example
This Example is intended to help you compare
the cost of investing in the Dynamic Dividend Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$720
|
$1,060
|
$1,424
|
$2,444
|
INSTITUTIONAL
CLASS SHARES |
$128
|
$434
|
$761
|
$1,688
|
Summary
- abrdn Dynamic Dividend Fund 69
Summary
- abrdn Dynamic Dividend Fund
Portfolio
Turnover
The Dynamic Dividend Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 62.85%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the Dynamic Dividend Fund invests at least 80% of its net assets
in the equity securities of certain domestic and foreign corporations that pay dividend income that it believes are undervalued
relative to the market and to the securities’ historic valuations. Net assets include the amounts of any borrowings
for investment purposes. Corporations that pay dividend income may also include companies that have announced
a special dividend or announced that they will pay dividends within six months. The equity securities in which the
Fund invests include primarily common stocks,
but the Fund may also invest in other equity securities, including, but not
limited to, preferred stock and depositary receipts.
The Fund may invest in companies of any market capitalization.
The Fund may invest without limitation in the
securities of foreign issuers that are publicly traded in the United States or on foreign
exchanges, provided that no more than 25% of its net assets are invested in emerging markets. An “emerging market”
country is any country that is determined by the Adviser to have an emerging market economy, considering factors
such as the country’s credit rating, its political and economic stability and the development of its financial and capital
markets. Emerging market countries generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand, Israel, Hong Kong, Singapore, the United Kingdom and most countries located in Western
Europe. The Adviser defines “Western Europe” as Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Ireland,
Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.
Under normal circumstances, the Fund seeks high
current dividend income, more than 50% of which qualifies for the reduced
U.S. federal income tax rates for “qualified dividend income” created by the Jobs and Growth Tax Relief Reconciliation
Act of 2003, and is defined in the Internal Revenue Code of 1986, as amended, as dividends received during
the taxable year from domestic and qualified foreign corporations. A qualified foreign corporation is defined as any
corporation that is incorporated in a possession of the United States or is eligible for the benefits of a comprehensive income
tax treaty with the United States.
In the event that the Adviser determines that
a particular company’s dividends qualify for favorable U.S. federal tax treatment,
the Adviser intends to invest in the equity securities of the company prior to the ex-dividend date (i.e. the date when
shareholders no longer are eligible for dividends) and intends to hold the security for at least 61 days during a 121-day
period which begins on the date that is 60 days before the ex-dividend date to enable Fund shareholders to take
advantage of the reduced U.S. federal tax rates. During this period, the Fund will not hedge its risk of loss with respect to
these securities.
In order to achieve its dividend, the Fund may
participate in a number of dividend capture strategies. These strategies may
include the Fund engaging in active and frequent trading which may result in higher turnover and associated transaction
costs for the Fund. There is the potential for market loss on the shares that are held for a short period, although
the Adviser seeks to use these strategies to generate additional income with limited impact on the construction of
the core portfolio.
In managing the assets of the Fund, the Adviser
generally pursues a value-oriented approach. The Adviser seeks to identify
investment opportunities in equity securities of dividend paying companies, including companies that it believes are
undervalued relative to the market and to the securities’ historic valuations. Factors that the Adviser considers include fundamental
factors such as earnings growth, cash flow, and historical payment of dividends.
The Adviser considers and evaluates ESG factors
as part of the investment analysis process for long-term investments. The
Adviser considers the most material potential ESG risks and opportunities impacting issuers, alongside other non-ESG
factors. The relevance of ESG factors to the investment process varies across issuers and strategies. For instance,
ESG factors may not be considered for securities that the Adviser intends to hold solely as part of the Fund’s dividend
recapture strategy. When
ESG factors are considered, ESG information is just one investment consideration and ESG
considerations generally are not solely determinative in any investment decision made by the Adviser.
The Fund’s investment strategies may
result in a portfolio turnover rate in excess of 100% on an annual basis.
Principal
Risks
The
Dynamic Dividend Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first nine risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
70 Summary
- abrdn Dynamic Dividend Fund
Summary
- abrdn Dynamic Dividend Fund
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Dividend Strategy Risk
– There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future
or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis on
dividend paying stocks could cause the Fund to underperform similar funds that invest without consideration of a company’s
track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks may not participate
in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates or economic downturn
could cause a company to unexpectedly reduce or eliminate its dividend.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Qualified Dividend Tax Risk
– Favorable U.S. federal tax treatment of Fund distributions may be adversely affected, changed
or repealed by future changes in tax laws.
Portfolio Turnover Risk
– The Fund may engage in active and frequent trading of portfolio securities to achieve its investment
objective. High portfolio turnover may result in greater transaction costs which may reduce Fund performance.
The sale of Fund portfolio securities may also result in greater realization and/or distribution to shareholders
of gains or losses as compared to a fund with less active trading, which may include short-term gains taxable
at ordinary income tax rates.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” above).
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk.
Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Summary
- abrdn Dynamic Dividend Fund 71
Summary
- abrdn Dynamic Dividend Fund
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Dynamic Dividend Fund.
The bar chart shows how the Fund’s
annual total returns for Institutional Class shares have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the annual total returns
would be lower than those shown.
The table following the bar chart compares the
Fund’s performance over time with those of a broad measure of market performance.
The table compares the Fund’s average annual total returns to the returns of the MSCI All Country World Index
(Net Daily Total Return), a broad-based securities index. Remember,
however, that past performance (before and after
taxes) is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please
visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The returns presented for the Fund for periods
prior to May 7, 2018 reflect the performance of a Predecessor Fund (the “Predecessor
Fund”), which was a registered investment company. The Fund adopted the performance of the Predecessor
Fund as the result of a reorganization that occurred as of the close of business on May 4, 2018, in which the Fund
acquired all of the assets, subject to the liabilities, of the Predecessor Fund. The Fund and the Predecessor Fund have
substantially similar investment objectives and strategies.
Returns of the Predecessor Fund have not been
adjusted to reflect the expenses applicable to the respective classes of the
Fund.
abrdn Inc. and abrdn Investments Limited began
advising and sub-advising, respectively, the Fund immediately following the
closing of the reorganization. Performance prior to this date reflects the performance of an unaffiliated investment adviser.
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
72 Summary
- abrdn Dynamic Dividend Fund
Summary
- abrdn Dynamic Dividend Fund
Highest
Return: 19.11%
- 2nd
quarter 2020
Lowest
Return: -23.77%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Institutional Class shares only and will vary for other classes. After–tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not reflect
the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ
from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares |
|
|
|
MSCI
All Country World Index (Net Daily Total Return) (reflects
no deduction for fees
or expenses) |
|
|
|
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Dynamic Dividend Fund’s investment adviser and abrdn Investments Limited (“aIL”)
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Martin
Connaghan |
Investment
Director |
|
Josh
Duitz |
Head
of Global Income |
|
Ruairidh
Finlayson, CFA®
|
Investment
Director |
|
* |
Includes
service with unaffiliated investment adviser to Predecessor Fund |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Summary
- abrdn Dynamic Dividend Fund 73
Summary
- abrdn Dynamic Dividend Fund
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
74 Summary
- abrdn Dynamic Dividend Fund
|
|
|
Summary
- abrdn Global Infrastructure Fund
|
|
|
|
abrdn
Global Infrastructure Fund |
|
Objective
The abrdn Global Infrastructure Fund (the “Global
Infrastructure Fund” or the “Fund”) seeks capital appreciation. Current income
is a secondary objective.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Global Infrastructure
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor
and in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver
Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information
on Purchases and Sales — Waiver of
Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2) |
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(3)
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements |
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. |
(3) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 1.24% for Class A shares and 0.99%
for Institutional Class shares. This contractual limitation may not be terminated without the approval of the Independent Trustees before
February
28, 2025.
This limit includes Rule 12b-1 Fees, but excludes certain expenses, including any interest, brokerage commissions, Acquired Fund Fees
and Expenses, and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped
by the Adviser. |
Example
This Example is intended to help you compare
the cost of investing in the Global Infrastructure Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$694
|
$994
|
$1,315
|
$2,222
|
INSTITUTIONAL
CLASS SHARES |
$101
|
$367
|
$653
|
$1,467
|
Summary
- abrdn Global Infrastructure Fund 75
Summary
- abrdn Global Infrastructure Fund
Portfolio
Turnover
The Global Infrastructure Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when
Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or
in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was
20.33%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the Infrastructure Fund invests at least 80% of its net assets (plus
the amount of any borrowings for investment purposes) in the equity securities of U.S. and non-U.S. infrastructure related
issuers. An “infrastructure-related” issuer has (i) at least 50% of its assets consisting of infrastructure assets or
(ii) 50% of its gross income or net profits
attributable to or derived, directly or indirectly, from the ownership, management, construction,
development, operation, utilization or financing of infrastructure assets. Infrastructure assets are the physical
structures and networks that provide necessary services to society. Examples of infrastructure assets include, but
are not limited to, transportation assets (e.g., toll roads, bridges, tunnels, parking facilities, railroads, rapid transit links, airports,
refueling facilities and seaports), utility assets (e.g., electric transmission and distribution lines, power generation facilities,
gas and water distribution facilities, waste
collection, broadcast and wireless towers,
and cable and satellite networks) and social
assets (e.g., courthouses, hospitals, schools, correctional facilities, stadiums and subsidized housing).
The Fund concentrates its investments in infrastructure-related issuers. Infrastructure-related issuers fall into multiple
market sectors. The Fund currently anticipates that it will be heavily exposed to the industrials and utilities sectors.
The Fund may invest without limitation in the
securities of foreign issuers that are publicly traded in the United States or on foreign
exchanges, including securities of emerging market issuers, and in depositary receipts (such as American Depositary
Receipts (“ADRs”)) that represent indirect interests in securities of foreign issuers. The Fund is permitted to invest
in unlisted foreign securities, but currently does not intend to do so as a principal strategy.
The Fund may invest in companies of any market
capitalization.
Under normal market conditions, the Fund maintains
no less than 40% of its net assets (plus the amount of any borrowings
for investment purposes) in the securities of issuers located outside of the United States and will allocate its assets
among issuers located in no fewer than three different countries, one of which may be the United States. The Fund considers
an issuer to be located in a country if it meets any of the following criteria: (i) the issuer is organized under the laws
of the country or maintains its principal place of business in that country; (ii) the issuer’s securities are traded principally
in the country; or (iii) during the issuer’s most recent fiscal year, such issuer derived at least 50% of its revenues or
profits from goods produced or sold, investments made, or services performed in the country or has at least 50% of its assets
in that country.
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-adviser invest in quality companies and are an active,
engaged owners. The Adviser and Sub-adviser evaluate every company against quality criteria and build conviction
using a team-based approach and peer review process. The quality assessment covers five key factors: 1) the durability
of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management,
and 5) the most material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser and Sub-adviser.
Through fundamental research, supported by a global research
presence, the Adviser and Sub-adviser seek to identify companies whose quality and
future prospects are not yet
fully recognized by the market.
Principal
Risks
The
Global Infrastructure Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first eight risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
76 Summary
- abrdn Global Infrastructure Fund
Summary
- abrdn Global Infrastructure Fund
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Infrastructure-Related Investments Risk
– Because the Fund concentrates its investments in infrastructure-related entities, the
Fund has greater exposure to the potential adverse economic, regulatory, political and other changes affecting such entities.
Infrastructure related entities are subject to a variety of factors that may adversely affect their business or operations,
including high interest costs in connection with capital construction programs, costs associated with environmental
and other regulations, the effects of economic slowdown and surplus capacity, increased competition from
other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy
conservation policies and other factors. Additionally, infrastructure-related entities may be subject to regulation by
various governmental authorities and may also be affected by governmental regulation of rates charged to customers,
service interruption due to environmental, operational or other mishaps, the imposition of special tariffs and changes
in tax laws, regulatory policies and accounting standards.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” above).
Concentration Risk
– The Fund’s strategy of concentrating in companies in a specific industry or sector, or closely related group
of industries or sectors, means that its performance will be closely tied to the performance of a particular market segment.
The Fund’s concentration in these companies may present more risks than if it were broadly diversified over numerous
industries and sectors of the economy. A downturn in these companies would have a larger impact on the Fund
than on a mutual fund that does not concentrate in such companies. At times, the performance of these companies
will lag the performance of other industries or the broader market as a whole.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Impact of Large Redemptions and Purchases
of Fund Shares – Occasionally,
shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
REIT and Real Estate Risk –
Investment in REITs and real estate involves the risks that are associated with direct ownership of
real estate and with the real estate industry in general. These risks include: declines in the value of real estate; risks related
to local economic conditions, overbuilding and increased competition; increases in property taxes and operating expenses;
changes in zoning laws; casualty or condemnation losses; variations in rental income, neighborhood values or
Summary
- abrdn Global Infrastructure Fund 77
Summary
- abrdn Global Infrastructure Fund
the appeal of properties to tenants; changes
in interest rates and changes in general economic and market conditions. REITs’
share prices may decline because of adverse developments affecting the real estate industry including changes in interest
rates. The returns from REITs may trail returns from the overall market. Additionally, there is always a risk that a given
REIT will fail to qualify for favorable tax treatment. REITs may be leveraged, which increases risk. REITs may also be non-traditional,
such as those that focus on towers, which could subject the Fund to additional risk based on the REIT’s area
of focus. Certain REITs charge management fees, which may result in layering the management fee paid by the fund.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Utilities
Sector Risk. To the extent that the utilities
sector represents a significant portion of the Fund’s portfolio, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the utilities sector may be adversely impacted by many factors, including, among others,
general economic conditions, supply and demand, financing and operating costs, rate caps, interest rates, liabilities
arising from governmental or civil actions, consumer confidence and spending, competition, resource conservation
and depletion, man-made or natural disasters, geopolitical events, and environmental, and other government
regulations.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk.
Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation
Risk – The
price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Global Infrastructure Fund.
The bar chart shows how the Fund’s
annual total returns for Institutional Class shares have varied from year to year. The Class A shares of
the Fund were not issued prior to December 30, 2011. The
returns in the bar chart do not reflect the impact of sales charges,
if any. If the applicable sales charges were included, the annual total returns would be lower than those shown.
The table following the bar chart compares the
Fund’s performance over time with those of a broad measure of market performance,
as well as indices that reflect the market sectors in which the Fund invests. The table compares the Fund’s average
annual total returns to the returns of the MSCI All Country World Index (Net Daily Total Return), a broad-based securities
index, and the S&P Global Infrastructure Index (Net Total Return). The Fund’s past performance benefitted significantly
from IPOs and secondary offerings of certain issuers and there is no guarantee that these results can be replicated
in future periods or that the Fund will be able to participate to the same degree in IPOs and secondary offerings
in the future. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of
how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
78 Summary
- abrdn Global Infrastructure Fund
Summary
- abrdn Global Infrastructure Fund
The returns presented for the Fund for periods
prior to May 7, 2018 reflect the performance of a predecessor fund (the “Predecessor
Fund”), which was a registered investment company. The Fund adopted the performance of the Predecessor
Fund as the result of a reorganization that occurred as of the close of business on May 4, 2018, in which the Fund
acquired all of the assets, subject to the liabilities, of the Predecessor Fund. The Fund and the Predecessor Fund have
substantially similar investment objectives and strategies.
Returns of the Predecessor Fund have not been
adjusted to reflect the expenses applicable to the respective classes of the
Fund.
abrdn Inc. and abrdn Investments Limited (“aIL”)
began advising and sub-advising, respectively, the Fund immediately following
the closing of the reorganization. Performance prior to this date reflects the performance of an unaffiliated investment
adviser.
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
Highest
Return: 17.31%
- 2nd
quarter 2020
Lowest
Return: -25.55%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Institutional Class shares only and will vary for other classes. After–tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not reflect
the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ
from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares |
|
|
|
MSCI
All Country World Index (Net Daily Total Return) (reflects
no deduction for fees
or expenses) |
|
|
|
S&P
Global Infrastructure Index (Net Total Return) (reflects no deduction for fees or expenses)
|
|
|
|
Summary
- abrdn Global Infrastructure Fund 79
Summary
- abrdn Global Infrastructure Fund
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Global Infrastructure Fund’s investment adviser and abrdn Investments Limited
serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Josh
Duitz |
Head
of Global Income |
|
Donal
Reynolds, CFA®
|
Investment
Director |
|
* |
Includes
service with unaffiliated investment adviser to Predecessor Fund |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
80 Summary
- abrdn Global Infrastructure Fund
|
|
|
Summary
- abrdn Short Duration High Yield Municipal
Fund |
|
|
|
abrdn
Short Duration High Yield Municipal Fund |
|
Objective
The abrdn Short Duration High Yield Municipal
Fund (the “Short Duration High Yield Municipal Fund” or the “Fund”) seeks a high
level of current income exempt from federal income tax.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Short Duration High
Yield Municipal Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $100,000
in abrdn Funds. More information
about these and other discounts is available from your financial
advisor and in the “Reduction and Waiver of Class A and Class A1 Sales Charges,” and “Broker-Defined Sales Charge
Waiver Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information
on Purchases and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections
on pages 110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such
as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example
below.
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
C Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering
price) |
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price,
whichever is less) |
|
|
|
Small
Account Fee(3) |
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(4)
|
|
|
%
|
Distribution
and/or Service (12b-1) Fees |
|
|
None
|
Other
Expenses |
|
|
0.36%
|
Total
Annual Fund Operating Expenses |
|
|
0.91%
|
Less:
Amount of Fee Limitations/Expense Reimbursements(5)
|
|
|
%
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements
|
|
|
0.70%
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 0.75%
will be charged on Class A shares redeemed
within 12 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
If
you redeem your Class C shares within the first year after you purchase them you must pay a CDSC of 1.00%; however, the CDSC shall
not apply to the purchases of Class C shares
where the selling broker-dealer was not paid a commission at the time of purchase. |
(3) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses.
|
(4) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(5) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.90% for Class A shares, 1.65% for
Class C shares and 0.65% for Institutional Class shares. This contractual limitation may not be terminated without the approval of
the Independent Trustees
before February
28, 2025.
This limit includes Rule 12b-1 Fees, but excludes certain expenses, including any interest, brokerage commissions, Acquired
Fund Fees and Expenses, and extraordinary expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited
and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the
date when the Adviser limited the fees or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of
the applicable expense
limitation in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the
time the expenses are
being recouped by the Adviser. |
Summary
- abrdn Short Duration High Yield Municipal Fund 81
Summary
- abrdn Short Duration High Yield Municipal Fund
Example
This Example is intended to help you compare
the cost of investing in the Short Duration High Yield Municipal Fund with the
cost of investing in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$344
|
$589
|
$853
|
$1,606
|
CLASS
C SHARES |
$273
|
$580
|
$1,012
|
$2,216
|
INSTITUTIONAL
CLASS SHARES |
$72
|
$269
|
$483
|
$1,100
|
You
would pay the following expenses on the same investment if you did not sell your shares:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
C SHARES |
$173
|
$580
|
$1,012
|
$2,216
|
Portfolio
Turnover
The Short Duration High Yield Municipal Fund
pays transaction costs, such as commissions, when it buys and sells securities
(or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result
in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating
expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio
turnover rate was 57.71%
of the average value of its portfolio.
Principal
Strategies
As a fundamental policy, under normal circumstances,
the Short Duration High Yield Municipal Fund invests at least 80% of
its net assets (plus borrowings for investment purposes) in municipal obligations that are exempt from federal income tax
(including securities subject to the federal alternative minimum tax (“AMT”)). Tax-exempt municipal obligations include
municipal obligations that pay interest that is free from U.S. federal income tax (other than AMT).
The Fund may invest, without limitation, in
municipal obligations whose interest income is a tax-preference item for purposes
of the AMT. If this is the case, the Fund’s net return to those investors may be lower than to investors not subject to
the AMT. The interest income distributed by the Fund that is derived from certain tax-exempt municipal obligations may
be subject to the federal AMT for individuals. There is no limitation on the portion of the Fund’s assets that may be invested
in municipal obligations subject to the AMT. An investor should consult his or her tax adviser for more information.
Under normal market conditions, the Fund will
maintain an investment portfolio with a weighted average effective duration
of less than 4.5 years. However, the Fund can buy securities of any maturity. The Adviser expects to increase or decrease
the portfolio’s effective duration based on its outlook for the market and interest rates. Duration measures the sensitivity
of bond prices to changes in interest rates. The longer the duration of a bond, the longer it will take to repay the principal
and interest obligations and the more sensitive it will be to changes in interest rates. Because of events affecting the
bond markets and interest rate changes, the duration of the portfolio may not meet the target at all times.
The Fund may invest in obligations of any credit
quality. Under normal circumstances, the Fund invests at least 50% of its assets
in municipal bonds rated BBB+
or lower by S&P Global Ratings or Baa or lower by Moody’s Investors Service, Inc., at the
time of investment, or the equivalent by another independent rating agency or the unrated equivalent as determined by
the Adviser. Split rate bonds will be considered to have the higher credit rating. Municipal bonds rated below investment
grade (BB+/Ba1
or lower) are commonly known as “high yield” or “junk” bonds.
Municipal bonds in which the Fund may invest
include, but are not limited to, general obligation bonds, auction
rate securities, revenue
bonds, private activity bonds, moral obligation bonds, municipal notes, municipal commercial paper, municipal
lease obligations and tender option bonds.
Revenue obligations may include, but are not
limited to, general obligation bonds, revenue bonds, private activity bonds, moral
obligation bonds, municipal notes, municipal commercial paper, municipal lease obligations and tender option bonds.
Revenue obligations may include, but are not limited to, industrial development, pollution control, public utility, housing,
and health care issues. Tender option bonds are created when a holder deposits tax-exempt or other bonds into a
special purpose trust (“TOB trust”). The TOB trust issues two types of securities: floating rate notes (“floaters”
or “TOBs”) and a residual security
junior to the floaters (“inverse floaters”). The Fund may invest in floaters issued by TOB trusts.
82 Summary
- abrdn Short Duration High Yield Municipal Fund
Summary
- abrdn Short Duration High Yield Municipal Fund
The Fund can invest up to 25% of its total
assets in tobacco-related bonds without an appropriation pledge that makes payments
only from a state’s interest in the tobacco Master Settlement Agreement (“MSA”). The MSA is an agreement, reached
out of court in 1998, between the largest U.S. tobacco manufacturers and 46 states and other U.S. jurisdictions to settle
claims against the tobacco manufacturers.
The Fund may invest in municipal obligations
of any state, city, county or other governmental entity, including Puerto Rico and
U.S. territories. The Fund currently anticipates that it will have significant exposure to New York municipal securities.
In selecting investments for the Fund, the Adviser
generally looks for a wide range of U.S. issuers and securities that provide
high current income, including unrated bonds and securities of smaller issuers that offer high current income and might
be overlooked by other investors and funds. The Adviser also focuses on securities with coupon interest or accretion
rates, current market interest rates, callability and call prices that might change the effective maturity of particular
securities. The Adviser may consider selling a security if any of these factors no longer applies to a security purchased
for the Fund, but are not required to do so. The Adviser also examines the material risks of an investment across
a spectrum of considerations including financial metrics, regional and national conditions and industry specific factors.
The Adviser may also consider the most material potential ESG (Environmental, Social and Governance) risks and
opportunities impacting issuers, where relevant. As
ESG information is just one investment consideration, ESG considerations
generally are not solely determinative in any investment decision made by the Adviser. The
relevance of ESG factors to the investment
process varies across issuers and instrument types.
The Fund may engage in active and frequent trading
of portfolio securities to achieve its investment objective.
Principal
Risks
The
Short Duration High Yield Municipal Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first seven
risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Fixed Income Securities Risk –
Fixed income securities fluctuate
in price based on changes in an issuer’s financial condition and
overall market and economic conditions. The value of a fixed income security may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. Fixed income securities are
subject to, among other risks, credit risk,
extension risk, issuer risk, interest rate risk, market risk and prepayment risk.
Active Management
Risk – The Fund is subject to the
risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
Municipal Securities Risk
– Municipal bonds can be significantly affected by political and economic changes, including inflation,
as well as uncertainties in the municipal market related to taxation, legislative changes, or the rights of municipal security
holders. Municipal bonds have varying levels of sensitivity to changes in interest rates. Interest rate risk is generally lower
for shorter-term Municipal bonds and higher for long term Municipal bonds.
Municipal
Bond Tax Risk – A municipal bond
that is issued as tax-exempt may later be declared to be taxable. In addition,
if the federal income tax rate is reduced, the value of the tax exemption may be less valuable, causing the value of
a municipal bond to decline.
Municipal
Market Volatility and Illiquidity Risk
– The municipal bond market can be susceptible to unusual volatility, particularly
for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic
conditions or credit tightening. During times of reduced market liquidity, the Fund may not be able to readily sell
bonds without the sale significantly changing the market value of the bond. If the Fund needed to sell large blocks of bonds
to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
Municipal
Sector Risk – From time to time
the Fund may invest a substantial amount of its assets in municipal securities
whose interest is paid solely from revenues of similar projects. If the Fund concentrates its investments in this manner,
it assumes the economic risks relating to such projects and this may have a significant impact on the Fund’s investment
performance.
High-Yield Bonds and Other Lower-Rated Securities
Risk – The Fund’s investments
in high-yield bonds (commonly referred to
as “junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. Investments in high–yield
bonds are speculative and issuers of these securities are generally considered to be less financially secure and less able
to repay interest and principal than issuers of investment-grade securities. Prices of high-yield bonds tend to be very volatile.
These securities are less liquid than investment-grade debt securities and may be difficult to price or sell, particularly
in times of negative sentiment toward high-yield securities.
Summary
- abrdn Short Duration High Yield Municipal Fund 83
Summary
- abrdn Short Duration High Yield Municipal Fund
Impact of Large Redemptions
and Purchases of Fund Shares –
Occasionally, shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid and relatively less liquid securities may also be difficult
to value. Over recent years, the capacity of dealers to make markets in fixed income securities has been outpaced
by the growth in the size of the fixed income markets. Illiquid securities risk may be magnified in a rising interest rate
environment or when investor redemptions from fixed income funds may be higher than normal, due to the increased
supply in the market that would result from selling activity.
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Auction Rate Securities
Risk - Auction rate
securities are variable rate bonds whose interest rates are reset at specified intervals
through a “Dutch” auction process. A “Dutch” auction is a competitive bidding process designed to determine
a single uniform clearing
rate that enables purchases and sales of the auction rate securities to take place at par. All accepted
bids and holders of the auction rate securities receive the same rate. Auction rate securities holders rely on the liquidity
generated by the auction. There is a risk that an auction will fail due to insufficient demand for the securities. If an auction
fails, an auction rate security may become illiquid until a subsequent successful auction is conducted, the issuer redeems
the issue, or a secondary market develops.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Interest Rate Risk -
The Fund’s fixed income investments are subject to interest rate risk, which generally causes the value of
a fixed income portfolio to decrease when interest rates rise resulting in a decrease in the Fund’s net assets.
For example, if interest rates increase by 1%,
assuming a current portfolio duration of 4.5 years, and all other factors being equal,
the value of the Fund’s investments would be expected to decrease by 4.5%.
Interest rate fluctuations tend to have a greater
impact on fixed income-securities with a greater time to maturity and/or lower
coupon. A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund
with a shorter average portfolio duration. In periods of market volatility, the market values of fixed income securities may
be more sensitive to changes in interest rates.
Portfolio Turnover Risk
– The Fund may engage in active and frequent trading of portfolio securities to achieve its investment
objective. High portfolio turnover may result in greater transaction costs which may reduce Fund performance.
The sale of Fund portfolio securities may also result in greater realization and/or distribution to shareholders
of gains or losses as compared to a fund with less active trading, which may include short-term gains taxable
at ordinary income tax rates.
Private Placements and Other Restricted Securities
Risk – Investments in private placements
and other restricted securities, including
Regulation S Securities and Rule 144A Securities, could have the effect of increasing the Fund’s level of
illiquidity. Private placements and restricted securities may be less liquid than other investments because such securities
may not always be readily sold in broad public markets and the Fund might be unable to dispose of such securities
promptly or at prices reflecting their true value.
84 Summary
- abrdn Short Duration High Yield Municipal Fund
Summary
- abrdn Short Duration High Yield Municipal Fund
Tender Option Bonds Risk –
Tender option bonds are synthetic floating-rate or variable-rate securities issued when long–term
bonds are purchased in the primary or secondary market and then deposited into a trust. Tender option bonds may be
considered derivatives, and may expose the Fund to the same risks as investments in derivatives, as well as risks associated
with leverage, especially the risk of increased volatility.
Tobacco Related Bonds Risk -
In 1998, the largest U.S. tobacco manufacturers reached an out of court agreement, the MSA,
to settle claims against them by 46 states and six other U.S. jurisdictions. The tobacco manufacturers agreed to make
annual payments to the government entities in exchange for the release of all litigation claims. A number of the states
have sold bonds that are backed by those future payments. The Fund may invest in two types of those bonds: (i) bonds
that make payments only from a state’s interest in the MSA and (ii) bonds that make payments from both the MSA revenue
and from an “appropriation pledge” by the state. An “appropriation pledge” requires the state to pass a specific
periodic appropriation to make the payments
and is generally not an unconditional guarantee of payment by a state. The
settlement payments are based on factors, including, but not limited to, annual domestic cigarette shipments, cigarette
consumption, inflation and the financial capability of participating tobacco companies. Payments could be reduced
if consumption decreases, if market share is lost to non-MSA manufacturers, or if there is a negative outcome in litigation
regarding the MSA.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Short Duration High Yield Municipal Fund.
The bar chart shows how the Fund’s
annual total returns for Institutional Class shares have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the
annual total returns would be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum
applicable sales charges.
The table compares the Fund’s performance over
time with those of the Bloomberg Municipal
Bond Index, a broad based securities index, and the S&P Municipal Bond Short Intermediate Index.
Effective February 29, 2024, in anticipation of new regulatory requirements, the Fund’s broad-based securities market index has
changed from the S&P Municipal Bond Short Intermediate Index to the Bloomberg Municipal Bond Index in the Fund’s total return
table. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment strategy effective
February 28, 2019 to adopt a target weighted average effective duration.
Performance information for periods prior to February 28, 2019 does not reflect such investment policy. In connection
with the change in investment policy, the Fund changed its name from Aberdeen High Yield Managed Duration
Municipal Fund to Aberdeen Short Duration High Yield Municipal Fund.
The returns presented for the Fund for periods
prior to May 7, 2018 reflect the performance of a predecessor fund (the “Predecessor
Fund”), which was a registered investment company. The Fund adopted the performance of the Predecessor
Fund as the result of a reorganization that occurred as of the close of business on May 4, 2018, in which the Fund
acquired all of the assets, subject to the liabilities, of the Predecessor Fund. The Fund and the Predecessor Fund had substantially
similar investment objectives and strategies prior to the Fund’s adoption of its current investment strategies on
February 28, 2019.
Returns of the Predecessor Fund have not been
adjusted to reflect the expenses applicable to the respective classes of the
Fund.
abrdn Inc. began advising the Fund immediately
following the closing of the reorganization. Performance prior to this date
reflects the performance of an unaffiliated investment adviser.
Summary
- abrdn Short Duration High Yield Municipal Fund 85
Summary
- abrdn Short Duration High Yield Municipal Fund
Class C returns prior to the commencement of
operations of Class C (inception date: 12/18/2020) are based on the previous
performance of the Fund’s Class A shares (inception date 5/31/2013). Excluding the effect of any fee waivers or reimbursements,
this performance is substantially similar to what each individual class would have produced because all classes
invest in the same portfolio of securities. Returns would only differ to the extent of the differences in expenses between
the two classes.
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
Highest
Return: 2.97%
- 4th
quarter 2023
Lowest
Return: -4.88%
- 1st
quarter 2022
After-tax
returns are shown in the following table for Institutional Class shares only and will vary for other classes. After–tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not reflect
the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ
from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
C shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Bloomberg
Municipal Bond Index (reflects
no deduction for fees, expenses or taxes)
|
|
|
|
S&P
Municipal Bond Short Intermediate Index (reflects no deduction for fees, expenses
or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Short Duration High Yield Municipal Fund’s investment adviser.
86 Summary
- abrdn Short Duration High Yield Municipal Fund
Summary
- abrdn Short Duration High Yield Municipal Fund
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Miguel
Laranjeiro |
Investment
Director |
|
Jonathan
Mondillo |
Head
of U.S. Fixed Income |
|
* |
Includes
service with unaffiliated investment adviser to Predecessor Fund |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS C SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund intends to distribute dividends exempt from regular federal income tax and capital gains distributions; although, a
portion of the Fund’s distributions may be subject to federal income tax or alternative minimum tax.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Short Duration High Yield Municipal Fund 87
|
|
|
Summary
- abrdn Realty Income & Growth Fund
|
|
|
|
abrdn
Realty Income & Growth Fund |
|
Objective
The abrdn Realty Income & Growth Fund (the
“Realty Income & Growth Fund” or the “Fund”) seeks a high level of current income.
Capital appreciation is a secondary objective.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Realty Income & Growth
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2) |
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(3)
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. |
(3) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 1.24% for Class A shares and 0.99%
for Institutional Class shares. This contractual limitation may not be terminated without the approval of the Independent Trustees before
February
28, 2025.
This limit includes Rule 12b-1 Fees, but excludes certain expenses, including any interest, brokerage commissions, Acquired Fund Fees
and Expenses, and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped
by the Adviser. |
88 Summary
- abrdn Realty Income & Growth Fund
Summary
- abrdn Realty Income & Growth Fund
Example
This Example is intended to help you compare
the cost of investing in the Realty Income & Growth Fund with the cost of investing
in other mutual funds.
The Example
assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$695
|
$1,009
|
$1,344
|
$2,290
|
INSTITUTIONAL
CLASS SHARES |
$102
|
$376
|
$671
|
$1,510
|
Portfolio
Turnover
The Realty Income & Growth Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 23.77%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the Realty Income & Growth Fund invests 80% of its net assets
(plus the amount of any borrowings for investment purposes) in the securities of issuers which (i) are principally engaged
in the real estate industry, (ii) are principally engaged in real estate financing or (iii) control real estate assets with
an aggregate estimated value equal to no less than 50% of such issuer’s assets. These companies include, but are not
limited to, real estate investment trusts (“REITs”), real estate operating companies and homebuilders, and companies with
a majority of real estate holdings, such as hotel and entertainment companies. “Principally engaged” in the real estate
industry or in real estate financing means that a majority of a company’s revenues are derived from the real estate industry
or from real estate financing, respectively, or that the company is classified as a “real estate” company under the Standard
& Poor’s Global Industry Classification System (GICS). To “control” real estate assets means to own such assets.
The
Fund concentrates its investments in the securities of companies engaged principally in the real estate industry and may
invest all of its assets in such securities; however, the Fund may temporarily invest less than 25% of its net assets in such
securities during periods of adverse economic conditions in the real estate industry.
In
addition to common stocks and REITs, securities in which the Fund may invest include preferred stocks and rights and warrants.
The
Fund may invest up to 35% of its net assets in foreign securities. The Fund may invest in companies of any market capitalization.
The Fund may borrow up to 10% of its total assets for investment purposes.
The Adviser emphasizes investments in the equity
securities of companies which it believes have the potential to grow their
earnings at faster than normal rates and thus offer the potential for higher dividends and capital growth in the future.
In managing the assets of the Fund, the Adviser
invests primarily in the equity securities of companies offering high dividend
yields and which the Adviser believes offer strong prospects for capital growth. In selecting investments, a focus of
the Adviser is to identify investment opportunities where dividends are well supported by the underlying assets and earnings
of a company.
The Adviser considers and
evaluates ESG (Environmental, Social and Governance) factors as part of the investment analysis
process. The Adviser considers the most material potential ESG risks and opportunities impacting issuers, alongside
other non-ESG factors. The relevance of ESG factors to the investment process varies across issuers. As ESG information
is just one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser.
The Fund
is “non-diversified.” This means that, as compared to mutual funds which are diversified, the Fund may invest a greater
percentage of its total assets in the securities of a single issuer. As a result, the Fund may hold larger positions in a relatively
small number of stocks as compared to many other mutual funds.
Principal
Risks
The
Realty Income & Growth Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first seven risks).
Summary
- abrdn Realty Income & Growth Fund 89
Summary
- abrdn Realty Income & Growth Fund
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
REIT and Real Estate Risk –
Investment in REITs and real estate involves the risks that are associated with direct ownership of
real estate and with the real estate industry in general. These risks include: declines in the value of real estate; risks related
to local economic conditions, overbuilding and increased competition; increases in property taxes and operating expenses;
changes in zoning laws; casualty or condemnation losses; variations in rental income, neighborhood values or the
appeal of properties to tenants; changes in interest rates and changes in general economic and market conditions. REITs’
share prices may decline because of adverse developments affecting the real estate industry including changes in interest
rates. The returns from REITs may trail returns from the overall market. Additionally, there is always a risk that a given
REIT will fail to qualify for favorable tax treatment. REITs may be leveraged, which increases risk. Certain REITs charge
management fees, which may result in layering the management fee paid by the fund.
Concentration Risk
– The Fund’s strategy of concentrating in companies in a specific industry or sector, or closely related group
of industries or sectors, means that its performance will be closely tied to the performance of a particular market segment.
The Fund’s concentration in these companies may present more risks than if it were broadly diversified over numerous
industries and sectors of the economy. A downturn in these companies would have a larger impact on the Fund
than on a mutual fund that does not concentrate in such companies. At times, the performance of these companies
will lag the performance of other industries or the broader market as a whole.
Dividend Strategy Risk
– There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future
or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis on
dividend paying stocks could cause the Fund to underperform similar funds that invest without consideration of a company’s
track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks may not participate
in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates or economic downturn
could cause a company to unexpectedly reduce or eliminate its dividend.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified Fund.
90 Summary
- abrdn Realty Income & Growth Fund
Summary
- abrdn Realty Income & Growth Fund
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Non-Diversified
Fund Risk – The Fund’s performance
may be more volatile than a diversified fund because it may invest a greater
percentage of its total assets in the securities of a single issuer.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk.
Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Realty Income & Growth Fund.
The bar chart shows how the Fund’s
annual total returns for Institutional Class shares have varied from year to year. The Class A shares of
the Fund were not issued prior to December 30, 2011. The
returns in the bar chart do not reflect the impact of sales charges,
if any. If the applicable sales charges were included, the annual total returns would be lower than those shown.
The
table following the bar chart compares the Fund’s performance over time with those of a broad measure of market performance,
as well as an index that reflects the market sectors in which the Fund invests. The table compares the Fund’s
average annual total returns to the returns of the S&P 500®
Index, a broad-based securities index, and the MSCI US REIT
Index. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the Fund
will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/
us/investor/fund-centre#literature
or call 866-667-9231.
The
returns presented for the Fund for periods prior to May 7, 2018 reflect the performance of a predecessor fund (the “Predecessor
Fund”), which was a registered investment company. The Fund adopted the performance of the Predecessor
Fund as the result of a reorganization that occurred as of the close of business on May 4, 2018, in which the Fund
acquired all of the assets, subject to the liabilities, of the Predecessor Fund. The Fund and the Predecessor Fund have
substantially similar investment objectives and strategies.
Returns
of the Predecessor Fund have not been adjusted to reflect the expenses applicable to the respective classes of the
Fund.
abrdn Inc. and abrdn Investments
Limited began
advising and sub-advising, respectively, the Fund immediately following the
closing of the reorganization. Performance prior to this date reflects the performance of an unaffiliated investment adviser.
Summary
- abrdn Realty Income & Growth Fund 91
Summary
- abrdn Realty Income & Growth Fund
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
Highest
Return: 17.03%
- 1st
quarter 2019
Lowest
Return: -25.28%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Institutional Class shares only and will vary for other classes. After–tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not reflect
the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ
from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
S&P
500®
Index (reflects
no deduction for fees, expenses or taxes) |
|
|
|
MSCI
US REIT Index (reflects no deduction for fees, expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the Realty Income & Growth Fund’s investment adviser and abrdn Investments Limited
(“aIL”)
serves as the Fund’s sub-adviser.
92 Summary
- abrdn Realty Income & Growth Fund
Summary
- abrdn Realty Income & Growth Fund
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Jay
Carlington, CFA®
|
Portfolio
Manager |
|
Svitlana
Gubriy |
Head
of Indirect Real Assets |
|
Bill
Pekowitz |
REIT
Analyst / Portfolio Manager |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn Realty Income & Growth Fund 93
|
|
|
Summary
- abrdn Ultra Short Municipal Income Fund
|
|
|
|
abrdn
Ultra Short Municipal Income Fund |
|
Objective
The abrdn Ultra Short Municipal Income Fund
(the “Ultra Short Municipal Income Fund” or the “Fund”) seeks high after-tax current
income consistent with preservation of capital.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Ultra Short Municipal
Income Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $250,000
in abrdn Funds. More information
about these and other discounts is available from your financial
advisor and in the “Reduction and Waiver of Class A and Class A1 Sales Charges,” and “Broker-Defined Sales Charge
Waiver Policies” sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information
on Purchases and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections
on pages 110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such
as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and example
below.
|
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Class
A1 Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering
price) |
|
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price,
whichever is less) |
|
|
|
Small
Account Fee(2) |
|
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees(3)
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
Other
Expenses |
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements
|
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A1 shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 0.25%
will be charged on Class A1 shares redeemed
within 12 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses.
|
(3) |
Management
fees have been restated to reflect current fees as a result of a reduction in the Fund’s contractual management fee rate effective
February 29, 2024. |
(4) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.70% for Class A and Class A1 shares
and 0.45% for Institutional Class shares. This contractual limitation may not be terminated without the approval of the Independent
Trustees before February
28, 2025.
This limit includes Rule 12b-1 Fees, but excludes certain expenses, including any interest, brokerage commissions, Acquired Fund Fees
and Expenses, and extraordinary
expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped
by the Adviser. |
94 Summary
- abrdn Ultra Short Municipal Income Fund
Summary
- abrdn Ultra Short Municipal Income Fund
Example
This Example is intended to help you compare
the cost of investing in the Ultra Short Municipal Income Fund with the cost of
investing in other mutual funds.
The
Example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$72
|
$263
|
$470
|
$1,068
|
CLASS
A1 SHARES |
$121
|
$299
|
$491
|
$1,047
|
INSTITUTIONAL
CLASS SHARES |
$46
|
$186
|
$338
|
$780
|
Portfolio
Turnover
The Ultra Short Municipal Income Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 231.34%
of the average value of its portfolio.
Principal
Strategies
The Ultra Short Municipal Income Fund invests
its assets in a combination of tax-exempt obligations and taxable debt obligations.
As a fundamental policy, under normal circumstances the Fund invests at least 80% of its net assets in tax-exempt
obligations. Net assets include the amounts of any borrowings for investment purposes. Tax-exempt obligations
include municipal obligations that pay interest that is free from U.S. federal income tax (other than federal alternative
minimum tax (“AMT”)).
In
managing the Fund’s investments, the Adviser seeks to capitalize on fundamental and technical opportunities in the debt
obligations markets to enhance return. The obligations in which the Fund invests may be of any maturity, but under normal
market conditions, it is expected that the Fund’s average portfolio maturity, at the time of investment, will be two years
or less. Under normal market conditions, the Fund will generally maintain an investment portfolio with a weighted average
effective duration of less than one year.
The
obligations in which the Fund invests must, at the time of investment, be rated investment grade, as determined by the
various rating agencies, or if unrated, of comparable quality as determined by the Adviser. When the Adviser determines
that an obligation is in a specific category, the Adviser will use the highest rating assigned to the obligation by any
nationally recognized statistical rating organization. In determining suitability of investment in a particular unrated security,
the Adviser takes into consideration asset and debt service coverage, the purpose of the financing, history of the issuer,
existence of other rated securities of the issuer, and other relevant conditions, such as comparability to other issuers.
If an obligation’s credit rating is downgraded after the Fund’s investment, the Adviser monitors the situation to decide
if the Fund needs to take any action such as selling the obligation.
The
Fund may
invest in specific types of municipal obligations, including auction rate securities and
tender option bonds. Tender option bonds are
created when a holder deposits tax–exempt or other bonds into a special purpose trust (“TOB trust”).
The TOB trust issues two types of securities: floating rate notes (“floaters” or “TOBs”) and a residual security
junior to the floaters (“inverse floaters”).
The Fund does not currently intend to deposit bonds into a TOB trust or invest in inverse floaters,
but may invest in floaters issued by TOB trusts.
The Fund may invest in municipal obligations
of any state, city, county or other governmental entity, including Puerto Rico and
U.S. territories. The Fund currently anticipates that it will have significant exposure to Pennsylvania, New York, Mississippi
and Texas municipal securities.
In managing the Fund, the Adviser employs a
process that combines sector allocation, fundamental research and duration
management. In determining sector allocation, the Adviser analyzes the prevailing financial and investment characteristics
of a broad range of sectors in which the Fund may invest and seeks to enhance performance and manage
risk by underweighting or overweighting particular sectors. Based on fundamental research regarding securities,
including fixed income research, credit analyses and use of sophisticated analytical systems, the Adviser makes
decision to purchase and sell securities for the Fund. The Adviser examines the material risks of an investment across
a spectrum of considerations including financial metrics, regional and national conditions and industry specific factors.
The Adviser may also consider the most material potential ESG (Environmental, Social and Governance) risks and
opportunities impacting issuers, where relevant. As
ESG information is just one investment consideration, ESG considerations
generally are not solely determinative in any investment decision made by the Adviser. The
relevance of
Summary
- abrdn Ultra Short Municipal Income Fund 95
Summary
- abrdn Ultra Short Municipal Income Fund
ESG factors to the investment process varies
across issuers and instrument types. The Adviser also considers economic factors
to develop strategic forecasts as to the direction of interest rates which are then used to establish the Fund’s target
duration, a common measurement of a security’s sensitivity to interest rate movements. For obligations owned by the
Fund, duration measures the average time needed to receive the present value of all principal and interest payments by
analyzing cash flows and interest rate movements. The Adviser closely monitors the Fund’s portfolio and makes adjustments
as necessary.
The Fund’s
investment strategies may result in a portfolio turnover rate in excess of 100% on an annual basis.
Principal
Risks
The
Ultra Short Municipal Income Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first five risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Fixed Income Securities Risk –
Fixed income securities fluctuate
in price based on changes in an issuer’s financial condition and
overall market and economic conditions. The value of a fixed income security may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. Fixed income securities are
subject to, among other risks, credit risk,
extension risk, issuer risk, interest rate risk, market risk and prepayment risk.
Active Management
Risk – The Fund is subject to the
risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
Municipal Securities Risk
– Municipal bonds can be significantly affected by political and economic changes, including inflation,
as well as uncertainties in the municipal market related to taxation, legislative changes, or the rights of municipal security
holders. Municipal bonds have varying levels of sensitivity to changes in interest rates. Interest rate risk is generally lower
for shorter-term Municipal bonds and higher for long term Municipal bonds.
Municipal
Bond Tax Risk – A municipal bond
that is issued as tax-exempt may later be declared to be taxable. In addition,
if the federal income tax rate is reduced, the value of the tax exemption may be less valuable, causing the value of
a municipal bond to decline.
Municipal
Market Volatility and Illiquidity Risk
– The municipal bond market can be susceptible to unusual volatility, particularly
for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic
conditions or credit tightening. During times of reduced market liquidity, the Fund may not be able to readily sell
bonds without the sale significantly changing the market value of the bond. If the Fund needed to sell large blocks of bonds
to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
Municipal
Sector Risk – From time to time
the Fund may invest a substantial amount of its assets in municipal securities
whose interest is paid solely from revenues of similar projects. If the Fund concentrates its investments in this manner,
it assumes the economic risks relating to such projects and this may have a significant impact on the Fund’s investment
performance.
Yield Risk –
The amount of income received by the Fund will go up or down depending on day-to-day variations in short–term
interest rates, and when interest rates are very low the Fund’s expenses could absorb all or a significant portion of the
Fund’s income. If interest rates increase, the Fund’s yield may not increase proportionately. For example, the Adviser may
discontinue any temporary voluntary fee limitation or recoup amounts previously waived and/or reimbursed.
Auction Rate Securities
Risk - Auction rate
securities are variable rate bonds whose interest rates are reset at specified intervals
through a “Dutch” auction process. A “Dutch” auction is a competitive bidding process designed to determine
a single uniform clearing
rate that enables purchases and sales of the auction rate securities to take place at par. All accepted
bids and holders of the auction rate securities receive the same rate. Auction rate securities holders rely on the liquidity
generated by the auction. There is a risk that an auction will fail due to insufficient demand for the securities. If an auction
fails, an auction rate security may become illiquid until a subsequent successful auction is conducted, the issuer redeems
the issue, or a secondary market develops.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
96 Summary
- abrdn Ultra Short Municipal Income Fund
Summary
- abrdn Ultra Short Municipal Income Fund
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid and relatively less liquid securities may also be difficult
to value. Over recent years, the capacity of dealers to make markets in fixed income securities has been outpaced
by the growth in the size of the fixed income markets. Illiquid securities risk may be magnified in a rising interest rate
environment or when investor redemptions from fixed income funds may be higher than normal, due to the increased
supply in the market that would result from selling activity.
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Interest Rate Risk –
The Fund’s fixed income investments are subject to interest rate risk, which generally causes the value of
a fixed income portfolio to decrease when interest rates rise resulting in a decrease in the Fund’s net assets. Interest rate
fluctuations tend to have a greater impact on fixed income-securities with a greater time to maturity and/or lower coupon.
A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with
a shorter average portfolio duration. In periods of market volatility, the market values of fixed income securities may be
more sensitive to changes in interest rates.
Portfolio Turnover Risk
– The Fund may engage in active and frequent trading of portfolio securities to achieve its investment
objective. High portfolio turnover may result in greater transaction costs which may reduce Fund performance.
The sale of Fund portfolio securities may also result in greater realization and/or distribution to shareholders
of gains or losses as compared to a fund with less active trading, which may include short-term gains taxable
at ordinary income tax rates.
Tender Option Bonds Risk –
Tender option bonds are synthetic floating-rate or variable-rate securities issued when long–term
bonds are purchased in the primary or secondary market and then deposited into a trust. Tender option bonds may be
considered derivatives, and may expose the Fund to the same risks as investments in derivatives, as well as risks associated
with leverage, especially the risk of increased volatility.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
Variable
and Floating Rate Securities Risk –
For floating and variable rate obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an interest payment of such an obligation,
which could harm or benefit the Fund, depending on the interest rate environment or other circumstances. Variable
rate demand obligations (“VRDOs”) are floating rate securities that combine an interest in a long term municipal bond
with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution
is unable to pay, the Fund may lose money.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Ultra Short Municipal Income Fund.
The bar chart shows how the Fund’s
annual total returns for Institutional Class shares have varied from year to year. The
returns in the bar chart do not reflect the
impact of sales charges, if any. If the applicable sales charges were included, the annual
Summary
- abrdn Ultra Short Municipal Income Fund 97
Summary
- abrdn Ultra Short Municipal Income Fund
total
returns would be lower than those shown. Unlike
the bar chart, the returns in the table reflect the maximum applicable
sales charges.
The
table compares the Fund’s performance over time with those of the Bloomberg Municipal
Bond Index, a broad-based
securities index, and the Bloomberg Barclays
Municipal Bond: 1 Year (1-2) Index.
Effective February 29, 2024,
in anticipation of new regulatory requirements, the Fund’s
broad-based securities market
index has changed from the
Bloomberg Barclays Municipal Bond: 1 Year (1-2) Index to the Bloomberg Municipal Bond Index in the Fund’s total return
table. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the Fund
will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The
returns presented for the Fund for periods prior to May 7, 2018 reflect the performance of a predecessor fund (the “Predecessor
Fund”), which was a registered investment company. The Fund adopted the performance of the Predecessor
Fund as the result of a reorganization that occurred as of the close of business on May 4, 2018, in which the Fund
acquired all of the assets, subject to the liabilities, of the Predecessor Fund. The Fund and the Predecessor Fund have
substantially similar investment objectives and strategies.
Returns
of the Predecessor Fund have not been adjusted to reflect the expenses applicable to the respective classes of the
Fund.
abrdn Inc. began advising
the Fund immediately following the closing of the reorganization. Performance prior to this date
reflects the performance of an unaffiliated investment adviser.
Class
A1 returns prior to the commencement of operations of Class A1 (inception date: February 28, 2019) are based on the
previous performance of the Fund’s Class A shares (inception date 3/30/2004). Excluding the effect of any fee waivers
or reimbursements, this performance is substantially similar to what each individual class would have produced because
all classes invest in the same portfolio of securities. Returns would only differ to the extent of the differences in expenses
between the two classes.
Annual
Total Returns – Institutional Class Shares
(Years
Ended Dec. 31)
Highest
Return: 1.12%
- 4th
quarter 2023
Lowest
Return: -0.17%
- 1st
quarter 2022
98 Summary
- abrdn Ultra Short Municipal Income Fund
Summary
- abrdn Ultra Short Municipal Income Fund
After-tax
returns are shown in the following table for Institutional Class shares only and will vary for other classes. After–tax
returns are calculated using the historical highest individual federal marginal income tax rates in effect and do not reflect
the impact of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ
from what is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual
retirement accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A1 shares – Before Taxes |
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Institutional
Class shares – After Taxes on Distributions |
|
|
|
Institutional
Class shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Bloomberg
Municipal Bond Index (reflects no deduction for fees, expenses or taxes)
|
|
|
|
Bloomberg
Barclays Municipal Bond: 1 Year (1-2) Index (reflects
no deduction for fees,
expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and sales of shares to be
greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves
as the Ultra Short Municipal Income Fund’s investment adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Miguel
Laranjeiro |
Investment
Director |
|
Jonathan
Mondillo |
Head
of U.S. Fixed Income |
|
* |
Includes
service with unaffiliated investment adviser to Predecessor Fund |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A and CLASS A1 SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund intends to distribute dividends exempt from regular federal income tax and capital gains distributions; although, a
portion of the Fund’s distributions may be subject to federal income tax or alternative minimum tax.
Summary
- abrdn Ultra Short Municipal Income Fund 99
Summary
- abrdn Ultra Short Municipal Income Fund
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
100 Summary
- abrdn Ultra Short Municipal Income Fund
|
|
|
Summary
- abrdn Emerging Markets
Dividend Fund |
|
|
|
abrdn
Emerging Markets Dividend Fund |
|
Objective
The abrdn Emerging Markets
Dividend Fund (formerly, abrdn International Sustainable Leaders Fund) (the “Emerging Markets
Dividend Fund” or the “Fund”) seeks total return consisting of income and long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the
fees and expenses that you may pay when you buy, hold and sell shares of the Emerging Markets
Dividend Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $50,000
in abrdn Funds.
More information about these and other discounts is available from your financial advisor
and in the “Reduction and Waiver of Class A and Class A1 Sales Charges,” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164
and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases and
Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages 110 and 111
of the Fund’s
Statement of Additional Information, respectively. You may pay other fees, such as brokerage commissions and other
fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares
|
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2)
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(3)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(4)
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class
A shares redeemed within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the
quarterly fee. See the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.90% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses and Rule 12b-1
fees for Class A and
extraordinary expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees
or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped
by the Adviser. |
(4) |
The
Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate to the Fund’s Ratio of Expenses
to Average Net Assets
(Net of Reimbursements/Waivers), included in the Fund’s Financial Highlights in the Fund’s prospectus, as this ratio does
not reflect non-recurring expenses,
such as extraordinary expenses. |
Example
This Example is intended
to help you compare the cost of investing in the Emerging Markets Dividend Fund with the cost of
investing in other mutual funds.
The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same (taking
into account the contractual limitation until its expiration, which impacts the 1-Year figures listed below). Although
your actual costs may
be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$685
|
$1,013
|
$1,364
|
$2,349
|
INSTITUTIONAL
CLASS SHARES |
$92
|
$381
|
$692
|
$1,574
|
Summary
- abrdn Emerging Markets Dividend Fund 101
Summary
- abrdn Emerging Markets Dividend Fund
Portfolio
Turnover
The Emerging Markets Dividend
Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 23.45%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy,
under normal circumstances, the Emerging Markets Dividend Fund invests at least 80% of the
value of its net assets, plus any borrowings for investment purposes, in equity securities of emerging market companies
that pay dividend income. The Fund will invest primarily in common stocks but may also invest in other types of
equity securities, including, but not limited to, preferred stock and depositary receipts. An emerging market country is any
country determined by the Adviser or Sub-adviser (as defined below) to have an emerging market economy, considering
factors such as the country’s credit rating, its political and economic stability and the development of its financial
and capital markets. Emerging market countries include every nation in the world except the United States, the United
Kingdom, Canada, Japan, Australia, New Zealand, Israel, Hong Kong, Singapore and most countries located in Western
Europe. A company is considered to be an emerging market company if Fund management determines that the
company meets one or more of the following criteria:
● |
the
company is organized under the laws of or has its principal office in an emerging market country; |
● |
the
company has its principal securities trading market in an emerging market country; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in an emerging market country. |
Emerging market countries
may include countries considered to be frontier markets. At times, the Fund may have a significant
amount of its assets invested in a country or geographic region. The Fund currently anticipates that it will invest a
significant amount of its assets in securities economically tied to India, Taiwan and in Mainland China equity securities, including through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect program or
by any other available means. The Fund may invest in securities denominated in U.S. Dollars and currencies of the foreign
countries in which it is permitted to invest. The Fund typically has full currency exposure to those markets in which it
invests.
The Fund may invest in
securities of any market capitalization.
The Fund may invest in
securities of any market sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the healthcare, financials
and information technology sectors.
In seeking to achieve the
Fund’s investment objective, the investment team narrows the investable universe by looking at the
dividend potential of companies and focusing on fundamental factors. The Adviser’s and Sub-adviser’s primary focus is
on stock selection using research techniques to select individual holdings. The investment team places particular emphasis
on understanding business fundamentals and dynamics and the impact this has on cash flow generation and a
company’s ability to allocate cash effectively. The investment team seeks to allocate the Fund’s assets to high dividend
paying companies and
companies that the Adviser and Sub-adviser believe are growing their dividend over time.
The Adviser and Sub-adviser’s
consideration of fundamental factors includes, among other things, a quality assessment focused
on five key factors: 1) the durability of the business model, 2) the attractiveness of the industry, 3) the strength of financials,
4) the capability of management, and 5) the most material environmental, social and governance (“ESG”) factors
impacting a company. As ESG information is just one investment consideration, ESG considerations generally are not
solely determinative in any investment decision made by the Adviser and Sub-adviser.
Principal
Risks
The
Emerging Markets Dividend Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of
the principal risks of investing in the Fund (in alphabetical order after the first eight risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
102 Summary
- abrdn Emerging Markets Dividend Fund
Summary
- abrdn Emerging Markets Dividend Fund
Equity Securities Risk
– The stock
or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management Risk
– The Fund is subject to the risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” below).
China
Risk. Investments
in China and Hong Kong subject the Fund to additional risks, and may make it significantly more
volatile than geographically diverse mutual funds. Additional risks associated with investments in China and Hong Kong
include exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization, exchange
control regulations (including currency blockage), trading halts, imposition of tariffs, limitations on repatriation and
differing legal standards. Any spread of an infectious illness, public health threat or similar issue could reduce consumer
demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant
impact on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Shanghai-Hong
Kong and Shenzhen-Hong Kong Stock Connect Risk.
Investing in China A shares through Stock Connect
involves various considerations and risks, including, but not limited to, illiquidity risk; currency risk; greater price volatility;
legal and regulatory uncertainty risk; execution risk; operational risk; tax risk; credit risk; and economic, social and
political instability of the stock market in the People’s Republic of China.
India
Risk. The value of
the Fund’s assets may be adversely affected by political, economic, social and religious factors,
changes in Indian law or regulations and the status of India’s relations with other countries. In addition, the economy
of India may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth of gross
domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
The Indian government has exercised and continues to exercise significant influence over many aspects of the economy,
and the number of public sector enterprises in India is substantial. Accordingly, Indian government actions in the
future could have a significant effect on the Indian economy, which could affect private sector companies and the Fund,
market conditions, and prices and yields of securities in the Fund’s portfolio.
Taiwan
Risk. Including risks
associated with investing in emerging markets, a Fund’s investment in or exposure to Taiwan
is also subject to risks associated with, among other things, currency fluctuations, commodity shortages, less liquidity,
expropriation, confiscatory taxation, nationalization and exchange control regulations (including currency blockage).
Inflation and rapid fluctuations in inflation and interest rates have had, and may continue to have, negative effects
on the economy and securities markets of Taiwan. In addition, investments in Taiwan could be adversely affected by
political and economic relationship with China.
Dividend Strategy Risk
– There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future
or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis on
dividend paying stocks could cause the Fund to underperform similar funds that invest without consideration of a company’s
track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks may not participate
in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates or economic downturn
could cause a company to unexpectedly reduce or eliminate its dividend.
Foreign Currency Exposure
Risk – The
value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk
– Foreign
countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Summary
- abrdn Emerging Markets Dividend Fund 103
Summary
- abrdn Emerging Markets Dividend Fund
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Frontier Markets Risk
- Frontier markets involve the same risks as emerging markets, but to a greater extent since they tend
to be even smaller, less developed, and less accessible than other emerging markets.
Mid-Cap Securities Risk
– Securities
of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Financials
Sector Risk. To the
extent that the financials sector represents a significant portion of the Fund, the Fund will
be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector. Performance
of companies in the financials sector may be adversely impacted by many factors, including, among others,
government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased liquidity
in credit markets as well as cyber-attacks.
Information
Technology Sector Risk.
To the extent that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Healthcare
Sector Risk. To the
extent that the healthcare sector represents a significant portion of the Fund, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the healthcare sector may be adversely impacted by many factors, including, among
others, government regulation. restrictions on government reimbursement for medical expenses, changes to the costs
of medical products and services, pricing pressure, increased emphasis on outpatient services, a limited number of products,
industry innovation, changes in technologies, and other market developments.
Small-Cap Securities
Risk – Securities
of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk. Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Emerging Markets Dividend Fund.
The bar chart shows how
the Fund’s annual total returns for Class A have varied from year to year. The table compares the Fund’s average
annual total returns to the returns of the MSCI Emerging Markets Index (Net Daily Total Return), a broad-based
104 Summary
- abrdn Emerging Markets Dividend Fund
Summary
- abrdn Emerging Markets Dividend Fund
securities index, and the MSCI All Country World
ex USA Index (Net Daily Total Return). Effective February 29, 2024, the MSCI
Emerging Markets Index (Net Daily Total Return) replaced the MSCI All Country World ex USA Index (Net Daily Total Return)
as the Fund’s primary benchmark in connection with a change in name and strategy of the Fund. Remember,
however, that past performance (before and
after taxes) is not necessarily indicative of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment
strategy effective February 29, 2024 from an international sustainable leaders strategy to
an emerging markets dividend strategy. In connection with the change in investment strategy, the Fund changed its name
from abrdn International Sustainable Leaders Fund to abrdn Emerging Markets Dividend Fund.
The returns presented for
the Fund for periods prior to December 3, 2021 reflect the performance of a predecessor fund (the
“Predecessor Fund”), a registered investment company. The Fund adopted the performance of the Predecessor Fund
as the result of a reorganization on December 3, 2021, in which the Fund acquired all of the assets, subject to the liabilities,
of the Predecessor Fund. Returns of the Predecessor Fund have been adjusted to reflect applicable sales charges
but not the differences in the expenses applicable to the respective classes of the Fund. Performance shown reflects
the Predecessor Fund’s receipt of payment of Article 63 EU Tax Reclaims related to prior years (2005-2008). The receipt
of these extraordinary payments on various dates beginning December 16, 2016 effectively increased the Fund’s performance
for all periods that include these payments in a manner that may not recur in the future, and the Fund’s performance
was significantly higher for those periods than it would have been had the Fund not received payment of the
Article 63 EU Tax Reclaims.
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 18.66%
- 2nd
quarter 2020
Lowest
Return: -23.63%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated
using the historical highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Summary
- abrdn Emerging Markets Dividend Fund 105
Summary
- abrdn Emerging Markets Dividend Fund
Average
Annual Total Returns of the Fund as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
MSCI
Emerging Markets Index (Net Daily Total Return) (reflects deductions for expenses
and taxes) |
|
|
|
MSCI
All Country World ex USA Index (Net Daily Total Return) (reflects
deductions for expenses
and taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves as the Emerging Markets Dividend Fund’s investment adviser. abrdn Investments Limited serves as the Fund’s
sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being responsible for the day-to-day
management of the Fund, with Matt Williams serving as lead portfolio manager and Gabriel Sacks heading the
portfolio construction group:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Matt
Williams, CFA®
|
Senior
Investment Director |
|
Gabriel
Sacks, CFA®
|
Investment
Director |
|
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
106 Summary
- abrdn Emerging Markets Dividend Fund
|
|
|
Summary
- abrdn Global Equity Impact Fund
|
|
|
|
abrdn
Global Equity Impact Fund |
|
Objective
The abrdn Global Equity Impact Fund (the “Global
Equity Impact Fund” or the “Fund”) seeks long-term growth of capital.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the Global Equity Impact
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least
$50,000
in abrdn Funds. More information
about these and other discounts is available from your financial advisor and
in the “Reduction and Waiver of Class A and Class A1 Sales Charges,” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages
110 and 111 of the Fund’s Statement of Additional Information, respectively. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares |
Institutional
Class Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2) |
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(3)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(4)
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class A shares redeemed
within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the quarterly fee. See
the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.90% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025 without the approval
of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses and Rule 12b-1
fees for Class A and extraordinary expenses.
The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses previously
paid by the Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the
Adviser limited the fees or reimbursed the
expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense limitation
in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the
expenses are being recouped by the Adviser. |
(4) |
The
Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate to the Fund’s Ratio of Expenses
to Average Net Assets
(Net of Reimbursements/Waivers), included in the Fund’s Financial Highlights in the Fund’s prospectus, as this ratio does
not reflect non-recurring expenses,
such as extraordinary expenses. |
Example
This Example is intended to help you compare
the cost of investing in the Global Equity Impact Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same
(taking into account
the contractual limitation until its expiration, which impacts the 1-Year figures listed below).
Although
your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$685
|
$1,051
|
$1,441
|
$2,528
|
INSTITUTIONAL
CLASS SHARES |
$92
|
$426
|
$783
|
$1,790
|
Summary
- abrdn Global Equity Impact Fund 107
Summary
- abrdn Global Equity Impact Fund
Portfolio
Turnover
The Global Equity Impact Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when
Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or
in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s
portfolio turnover rate was 30.88%
of the average value of its portfolio.
Principal
Strategies
As a non-fundamental policy, under normal circumstances,
the Global Equity Impact Fund invests at least 80% of the value
of its net assets, plus any borrowings for investment purposes, in equity securities issued by companies located throughout
the world (including the U.S.). Equity securities include, but are not limited to, common stock, preferred stock and
depositary receipts.
The Fund invests in securities of companies
that aim to create positive measurable environmental and/or social impacts.
Under normal market conditions, the Fund will
invest significantly (at least 40% -- unless market conditions are not deemed
favorable by the Adviser in which case the Fund would invest at least 30%) in non-U.S. companies. A company is considered
to be a non-U.S. company if Fund management determines that the company meets one or more of the following
criteria:
● |
the
company is organized under the laws of, or has its principal office in, a country outside the U.S.; |
● |
the
company has its principal securities trading market in a country outside the U.S.; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in a country outside the U.S. |
Under normal market conditions, the Fund invests
in securities from at least three different countries. The Fund may also invest
in companies of emerging market countries. At times, the Fund may have a significant amount of its assets invested
in a country or geographic region. The Fund may invest in securities denominated in U.S. Dollars and currencies of
the foreign countries in which it is permitted to invest. The Fund may invest up to 10% of its assets, measured at the time of
purchase, in mainland China equity and equity-related securities, including through the Shanghai-Hong Kong and Shenzhen-Hong
Kong Stock Connect program or by any other available means. The Fund typically has full currency exposure
to those markets in which it invests. In addition, the Fund may invest in securities of any market capitalization. The
Fund may invest in securities of any market sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the industrials,
healthcare and financials sectors.
The Adviser selects investments for the Fund
based on both: (i) an evaluation of the important factors that drive a company’s
share price, as well as (ii) the company’s environmental and social impact practices.
In pursuing the Fund’s investment strategies,
the Adviser invests in quality companies and is an active, engaged owner. The
Adviser evaluates every company against quality criteria and builds conviction using a team-based approach and peer
review process. The Adviser’s stock analysts work closely with dedicated ESG specialists who sit within each regional investment
team and provide expertise and insight at the company level. Through
fundamental research, supported by a global
research presence, the Adviser seeks to identify companies whose quality and
future prospects are not yet fully recognized
by the market. The Adviser’s overall quality assessment covers five key factors: (1) durability of the business model,
(2) the attractiveness of the industry, (3) the strength of financials, (4) the capability of management, and (5) the most
material ESG factors impacting a company.
After an investment opportunity satisfies the
Adviser’s evaluation of price and fundamental factors, the Adviser then assesses
a company’s ability to deliver positive outcomes for the environment and society in eight areas or “pillars”: circular
economy (i.e. optimal reuse of resources); sustainable energy; food and agriculture; water and sanitation; health and
social care; financial inclusion; sustainable real estate and infrastructure; and, education and employment. The Fund may
also invest up to 10% of its assets, measured at the time of purchase, in companies that enable progress aligned to each
pillar, but are too far down the supply chain for impact to be directly attributable to them. The Adviser generally aligns
its impact assessment to the United Nations Sustainable Development Goals (“SDGs”). Only those investments that meet
the Adviser’s impact criteria are eligible for investment.
In carrying out the Fund’s investment
strategy, the Adviser combines the analysis of its equity teams with the analysis of its
impact analysts and environmental, social and governance (“ESG”) analysts. This allows the Adviser to assess a company’s
alignment with the pillars. The Adviser determines alignment with each pillar by assessing intentionality. At least
30% of company investment (e.g. research and development, capital expenditure) must be directed towards a product
or service aligned with one of the impact pillars to demonstrate intentionality. A company’s progress against each
pillar is measured using key performance indicators (KPIs) that mirror the SDGs’ KPIs, linking the company’s ability to
affect positive change in the context of these overarching global challenges. Engagement with company management
teams is a part of the Adviser’s investment process and ongoing stewardship program. The Adviser’s process
evaluates the ownership structures, governance and management quality of the companies.
108 Summary
- abrdn Global Equity Impact Fund
Summary
- abrdn Global Equity Impact Fund
In addition, a set of ESG-related binary exclusions
will be applied which supports the sustainable development aims of the United
Nations. Please see “Fund Details – Additional Information about Principal Strategies” for the list of screens that
are applied.
Principal
Risks
The
Global Equity Impact Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first seven risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Impact Investing Risk –
In implementing the Fund’s ESG (Environmental, Social and Governance) investment strategy, the Adviser
may select or exclude securities of issuers in certain industries, sectors, regions or countries for reasons other than
the issuer’s investment performance. For this reason, the Fund’s ESG strategy could cause it to perform differently compared
to funds that do not have such strategy. ESG investing is qualitative and subjective by nature. In addition, the Fund
may be required to sell a security when it might otherwise be disadvantageous for it to do so. In evaluating an issuer, the
Adviser utilizes, in part, information and data obtained through voluntary or third-party reporting that may be incomplete,
inaccurate or unavailable, which could cause the Adviser to incorrectly assess an issuer’s business practices with
respect to the environment, social responsibility and corporate governance. Securities of companies with ESG practices
may shift into and out of favor depending on market and economic conditions. The definition of “impact investing”
will vary according to an investor’s beliefs and values. There is no guarantee that the Adviser’s definition of impact
investing, security selection criteria or investment judgment will reflect the beliefs or values of any particular investor.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Emerging Markets Risk
– Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” above).
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Summary
- abrdn Global Equity Impact Fund 109
Summary
- abrdn Global Equity Impact Fund
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Healthcare
Sector Risk. To the
extent that the healthcare sector represents a significant portion of the Fund, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the healthcare sector may be adversely impacted by many factors, including, among
others, government regulation. restrictions on government reimbursement for medical expenses, changes to the costs
of medical products and services, pricing pressure, increased emphasis on outpatient services, a limited number of products,
industry innovation, changes in technologies, and other market developments.
Financials
Sector Risk. To the
extent that the financials sector represents a significant portion of the Fund, the Fund will
be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector. Performance
of companies in the financials sector may be adversely impacted by many factors, including, among others,
government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased liquidity
in credit markets as well as cyber-attacks.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger,
more established companies. Therefore, they generally involve greater risk.
Small-cap companies may have limited
product lines or markets, be less financially secure than larger companies, or depend on a small number of key personnel.
If adverse developments occur, such as due to management changes or product failure, a Fund’s investment in
a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the Global Equity Impact Fund.
The bar chart shows how the Fund’s
annual total returns for Class A have varied from year to year. The table compares the Fund’s average
annual total returns to the returns of the MSCI All Country World Index (Net Daily Total Return), a broad-based securities
index. Remember,
however, that past performance (before and after taxes) is not necessarily indicative of how the
Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/
fund-centre#literature or
call 866-667-9231.
The returns presented for the Fund for periods
prior to December 3, 2021 reflect the performance of a predecessor fund (the
“Predecessor Fund”), a registered investment company. The Fund adopted the performance of the Predecessor Fund
as the result of a reorganization on December 3, 2021, in which the Fund acquired all of the assets, subject to the liabilities,
of the Predecessor Fund.
Returns of the Predecessor Fund have been adjusted
to reflect applicable sales charges but not the differences in the expenses
applicable to the respective classes of the Fund.
110 Summary
- abrdn Global Equity Impact Fund
Summary
- abrdn Global Equity Impact Fund
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 23.68%
- 2nd
quarter 2020
Lowest
Return: -19.34%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated using the historical
highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
MSCI
All Country World Index (Net Daily Total Return) (reflects
deductions for expenses
and taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves as the Global Equity Impact Fund’s investment adviser. abrdn Investments Limited serves as the Fund’s sub-adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Dominic
Byrne, CFA® |
Deputy
Head of Developed Markets |
|
Sarah
Norris |
Head
of ESG - Equities |
|
Summary
- abrdn Global Equity Impact Fund 111
Summary
- abrdn Global Equity Impact Fund
* |
Includes
service to Predecessor Fund. |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
112 Summary
- abrdn Global Equity Impact Fund
|
|
|
Summary
- abrdn High Income Opportunities
Fund |
|
|
|
abrdn
High Income Opportunities Fund |
|
Objective
The abrdn High Income Opportunities
Fund (formerly, abrdn Global High Income Fund) (the “High Income Opportunities Fund”
or the “Fund”) seeks to maximize total return, principally through a high level of current income, and secondarily through
capital appreciation.
Fees
and Expenses of the Fund
This table describes the
fees and expenses that you may pay when you buy, hold and sell shares of the High Income Opportunities
Fund. You
may qualify for sales charge discounts if you and your family invest, or agree to invest in the future,
at least $100,000
in abrdn Funds.
More information about these and other discounts is available from your financial
advisor and in the “Reduction and Waiver of Class A and Class A1 Sales Charges,” and “Broker-Defined Sales Charge Waiver Policies”
sections on pages 164 and 221 of the Fund’s prospectus, respectively, and in the “Additional Information on Purchases
and Sales — Waiver of Class A and Class A1 Sales Charges” and “Reduction of Sales Charges” sections on pages 110 and 111
of the Fund’s
Statement of Additional Information, respectively. You may pay other fees, such as brokerage commissions and
other fees to financial intermediaries, which are not reflected in the table and example below.
|
|
|
Shareholder
Fees (fees paid directly from your investment) |
Class
A Shares
|
Institutional Class
Shares
|
Maximum
Sales Charge (Load) imposed upon purchases (as a percentage of offering price) |
|
|
Maximum
Deferred Sales Charge (Load) (as a percentage of offering or sale price, whichever is less)
|
|
|
Small
Account Fee(2)
|
|
|
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
|
Management
Fees |
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses(3)
|
|
|
Total
Annual Fund Operating Expenses(4)
|
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(5)
|
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(4)
|
|
|
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, a contingent deferred sales charge (CDSC) of up to 1.00%
will be charged on Class
A shares redeemed within 18 months of purchase if you paid no sales charge on the original purchase and a finder’s fee was paid.
|
(2) |
Accounts
with balances below $1,000 are generally subject to a $5 quarterly fee (with an annual maximum of $20 per account). Shares from such accounts
are redeemed each quarter to cover the fee, which is returned to the Fund to offset small account expenses. Under some circumstances,
the Fund may waive the
quarterly fee. See the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. |
(3) |
Acquired
fund fees and expenses are indirect fees and expenses that the Fund incurs from investing in the shares of other mutual funds, including
money market funds and
exchange traded funds. |
(4) |
The
Total Annual Fund Operating Expenses and Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate
to the Fund’s
Ratio of Expenses (Prior to Reimbursements) to Average Net Assets and Ratio of Expenses to Average Net Assets, respectively, included
in the Fund’s
Financial Highlights in the Fund’s prospectus, as those ratios do not reflect indirect expenses, such as Acquired Fund Fees and
Expenses. |
(5) |
abrdn
Funds (the “Trust”) and abrdn Inc. (the “Adviser”) have entered into a written contract limiting operating
expenses to 0.70% for all classes of the Fund.
This contractual limitation may not be terminated before February
28, 2025
without the approval of the Independent Trustees. This limit excludes certain
expenses, including any taxes, interest, brokerage fees, short-sale dividend expenses, Acquired Fund Fees and Expenses and Rule 12b-1
fees for Class A shares
and extraordinary expenses. The Trust is authorized to reimburse the Adviser for management fees previously limited and/or for expenses
previously paid by the
Adviser, provided, however, that any reimbursements must be paid at a date not more than three years after the date when the Adviser
limited the fees or reimbursed the expenses and the reimbursements do not cause a Class to exceed the lesser of the applicable expense
limitation in the contract
at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being
recouped by the Adviser. |
Example
This Example is intended
to help you compare the cost of investing in the High Income Opportunities Fund with the cost of investing
in other mutual funds.
Summary
- abrdn High Income Opportunities Fund 113
Summary
- abrdn High Income Opportunities Fund
The Example assumes that
you invest $10,000 in the High Income Opportunities Fund for the time periods indicated and then
sell all of your shares at the end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses
remain the same (taking into account the contractual limitation until its expiration, which impacts the 1-Year figures
listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
CLASS
A SHARES |
$396
|
$681
|
$986
|
$1,853
|
INSTITUTIONAL
CLASS SHARES |
$74
|
$306
|
$556
|
$1,274
|
Portfolio
Turnover
The High Income Opportunities
Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover
rate was 74.58%
of the average value of its portfolio.
Principal
Strategies
The High Income Opportunities
Fund seeks to achieve its investment objective by investing primarily in a diversified portfolio
of high income producing instruments. High income producing instruments include those rated at the time of purchase
below “BBB–” by Standard & Poor’s Rating Service (“S&P”), or below “Baa3”
by Moody’s Investors Service, Inc. (“Moody’s”),
or below a comparable rating by another nationally recognized statistical rating organization, or unrated bonds
determined by the Adviser to be of comparable quality. The Fund may invest in securities rated in the lowest ratings
category or in default (i.e., “junk bonds”, which are speculative). Although the Fund typically invests in high income debt
securities, the Fund may also invest in investment grade debt. The Fund has the flexibility to invest in a broad-range of
debt instruments, including, but not limited to, corporate and sovereign debt from U.S. and non-U.S. issuers, including those
in emerging markets. The Fund may invest in debt securities of any maturity.
The Adviser examines the
material risks of an investment across a spectrum of considerations including financial metrics, regional
and national conditions and industry specific factors. The Adviser may also consider the most material potential Environmental,
Social and Governance (“ESG”) risks and opportunities impacting issuers, where relevant. As ESG information
is just one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser. The relevance of ESG factors to the investment process varies across issuers and
instrument types. The Fund seeks to invest in securities of issuers that are expected to exhibit stable to improving credit
characteristics based on industry trends, company positioning, and management strategy, taking into account the potential
positive impact of any restructurings or other corporate reorganizations.
The
strategy is primarily directed toward U.S. Dollar denominated debt rated below investment grade (i.e., “junk bonds”) and
the Fund ordinarily invests at least 60% of its net assets in U.S. Dollar denominated securities. However, the Fund may purchase
securities denominated in foreign currencies.
The
Fund may also invest in restricted securities and private placements including securities issued under Rule 144A and/or
Regulation S (“Regulation S Securities”).
The
Fund may invest in debt-like instruments (for example, structured notes and equity baskets) that provide exposure to equity
markets or indices. The Fund may invest in preferred stocks, asset-backed securities, debt instruments convertible into
common stock, income trusts, and swaps. The Fund may invest in bank loans, which include floating and fixed–rate debt
securities generally acquired as a participation interest in, or assignment of, a loan originated by a lender or financial institution.
The Fund may invest in, enter into, or acquire participation in, delayed funding loans and revolving credit facilities.
The
Fund may also invest up to 20% of its net assets in equity securities. The Fund may invest in equity warrants, index warrants,
covered warrants, interest rate warrants and long term options of, or relating to, international issuers that trade on
an exchange or over-the-counter (“OTC”).
To
achieve its investment objective, the Fund uses derivatives under certain market conditions. The Fund may use derivatives
as a substitute for taking a position or reducing exposure to underlying assets or for hedging currency exposure.
The Fund expects that derivative instruments will include the purchase and sale of futures contracts, forward foreign
exchange contracts, non-deliverable forwards, swaps, options (including options on futures and options on swaps),
warrants, and structured notes. In complying with the minimum and maximum investment limitations set forth above,
the Fund may include investments in derivatives with an underlying asset with economic characteristics similar to the
investments included in such limitation.
114 Summary
- abrdn High Income Opportunities Fund
Summary
- abrdn High Income Opportunities Fund
Principal
Risks
The
High Income Opportunities Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of
the principal risks of investing in the Fund (in alphabetical order after the first ten risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Fixed Income Securities
Risk – Fixed
income securities fluctuate in price based on changes in an issuer’s financial condition and
overall market and economic conditions. The value of a fixed income security may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. Fixed income securities are subject to, among
other risks, credit risk, extension risk, issuer risk, interest rate risk, market risk and prepayment risk.
Active Management Risk
– The Fund
is subject to the risk that the Adviser may make poor security selections. The Adviser and
its portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the
Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser
may select securities that underperform the relevant market or other funds with similar investment objectives and
strategies.
High-Yield Bonds and
Other Lower-Rated Securities Risk –
The Fund’s investments in high-yield bonds (commonly referred to
as “junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. Investments in high–yield
bonds are speculative and issuers of these securities are generally considered to be less financially secure and less able
to repay interest and principal than issuers of investment-grade securities. Prices of high-yield bonds tend to be very volatile.
These securities are less liquid than investment-grade debt securities and may be difficult to price or sell, particularly
in times of negative sentiment toward high-yield securities.
Foreign Securities Risk
– Foreign
countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors affecting
the particular issuer as well as foreign markets and issuers generally, such as unfavorable or unsuccessful government
actions, reduction of government or central bank support and political or financial instability. Lack of information
may also affect the value of these securities. To the extent the Fund focuses its investments in a single country
or only a few countries in a particular geographic region, economic, political, regulatory or other conditions affecting
such country or region may have a greater impact on Fund performance relative to a more geographically diversified
fund.
Foreign Currency Exposure
Risk – The
value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. If the Fund incurs losses from foreign
currencies or foreign currency hedge positions, the Fund’s distributions could constitute a return of capital to shareholders
for federal income tax purposes.
Emerging Markets Risk
– Emerging markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries because the countries
may have less stable governments, more volatile currencies and less established markets (see “Foreign Securities
Risk” above).
Illiquid Securities
Risk – Illiquid
securities are assets that the Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset. An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being
able to take advantage of other investment opportunities. Illiquid and relatively less liquid securities may also be difficult
to value. Over recent years, the capacity of dealers to make markets in fixed income securities has been outpaced
by the growth in the size of the fixed income markets. Illiquid securities risk may be magnified in a rising interest rate
environment or when investor redemptions from fixed income funds may be higher than normal, due to the increased
supply in the market that would result from selling activity.
The Adviser employs procedures
and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
the Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable the Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Summary
- abrdn High Income Opportunities Fund 115
Summary
- abrdn High Income Opportunities Fund
Impact of Large Redemptions
and Purchases of Fund Shares –
Occasionally, shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Bank Loan Risk –
There are a number of risks associated with an investment in bank loans including credit risk, interest rate risk,
illiquid securities risk, and prepayment risk. There is also the possibility that the collateral securing a loan, if any, may be
difficult to liquidate or be insufficient to cover the amount owed under the loan. Bank loans have significantly longer settlement
periods (e.g., longer than seven days) than more traditional investments resulting in the proceeds from the sale
of such loans not being readily available to make additional investments or to meet a Fund’s redemption obligations. In
addition, loans are not registered under the federal securities laws like stocks and bonds, so investors in loans have less protection
against improper practices than investors in registered securities. These risks could cause the Fund to lose income
or principal on a particular investment, which in turn could affect the Fund’s returns.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Derivatives Risk (including
Options, Futures and Swaps) –
Derivatives are speculative and may hurt the Fund’s performance.
The potential benefits to be derived from the Fund’s options, futures and derivatives strategy are dependent
upon the portfolio managers’ ability to discern pricing inefficiencies and predict trends in these markets, which
decisions could prove to be inaccurate.
Speculative
Exposure Risk –
To the extent that a derivative or practice is not used as a hedge, the Fund is directly exposed
to its risks. Gains or losses from speculative positions in a derivative may be much greater than the derivative’s original
cost. For example, potential losses from writing uncovered call options and from speculative short sales are unlimited.
Hedged
Exposure Risk –
Losses generated by a derivative or practice used by the Fund for hedging purposes should be
substantially offset by gains on the hedged investment. However, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Correlation
Risk – The
Fund is exposed to the risk that changes in the value of a hedging instrument will not match those
of the investment being hedged.
Counterparty
Risk – Derivative
transactions depend on the creditworthiness of the counterparty and the counterparty’s
ability to fulfill its contractual obligations.
Other
Derivatives Risks
– Fixed income derivatives are subject to interest rate risk. In addition, certain derivatives may
be subject to illiquid securities risk, mispricing or valuation complexity, market risk and management risk. The Fund may
need to sell portfolio securities at inopportune times to satisfy margin or payment obligations under derivatives investments.
Changes in regulation relating to the Fund’s use of derivatives and related instruments could potentially limit or
impact the Fund’s ability to invest in derivatives, limit the Fund’s ability to employ certain strategies that use derivatives
and/or adversely affect
the value of derivatives and the Fund’s performance.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Interest Rate Risk –
The Fund’s fixed income investments are subject to interest rate risk, which generally causes the value of
a fixed income portfolio to decrease when interest rates rise resulting in a decrease in the Fund’s net assets. Interest rate
fluctuations tend to have a greater impact on fixed income-securities with a greater time to maturity and/or lower coupon.
A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with
a shorter average portfolio duration. In periods of market volatility, the market values of fixed income securities may be
more sensitive to changes in interest rates.
Portfolio Turnover Risk
– Fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. High portfolio turnover may result in greater transaction costs which may reduce Fund performance. The
sale of Fund portfolio securities may also result in greater realization and/or distribution to shareholders of gains or losses
as compared to a fund with less active trading, which may include short-term gains taxable at ordinary income tax
rates.
116 Summary
- abrdn High Income Opportunities Fund
Summary
- abrdn High Income Opportunities Fund
Private Placements and
Other Restricted Securities Risk –
Investments in private placements and other restricted securities,
including Regulation S Securities and Rule 144A Securities, could have the effect of increasing the Fund’s level of
illiquidity. Private placements and restricted securities may be less liquid than other investments because such securities
may not always be readily sold in broad public markets and the Fund might be unable to dispose of such securities
promptly or at prices reflecting their true value.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Sovereign Debt Risk
– Periods
of economic and political uncertainty may result in the illiquidity and increased price volatility
of a foreign government’s debt securities held by the Fund and impact an issuer’s ability and willingness to pay interest
or repay principal when due. The Fund may have limited recourse to compel payment in the event of a default. A foreign
government’s default on its debt securities may cause the value of securities held by the Fund to decline significantly.
Sovereign debt risk is increased for emerging market issuers. The Fund may also invest in obligations issued or
guaranteed by supranational entities, such as the World Bank. Supranational entities have no taxing authority and are dependent
on their members for payments of interest and principal. If one or more members of a supranational entity fails
to make necessary contributions, the entity may be unable to pay interest or repay principal on its debt securities. Political
changes in principal donor nations may unexpectedly disrupt the finances of supranational entities.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
Yield Risk –
The amount of income received by the Fund will go up or down depending on day-to-day variations in short–term
interest rates, and when interest rates are very low the Fund’s expenses could absorb all or a significant portion of the
Fund’s income. If interest rates increase, the Fund’s yield may not increase proportionately. For example, the Adviser may
discontinue any temporary voluntary fee limitation or recoup amounts previously waived and/or reimbursed.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
The
bar chart and table below can help you evaluate potential risks of the High Income Opportunities Fund.
The bar chart shows how
the Fund’s annual total returns for Class A have varied from year to year. The table compares the Fund’s average
annual total returns to the returns of the Bloomberg Global Aggregate Bond Index, a broad-based securities index,
and the ICE BofA Merrill Lynch Global High Yield Constrained Index (Hedged to USD). Effective February 29, 2024, in anticipation
of new regulatory requirements, the Fund’s broad-based securities market index has changed from the ICE BofA
Merrill Lynch Global High Yield Constrained Index (Hedged to USD) to the Bloomberg Global Aggregate Bond Index in
the Fund’s total return table. Remember,
however, that past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future.
For updated performance information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
The Fund changed its investment
strategy effective August 18, 2023, which introduced increased flexibility to invest in U.S. issuers.
Performance prior to August 18, 2023 does not reflect the current investment strategy. In connection with the investment
strategy change, the Fund changed its name from the abrdn Global High Income Fund to the abrdn High Income
Opportunities Fund. The returns presented for the Fund for periods prior to December 3, 2021 reflect the performance
of a predecessor fund (the “Predecessor Fund”), a registered investment company. The Fund adopted the performance
of the Predecessor Fund as the result of a reorganization on December 3, 2021, in which the Fund acquired all
of the assets, subject to the liabilities, of the Predecessor Fund.
Returns of the Predecessor
Fund have been adjusted to reflect applicable sales charges but not the differences in the expenses
applicable to the respective classes of the Fund.
Summary
- abrdn High Income Opportunities Fund 117
Summary
- abrdn High Income Opportunities Fund
Annual
Total Returns – Class A Shares
(Years
Ended Dec. 31)
Highest
Return: 12.44%
- 2nd
quarter 2020
Lowest
Return: -15.45%
- 1st
quarter 2020
After-tax
returns are shown in the following table for Class A shares only and will vary for other classes. After-tax
returns are calculated
using the historical highest individual federal marginal income tax rates in effect and do not reflect the impact
of state and local taxes. Your
actual after-tax return depends on your personal tax situation and may differ from what
is shown here. After-tax returns are not relevant to investors in tax-deferred arrangements, such as individual retirement
accounts, 401(k) plans or certain other employer-sponsored retirement plans.
Average
Annual Total Returns of the Fund as of December 31, 2023
|
|
|
|
|
1
Year |
5
Years |
10
Years |
Class
A shares – Before Taxes |
|
|
|
Class
A shares – After Taxes on Distributions |
|
|
|
Class
A shares – After Taxes on Distributions and Sales of Shares(1)
|
|
|
|
Institutional
Class shares – Before Taxes |
|
|
|
Bloomberg
Global Aggregate Bond Index (reflects
no deductions for expenses or taxes)
|
|
|
|
ICE
BofA Merrill Lynch Global High Yield Constrained Index (Hedged to USD) (reflects
no deductions for expenses or taxes) |
|
|
|
(1) |
Under
certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the returns after taxes
on distributions and
sales of shares to be greater than the returns after taxes on distributions or the returns before taxes. |
Investment
Adviser
abrdn
Inc. serves as the High Income Opportunities Fund investment adviser.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
118 Summary
- abrdn High Income Opportunities Fund
Summary
- abrdn High Income Opportunities Fund
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Ben
Pakenham |
Head
of European High Yield and Global Loans |
|
George
Westervelt, CFA®
|
Head
of Global High Yield |
|
Matthew
Kence |
Investment
Director |
|
Adam
Tabor, CFA®
|
Investment
Director |
|
* |
Includes
service to Predecessor Fund. |
Purchase
and Sale of Fund Shares
The
Fund’s minimum investment requirements are as follows:
|
|
CLASS
A SHARES |
To
open an account |
$1,000
|
To
open an IRA account |
$1,000
|
Additional
investments |
$50
|
To
start an Automatic Investment Plan |
$1,000
|
Additional
Investments (Automatic Investment Plan) |
$50
|
|
|
INSTITUTIONAL
CLASS SHARES |
To
open an account |
$1,000,000
|
Additional
investments |
No
Minimum |
The
Fund reserves the right to apply or waive investment minimums under certain circumstances as described in the prospectus
under the “Choosing a Share Class” section.
Fund
shares may be redeemed on each day that the New York Stock Exchange is open. Fund shares may be sold by mail or
fax, by telephone or on-line.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn High Income Opportunities Fund 119
Additional
Information about Principal Strategies
Investment
Objectives. The investment
objective(s) of each the Dynamic Dividend Fund, Global Infrastructure Fund and
Realty Income & Growth Fund are fundamental and may not be changed without the approval of a majority of the outstanding
voting securities of that Fund. The investment objective of each of the other Funds is not fundamental and may
be changed by the Board of Trustees without shareholder approval. Unless otherwise stated, all other investment policies
of the Funds may be changed by the Board of Trustees without shareholder approval.
80%
Investment Policy.
If the Focused U.S. Small Cap Equity Fund, Infrastructure Debt Fund, U.S. Small Cap Equity Fund,
China A Fund, Emerging Markets Sustainable Leaders Fund, Emerging Markets ex-China Fund, Emerging Markets Fund,
International Small Cap Fund, U.S. Sustainable Leaders Fund, Global Infrastructure Fund, Realty Income & Growth Fund,
Emerging Markets Dividend Fund or Global Equity Impact Fund changes its 80% investment policy it will notify shareholders
at least 60 days before the change and, if necessary, will change the name of the Fund.
Derivatives.
To the extent that a Fund invests in derivatives with an underlying asset with economic characteristics similar
to the investments included in the investment policies described under “Principal Strategies” of such Fund’s “Summary”
section above, the market value or notional value of such derivative, depending on the exposure provided by the
type of derivative, would be included to meet the applicable investment policy, except for 80% policies required by Rule
35d-1 with respect to which market value would be included.
Split
Ratings. In the event
that a security receives different ratings from different NRSROs, unless specific disclosure in a
Fund’s summary provides otherwise, the Adviser treats the security as being rated in the lowest rating category received
from an NRSRO. To the extent that a Fund invests primarily in below investment-grade securities, this could result in
such a Fund holding a portion of its assets in securities that have received an investment-grade rating from one or more
NRSROs.
Equity
Funds
abrdn
U.S. Small Cap Equity Fund, abrdn China A Share Equity Fund, abrdn Emerging Markets ex-China Fund, abrdn Emerging
Markets Fund, abrdn Focused U.S. Small Cap Equity and abrdn Global Infrastructure Fund
In
seeking to achieve the Funds’ investment objectives, the Adviser and Sub-adviser(s), as applicable, (together, the “Advisers”)
invest in quality companies and are active, engaged owners. The Advisers evaluate every company against quality
criteria and build conviction using a team-based approach and peer review process. The quality assessment covers
five key factors: (1) durability of the business model, (2) the attractiveness of the industry, (3) the strength of financials,
(4) the capability of management, and (5) the most material Environmental, Social and Governance (“ESG”) factors
impacting a company. Examples of ESG factors considered by the Advisers include, but are not limited to, carbon emissions,
climate risks, labor management, employee safety and corporate governance. The specific factors considered
may vary depending on the type of company being evaluated. As ESG information is just one investment consideration,
ESG considerations generally are not solely determinative in any investment decision made by the Advisers.
Through
fundamental research, supported by a global research presence, the Advisers seek to identify companies whose
quality and future prospects are not yet fully recognized by the market.
The
Advisers may sell a security when they perceive that a company’s business direction or growth potential has changed
or the company’s valuations no longer offer attractive relative value.
abrdn
Emerging Markets Dividend Fund
In
seeking to achieve the Fund’s investment objectives, the Adviser and Sub-adviser (together, the “Advisers”) narrow
the investable universe by looking at the dividend potential of companies and focusing on fundamental factors. The
Advisers’ primary focus is on stock selection using research techniques to select individual holdings. The investment team
places particular emphasis on understanding business fundamentals and dynamics and the impact this has on cash
flow generation and a company’s ability to allocate cash effectively. The investment team seeks to allocate the Fund’s
assets to high dividend paying companies and companies that the Advisers believe are growing their dividend over
time.
The
Advisers’ consideration of fundamental factors includes, among other things, a quality assessment focused on five
key factors: 1) the durability of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4)
the capability of management, and 5) the most material environmental, social and governance (“ESG”) factors impacting
a company. Examples of ESG factors considered by the Advisers include, but are not limited to, carbon emissions,
climate risks, labor management, employee safety and corporate governance. The specific factors considered
may vary depending on the type of company being evaluated. As ESG information is just one investment consideration,
ESG considerations generally are not solely determinative in any investment decision made by the Advisers.
The
Advisers may sell a security when a company no longer meets its investment criteria or the Advisers have found better
opportunities elsewhere.
abrdn
Global Equity Impact Fund
A
set of ESG-related binary exclusions will be applied which supports the sustainable development aims of the United
Nations. Based on MSCI business involvement screening research and in-house proprietary scoring tools, the Fund will
seek to not invest in companies that:
● |
have
failed to uphold one or more principles of the UN Global Compact; |
● |
are
majority state-owned enterprises in countries subject to international sanctions or that materially violate universal
basic principles; |
● |
appear
on the Norges Bank Investment Management (NBIM) exclusions list; |
● |
have
an “industry tie” (defined below) to controversial weapons (cluster munitions, anti-personnel landmines, nuclear
weapons, chemical and biological weapons, white phosphorous, depleted uranium ammunition, blinding lasers,
incendiary devices, and/or non-detectable fragments) and have a revenue contribution of 5% or more from conventional
weapons or 20% from weapons systems; |
● |
have
a revenue contribution of 5% or more from from tobacco or are tobacco manufacturers; |
● |
have
a revenue contribution of 5% or more from gambling; |
● |
have
revenue exposure to thermal coal or have a tie to thermal coal unless the company meets at least one of the following
criteria: |
○ |
have
a Science Based Target Initiative (“SBTi”) 5 target set below 2°C or 1.5°C, or have a SBTi ‘Business Ambition
for 1.5°C’
commitment; |
○ |
have
less than 10% of capital expenditure (“CapEx”) dedicated to thermal coal-related activities and not with the objective
of increasing revenue; or |
○ |
have
more than 50% of CapEx dedicated to “contributing activities” (defined below); |
● |
have
revenue exposure to unconventional oil and gas unless production capacity is not increasing and the company
meets at least one of the following three criteria: |
○ |
have
a SBTi target set below 2°C or 1.5°C, or have a SBTi ‘Business Ambition for 1.5°C’ commitment;
|
○ |
derive
less than 5% of its revenues from unconventional oil and gas-related activities; or |
○ |
have
more than 50% of CapEx dedicated to activities which contribute positively to environmental objectives; |
● |
are
allocated the Global Industry Classification Standards (GICS) sector designation “Energy” unless the company meets
at least one of the following four criteria: |
○ |
has
a revenue contribution of less than 5% from oil and gas-related activities; |
○ |
has
set SBTi target at well-below 2°C or 1.5°C, or have a SBTi ‘Business Ambition for 1.5°C’ commitment;
|
○ |
has
less than 15% of CapEx dedicated to oil & gas related activities and are not intending to increase revenue; |
○ |
has
more than 15% of CapEx dedicated to activities which contribute positively to environmental objectives; |
● |
are
directly involved in electricity generation which has a carbon emission intensity inconsistent with the Paris Agreement
2 degrees scenario; or |
● |
are
directly involved in electricity generation and are making new investments in thermal coal or nuclear energy generation
capacity. |
“An
industry tie” includes companies that provide support systems and services, as well as those with direct (i.e., owners
and producers) and indirect (i.e., parents and subsidiaries) involvement in the activity. “Contributing activities” can
consist of economic activities
that contribute to environmental objectives; for example, increasing renewable energy capacity.
abrdn
International Small Cap Fund
In
seeking to achieve the Fund’s investment objective, the Adviser and Sub-adviser (together, the “Advisers”)
select stocks for the
Fund using the portfolio management team’s quality, growth and momentum approach, which aims to identify
companies that, in the Advisers’ view, exhibit a range of high-quality characteristics, the ability to deliver sustainable,
multi-year growth and upwards earnings momentum.
When
assessing quality, the Advisers evaluate every company against quality criteria and build conviction using a team-based
approach and peer review process. The quality assessment covers five key factors: (1) durability of the business
model, (2) the attractiveness of the industry, (3) the strength of financials, (4) the capability of management, and
(5) the most material Environmental, Social and Governance (“ESG”) factors impacting a company. Examples of ESG
factors considered by the Advisers include, but are not limited to, carbon emissions, climate risks, labor management,
employee safety and corporate governance. The specific factors considered may vary depending on the type
of company being evaluated. As ESG information is just one investment consideration,
ESG considerations generally are not solely determinative in any investment decision made by the Advisers.
In
assessing the growth outlook for stocks, the analyst considers the industry backdrop, as well as management’s strategy
to drive sales (geographic expansion, push into adjacencies, market shares gain) and profitability (improving margins)
over the medium to long term.
Momentum
factors are considered throughout the investment process. At the idea generation stage, both price momentum
and earnings momentum feed into the Advisers’ stock screening tool with a higher weight applied to earnings
momentum. The investment team then evaluates the potential upside or downside to consensus estimates for individual
companies. Position sizing is also linked to momentum. Stocks demonstrating strong momentum characteristics,
in the Advisers’ view, which also meet the Advisers’ quality and growth criteria, typically become larger holdings
in the portfolio.
Through
fundamental research, supported by a global research presence, the Advisers seek to identify companies whose
quality, future prospects, growth and momentum characteristics are not yet fully recognized by the market.
Fixed
Income Funds
abrdn
High Income Opportunities Fund
The
Adviser employs a fundamental, bottom-up investment process, based on firsthand research involving an evaluation
of issuers and securities. The Adviser utilizes internally developed macro views on the global economy and specific
regions when constructing portfolios. The Adviser evaluates securities for potential purchase only after it determines
that the issuer is fundamentally sound. The Adviser examines the material risks of an investment across a spectrum
of considerations including financial metrics, regional and national conditions and industry specific factors. Following
a thorough research review, the Adviser evaluates the security’s valuation relative to other potential alternatives.
Similarly, the Adviser will sell investments that achieve full valuation or that have deteriorated to an extent where
the Adviser believes them no longer to be sound. The Adviser will replace sold investments with securities it believes
are more attractive. There is continuous dialogue and sharing of research and information among all of the investment
management professionals at the firm, including portfolio managers, research analysts and traders.
abrdn
Infrastructure Debt Fund
In
selecting the Fund’s municipal debt securities, the Adviser and Sub-adviser employ a top-down, bottom-up investment
process, which relies on in-depth research as the basis for individual security selection. The Adviser and Sub-adviser
perform an analysis focusing on the issuer’s underlying credit soundness and ultimately its ability to service its
debt. The Adviser and Sub-adviser further consider municipal bond structure, covenant analysis, and the legislative and
political environment as it applies to each individual security. The Adviser and Sub-adviser then factor these fundamental
and structural inputs to ascertain value and to identify mispriced securities. The overall objective of the Adviser
and Sub-adviser is to add value through the selection of securities that the Adviser and Sub-adviser believe are trading
at a price below what we consider the securities to be worth. The Adviser and Sub-adviser may sell a security if it no
longer meets its investment criteria or offers an attractive relative value.
In
selecting the Fund’s corporate debt securities, the Adviser and Sub-adviser employ a fundamental, bottom-up investment
process, based on firsthand research involving an evaluation of issuers and securities. The Adviser and Sub-adviser
utilize internally developed macro views on the global economy and specific regions when constructing portfolios.
The Adviser and Sub-adviser evaluate securities for potential purchase only after it determines that the issuer is fundamentally
sound. Following a thorough research review, the Adviser and Sub-adviser evaluate the security’s valuation
relative to other potential alternatives. Similarly, the Adviser and Sub-adviser will sell investments that achieve full
valuation or that have deteriorated to an extent where the Adviser and Sub-adviser believe them no longer to be sound.
The Adviser and Sub-adviser will replace sold investments with securities it believes are more attractive. There is continuous
dialogue and sharing of research and information among all of the investment management professionals at the
firm, including portfolio managers, research analysts and traders.
abrdn
Intermediate Municipal Income Fund, abrdn Short Duration High Yield Municipal Fund and abrdn Ultra Short Municipal
Income Fund
The
Adviser employs a top-down, bottom-up investment process, which relies on proprietary in-depth research as the
basis for individual security selection. The Adviser performs an analysis focusing on the issuer’s underlying credit soundness
and ultimately its ability to service its debt. Additionally, the Fund’s investment team has access to the firm’s broader
North American team of industry specialists to provide added insight into such aspects as competitive landscape,
industry dynamics, and regulatory environment, among others. The Adviser further considers municipal bond structure,
covenant analysis, and the legislative and political environment as it applies to each individual security. The Adviser
then factors these fundamental and structural inputs to ascertain value and to identify mispriced securities. The overall
objective of the Adviser is to add value through the selection of securities that the Adviser believes are trading at a price
below what we consider the securities to be worth. The Adviser may sell a security if it no longer meets its investment
criteria or offers an attractive relative value.
ESG
Considerations - Fixed Income
In
selecting investments for the Funds, the Adviser (for the abrdn High Income Opportunities Fund, abrdn Intermediate
Municipal Income Fund, abrdn Short Duration High Yield Municipal Fund and abrdn Ultra Short Municipal Income
Fund) and the Adviser and Sub-adviser (for the abrdn Infrastructure Debt Fund) examine the material risks of an investment
across a spectrum of considerations including financial metrics, regional and national conditions, industry specific
factors, and Environmental, Social and Governance (“ESG”) risks. The Adviser and Sub-adviser apply ESG considerations
to their assessment of all corporate, sovereign and municipal issuers; however, the materiality of ESG factors
to the investment process varies across issuers and instrument types. The Adviser and Sub-adviser consider and assess
how ESG risks, alongside other financial factors, may impact the credit quality of the issuer as well as the opportunities
they may create. The Adviser and Sub-adviser may avoid investing in companies where ESG factors could erode
the willingness and ability of the issuer to service its debt. The Adviser and Sub-adviser consider the materiality of the
inherent environmental and social risks of the sector of operation (e.g., greenhouse gas emissions, water usage, cyber
security, etc.) and the timeframe over which these risks may have a financial impact. This is combined with an assessment
of the robustness of a company’s corporate governance and/or project. As it relates to sovereign issuers for the
abrdn High Income Opportunities Fund, the Adviser may also consider political factors (referred to as “P”), such as political
corruption perception, political stability, state fragility and press freedom. As ESG information is just one investment
consideration, ESG considerations generally are not solely determinative in any investment decision made by the
Adviser and Sub-adviser (if applicable).
Additional
Information on Engagement and Proxy Voting on ESG Issues.
More
information about the Advisers’ approach to engagement is described in Appendix C to the Statement of Additional
Information.
Additional
Information about Tax Reclaims
Additional
Information about EU Tax Reclaims.
The
corresponding Predecessor Funds of the abrdn Emerging Markets Dividend Fund and abrdn Global Equity
Impact Fund received payments on tax reclaims from some European jurisdictions related to prior years (2005-2020)
in accordance with European Union law under Article 63 of the Treaty on the Functioning of the European Union
(the “Article 63 EU Tax Reclaims”). In the tax years for which the Predecessor Funds filed Article 63 EU Tax Reclaims, certain
shareholders were able to reduce their federal income taxes based upon the amount of taxes that these Funds paid
to foreign jurisdictions. The receipt by the Predecessor Funds of the tax reclaims from these jurisdictions also results in
a tax liability to the Funds to offset the tax benefits that shareholders received in the past in the form of deductions or credits
in prior years relating to such reclaimed amounts. Based on information available as of the date of this Prospectus, an
estimated tax amount has been accrued and is reflected within each Fund’s net asset value and performance. The estimated
tax is based upon the Internal Revenue Service’s method of calculation disclosed in 2022. If the actual tax payable
is greater than the amount currently accrued, and subject to the level of assets under management at the time of
any subsequent adjustments, the Fund’s expenses, net asset value and performance may be materially adversely impacted.
Performance
shown for periods after December 16, 2016 for the Predecessor Fund of the abrdn Emerging Markets Dividend Fund and after February 1, 2017 for the Predecessor Fund of the abrdn Global Equity Impact Fund reflect
the Predecessor Funds’ receipt of various payments of Article 63 EU Tax Reclaims related to the prior years. Prior to this
receipt there was no certainty that the Predecessor Funds would receive any amounts, and thus each Predecessor Fund’s
performance previously did not reflect any anticipated receipt of these payments. The receipt of these extraordinary
payments effectively increased each Predecessor Fund’s performance for all periods that include payments
in a manner that may not recur in the future, and the Fund’s performance was significantly higher for those periods
than it would have been had the Fund not received payment of the Article 63 EU Tax Reclaims.
|
abrdn
Global Equity Impact Fund (“GEI”) and abrdn Emerging
Markets Dividend (“EMD”).
The total return in the financial highlights
reflects the receipt of the recognition
of Article 63 EU Tax Reclaims net of estimated taxes payable
to the Internal
Revenue Service (“IRS”) on behalf
of shareholders.
At the time of receipt, those payments, net of
applicable tax, resulted in an increase in net assets of
approximately 3.1%, 0.3%, 0.9%,
and 2.1% in 2017, 2018, 2019 and 2022,
respectively for GEI and an increase in net assets of approximately 5.4% 2.1%, and
1.4% in 2017, 2019
and 2022, respectively for EMD,
based upon the net asset value as of the date of receipt. Without these payments,
GEI’s and EMD’s
performance would have been lower during each respective period in which the refunds
and/or interest was received or recognized under U.S. GAAP. Additionally, past returns would have been higher
had each Predecessor Fund not originally paid the withholding taxes that relate to the Article 63 EU reclaims that
have been returned. There can be no assurance that the Funds
will receive additional Article 63 EU Tax Reclaim payments
or maintain this level of performance in the future. |
|
Consistent
with U.S. GAAP accrual requirements, for uncertain tax positions, each fund recognizes
Article 63 EU Tax Reclaims
when more likely than not that the fund will sustain its position that it is due the reclaim During the year ended
October 31, 2023, Article 63 EU Tax reclaims
and interest, as applicable, were paid to each Fund related to Spain
dividend withholding tax,
representing 3.85% and 3.82% on receipt date, respectively, of
net assets of GEI and EMD,
which had had been previously recorded in each fund’s respective
net asset value during
the fiscal year 2022. |
|
Article
63 EU Tax reclaims
for each Fund related to France dividend withholding, previously recognized in 2022 remain
open. |
|
As
of October 31, 2023, GEI and EMD have remaining Article 63 EU Tax Reclaims, primarily related to France, Germany,
and Spain. For the year ended October 31, 2023, based upon evaluation of facts and circumstances related
to the outstanding claims, the outstanding reclaims related to France remain accrued as a receivable, and are
reflected as Article 63 EU Tax Reclaims Receivable on the accompanying statements of assets and liabilities. Certain
of the outstanding Article 63 EU Tax Reclaims related to Germany and Spain are not deemed to meet the recognition
criteria under U.S. GAAP as of October 31, 2023,
and have not been recorded in each fund’s respective net
asset value. As of October 31, 2023,
the total amount of outstanding reclaims (before the impact of interest or any
tax or additional costs incurred in the pursuit of such reclaims) filed with Germany and Spain represents 4.04%
and 3.85%
on a gross basis, respectively, of net assets
of GEI and EMD.
These amounts net of estimated taxes represent
2.23%
and 2.21%,
respectively, of net assets of GEI and EMD.
Recognition by GEI
or EMD of these amounts would
have a positive impact on either
fund’s performance. |
|
The
receipt of Article 63 EU reclaims from these jurisdictions also results in a tax liability to the shareholders to offset the
tax benefits that shareholders received in the past. Such amounts are based on a closing agreement template created
by the IRS, that is applicable to all industry participants, in relation to the remittance by a fund of taxes due by
its shareholders and paid on their behalf by the fund. The Funds accrue this tax liability which each intends to settle
on behalf of its shareholders in accordance with U.S. GAAP. For tax accounting purposes, interest payments received
on these payments (if any) are treated as income and are distributed in due course. Additionally, fluctuations
in the value of foreign currencies may affect the Funds’ tax liability, because the IRS requires a Fund to pay
any taxes owed on interest payments on Article 63 EU Tax Reclaims amounts in U.S Dollars based on the foreign currency
exchange rate with the applicable jurisdiction that was in effect at the time the Article 63 EU Tax Reclaims amounts
were incurred by the Predecessor Fund. |
|
In
October 2023, the Funds executed a closing agreement with the IRS which finalized the amount of taxes to be paid
on behalf of shareholders related to the reclaims and interest received from France and Sweden in 2022. The amounts
paid to the IRS in EMD and GEI were $1,178,490 and $1,134,388, respectively, which were previously recorded
in each fund’s respective net asset value. |
|
Based
on information available as of the date of this Annual Report, an estimated tax amount has been accrued and
is reflected (approx. 3.00% and 3.03% of net assets in GEI and EMD, respectively) related to the reclaims recorded
associated with Spain and France. This amount is reflected as Payable to IRS on behalf of shareholders related
to Article 63 EU Tax reclaims on the accompanying statements of asset and liabilities of the financial statements.
|
|
abrdn
Emerging Markets Sustainable Leaders Fund.
The Emerging Markets Sustainable Leaders Fund filed for Article
63 EU Tax Reclaims in France and Germany. As of October 31, 2023, the total amount of outstanding reclaims (before
the impact of interest or any tax or additional costs incurred in the pursuit of such reclaims) filed with France and
Germany represents 1.85% of net assets. These amounts net of estimated taxes represent 1.07% of net assets. Recognition
by the Fund of these amounts would have a positive impact on the Fund’s performance. Based upon evaluation
of facts and circumstances related to the outstanding claims, the claims were deemed to not meet the recognition
criteria under U.S. GAAP as of October 31, 2023, and have not been recorded in the Fund’s net asset value.
|
Additional
Information About German Tax Reclaims.
The abrdn Dynamic Dividend Fund received requests from the German
Federal Tax Office (“GTO”) for additional documents and information relating to withholding tax refunds from 2009-2011
that the Fund had previously received and recorded. The tax refunds previously received amounted to approximately
1.26% of the Dynamic Dividend Fund’s net assets as of October 31, 2022. Of the 1.26%, 0.87% were contested
by the GTO. On April 24, 2023, the Fund repaid EUR 881,176, which had been accrued as a liability of the Fund, to
the GTO. Following the repayment of the contested amounts, the Fund considers the matter settled with the GTO.
Additional
Information about Investments, Investment Techniques and Risks
The
principal investments and principal risks of each Fund are disclosed in each Fund’s Summary section. The table below
and the paragraphs that follow provide more information about the principal investments and techniques that each
Fund may use and the related risks. A check mark (“✔”)
indicates a principal risk to which a Fund is subject.
The
absence of a check mark for a Fund with respect to a particular risk does not indicate that such Fund is not exposed to
such risk at all, but only that it is not a principal risk. The Statement of Additional Information contains information about additional
investments in which each Fund may invest to a lesser degree and additional risks to which each Fund may be subject.
The order of the below investments, investment techniques and risks does not indicate their significance.
|
|
|
|
|
|
|
Dynamic
Dividend Fund
|
Global
Equity Impact
Fund |
Global Infrastructure Fund
|
International Small
Cap Fund |
Realty
Income & Growth
Fund |
Active
Management Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Concentration
Risk |
|
|
✔
|
|
✔
|
Cybersecurity
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Dividend
Strategy Risk |
✔
|
|
|
|
✔
|
Emerging
Markets Risk |
✔
|
✔
|
✔
|
✔
|
|
Equity-Linked
Notes |
|
|
|
|
|
Equity
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
ESG
Integration Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Exchange-Traded
Fund Risk |
|
|
|
|
|
Foreign
Currency Exposure Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Foreign
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Illiquid
Securities Risk |
|
|
|
|
|
Impact
Investing Risk |
|
✔
|
|
|
|
Impact
of Large Redemptions and Purchases of Fund Shares
|
|
|
✔
|
|
|
Infrastructure-Related
Investment Risk |
|
|
✔
|
|
|
Issuer
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Market
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Mid-Cap
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Non-Diversified
Fund Risk |
|
|
|
|
✔
|
Portfolio
Turnover Risk |
✔
|
|
|
|
|
Qualified
Dividend Tax Risk |
✔
|
|
|
|
|
REIT
and Real Estate Risk |
|
|
✔
|
|
✔
|
Sector
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Small-Cap
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Sustainable
Investing Risk |
|
|
|
|
|
Temporary
Investments |
✔
|
✔
|
✔
|
✔
|
✔
|
Valuation
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
|
|
|
|
|
|
|
|
|
|
China
A Fund |
Emerging
Markets Dividend
Fund |
Emerging
Markets ex-China
Fund
|
Emerging
Markets Fund
|
Emerging
Markets Sustainable
Leaders Fund
|
Focused
U.S. Small Cap
Equity Fund
|
U.S.
Small Cap Equity
Fund |
U.S.
Sustainable Leaders
Fund
|
Active
Management Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Cybersecurity
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Dividend
Strategy Risk |
|
✔
|
|
|
|
|
|
|
Emerging
Markets Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
|
|
|
Equity-Linked
Notes |
✔
|
|
|
|
|
|
|
|
Equity
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
ESG
Integration Risk |
✔
|
✔
|
✔
|
✔
|
|
✔
|
✔
|
|
Exchange-Traded
Fund Risk |
✔
|
|
|
|
|
|
|
|
Focus
Risk |
|
|
|
|
|
✔
|
|
|
Foreign
Currency Exposure Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Foreign
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Frontier
Markets Risk |
|
✔
|
|
|
|
|
|
|
Illiquid
Securities Risk |
✔
|
|
|
|
|
|
|
|
Impact
of Large Redemptions and Purchases
of Fund Shares |
✔
|
|
✔
|
|
✔
|
|
|
|
Issuer
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Market
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Mid-Cap
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
|
|
✔
|
Sector
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Small-Cap
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Sustainable
Investing Risk |
|
|
|
|
✔
|
|
|
✔
|
Temporary
Investments |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
Valuation
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
✔
|
|
|
|
|
|
|
|
Infrastructure
Debt Fund
|
High
Income Opportunities
Fund
|
Intermediate
Municipal Income
Fund
|
Short
Duration High
Yield Municipal
Fund |
Ultra
Short Municipal
Income Fund
|
Active
Management Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Auction
Rate Securities Risk |
|
|
✔
|
✔
|
✔
|
Bank
Loan Risk |
✔
|
✔
|
|
|
|
Cybersecurity
Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Derivatives
Risk (including Options, Futures and Swaps) |
✔
|
✔
|
|
|
|
Emerging
Markets Risk |
✔
|
✔
|
|
|
|
ESG
Integration Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Fixed
Income Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Foreign
Currency Exposure Risk |
✔
|
✔
|
|
|
|
Foreign
Securities Risk |
✔
|
✔
|
|
|
|
Green,
Social and Sustainability Bond Risk |
✔
|
|
|
|
|
High-Yield
Bonds and Other Lower-Rated Securities Risk |
✔
|
✔
|
✔
|
✔
|
|
Illiquid
Securities Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Impact
of Large Redemptions and Purchases of Fund Shares
|
|
✔
|
✔
|
✔
|
|
Infrastructure-Related
Investments Risk |
✔
|
|
|
|
|
Interest
Rate Risk |
✔
|
✔
|
✔
|
✔
|
✔
|
Investment-Grade
Debt Securities |
✔
|
✔
|
✔
|
✔
|
✔
|
Issuer
Risk |
✔
|
✔
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
Debt Fund
|
High
Income Opportunities
Fund
|
Intermediate
Municipal Income
Fund
|
Short
Duration High
Yield Municipal
Fund |
Ultra
Short Municipal
Income Fund
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Market
Risk |
✔
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✔
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✔
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✔
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✔
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Municipal
Securities Risk |
✔
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✔
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✔
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✔
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Portfolio
Turnover Risk |
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✔
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✔
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✔
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Private
Placements and Other Restricted Securities Risk |
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✔
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✔
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Sector
Risk |
✔
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✔
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Sovereign
Debt Risk |
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✔
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Temporary
Investments |
✔
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✔
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✔
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✔
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✔
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Tender
Option Bonds Risk |
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✔
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✔
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✔
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Tobacco
Related Bonds Risk |
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✔
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Valuation
Risk |
✔
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✔
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✔
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✔
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✔
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Variable
and Floating Rate Securities Risk |
✔
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✔
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✔
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Yield
Risk |
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✔
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Active
Management Risk –
Each Fund is subject to the risk that the Adviser or Sub-adviser may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Funds and there can be no guarantee that these decisions will achieve the
desired results for the Funds. In addition, the Adviser or the Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies. Each Fund is also subject to the risk that deficiencies
in the internal systems or controls of the Adviser or Sub-adviser or another service provider will cause losses for
the Fund or hinder Fund operations. For example, trading delays or errors (both human and systematic) could prevent a
Fund from purchasing a security expected to appreciate in value.
Auction
Rate Securities Risk -
Auction rate securities are variable rate bonds whose interest rates are reset at specified intervals
through a “Dutch” auction process. A “Dutch” auction is a competitive bidding process designed to determine
a single uniform clearing
rate that enables purchases and sales of the auction rate securities to take place at par. All accepted
bids and holders of the auction rate securities receive the same rate. Auction rate securities holders rely on the liquidity
generated by the auction. There is a risk that an auction will fail due to insufficient demand for the securities. If an auction
fails, an auction rate security may become illiquid until a subsequent successful auction is conducted, the issuer redeems
the issue, or a secondary market develops.
In
certain recent market environments, auction failures have been more prevalent and the auctions have continued to fail for
an extended period of time. Failed auctions may adversely affect the liquidity and price of auction rate securities. Although
some issuers have redeemed such securities, the issuers are not obligated to do so and, therefore, there is no guarantee
that a liquid market will exist for the Funds’ investments in auction rate securities at a time when the Funds wish
to dispose of such securities. Moreover, between auctions, there may be no active secondary market for these securities,
and sales conducted on a secondary market may not be on terms favorable to the seller.
Bank
Loan Risk – Bank loans include
floating and fixed-rate debt obligations. Floating rate loans are debt obligations issued
by companies or other entities with floating interest rates that reset periodically. Bank loans may include, but are not
limited to, term loans, delayed funding loans, bridge loans and revolving credit facilities. Loan interest will primarily take
the form of assignments purchased in the primary or secondary market but may include participants. Floating rate loans
are secured by specific collateral of the borrower and are senior to most other securities of the borrower (e.g., common
stock or debt instruments) in the event of bankruptcy. Floating rate loans are often issued in connection with recapitalizations,
acquisitions, leveraged buyouts, and refinancings. Floating rate loans are typically structured and administered
by a financial institution that acts as the agent of the lenders participating in the floating rate loan. Floating rate
loans may be acquired directly through the agent, as an assignment from another lender who holds a direct interest in
the floating rate loan, or as a participation interest in another lender’s portion of the floating rate loan.
There
are a number of risks associated with an investment in bank loans including credit risk, interest rate risk, illiquid securities
risk, and prepayment risk. There is also the possibility that the collateral securing a loan, if any, may be difficult to
liquidate or be insufficient to cover the amount owed under the loan. These risks could cause a Fund to lose income or principal
on a particular investment, which in turn could affect a Fund’s returns. In addition, bank loans may take longer than
seven days to settle, resulting in the proceeds from the sale of such loans not being readily available to make additional
investments or to meet a Fund’s redemption obligations. To the extent the extended settlement process gives rise
to short-term liquidity needs, a Fund may hold additional cash, sell investments or temporarily borrow from banks or other
lenders. Additionally, in certain circumstances, loans may not be deemed to be securities, and in the event of fraud or
misrepresentation by a borrower, lenders and purchasers of interests in loans, such as a Fund, will not have the
protection
of the anti-fraud provisions of the federal securities laws, as would be the case for bonds or stocks. Instead, in such
cases, lenders generally rely on the contractual provisions in the loan agreement itself and common law fraud protections
under applicable state law.
Delayed
Funding Loans and Revolving Credit Facilities Risk
– Delayed funding loans and revolving credit facilities are borrowings
in which a Fund agrees to make loans up to a maximum amount upon demand by the borrowing issuer for a specified
term. A revolving credit facility differs from a delayed funding loan in that as the borrowing issuer repays the loan,
an amount equal to the repayment is again made available to the borrowing issuer under the facility. The borrowing issuer
may at any time borrow and repay amounts so long as, in the aggregate, at any given time the amount borrowed does
not exceed the maximum amount established by the loan agreement. Delayed funding loans and revolving credit facilities
usually provide for floating or variable rates of interest. There are a number of risks associated with an investment
in delayed funding loans and revolving credit facilities including credit, interest rate and illiquidity risk and the risks
of being a lender. There may be circumstances under which the borrowing issuer’s credit risk may be deteriorating and
yet the Fund may be obligated to make loans to the borrowing issuer as the borrowing issuer’s credit continues to deteriorate,
including at a time when the borrowing issuer’s financial condition makes it unlikely that such amounts will be repaid.
Delayed funding loans and revolving credit facilities may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such instruments.
Concentration
Risk – A Fund’s strategy
of concentrating in companies in a specific industry means that its performance will
be closely tied to the performance of a particular market segment to the extent that its investments are concentrated.
A Fund’s concentration in these companies may present more risks than if the Fund were broadly diversified
over numerous industries and sectors of the economy. A downturn in these companies would have a larger impact
on the Fund than on a mutual fund that does not concentrate in such companies. At times, the performance of these
companies will lag the performance of other industries or the broader market as a whole.
Cybersecurity
Risk – Cybersecurity incidents
may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Derivatives
Risk (including Options, Futures and Swaps) –
A Fund may invest in financial derivative instruments and/or utilize
techniques and instruments for hedging and/or investment purposes, efficient portfolio management and/or to manage
foreign exchange risks, or for other purposes, as set out below. Derivatives are financial instruments, whose values
are derived from another security, a commodity (such as gold or oil), an index or a currency (a measure of value or
rates, such as the S&P 500®
Index or the prime lending rate or other reference asset).
Derivatives
include the purchase and sale of futures contracts, forward contracts, non-deliverable forwards, swaps (including
credit default swaps), options (including options on futures and options on swaps), warrants and structured notes.
Futures
contracts commit the parties to a transaction at a time in the future at a price determined when the transaction is
initiated. Futures and options on futures are exchange-traded contracts that enable a Fund to hedge against or speculate
on future changes in currency values, interest rates, stock indexes, or other reference assets. Futures obligate a Fund
(or give it the right, in the case of options) to receive or make payment at a specific future time based on those future
changes. Futures contracts are traded through regulated exchanges and are “marked to market” daily.
Forward
contracts are obligations to purchase or sell an asset or, most commonly, a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Forward foreign currency contracts are the primary means of hedging currency exposure.
Options
are instruments that provide a right to buy (call) or sell (put) a particular security or an index of securities at a fixed
price within a certain time period or the right to a cash-settlement payment. Options differ from forward and futures
contracts in that the buyer of the option has no obligation to perform under the contract. An option is out-of-the-money
if the exercise price of the option is above, in the case of a call option, or below, in the case of a put option,
the current price (or interest rate or yield for certain options) of the referenced security or instrument. Use of put and
call options may result in losses to a Fund, force the sale or purchase of portfolio securities at inopportune times or for prices
higher than (in the case of put options) or lower than (in the case of call options) current market values, limit the amount
of appreciation a Fund can realize on its investments or cause a Fund to hold a security it might otherwise sell.
A
non-deliverable forward is an outright forward or futures contract in which counterparties settle the difference between
the contracted non-deliverable forward price or rate and the prevailing spot price or rate on an agreed notional amount.
They are used in various markets such as foreign exchange and commodities. Non-deliverable forwards are prevalent
in some countries where forward contract trading has been banned or constrained by the government.
A
swap is an agreement between two parties to exchange the proceeds of certain financial instruments or components of
financial instruments. Parties may exchange streams of interest rate payments, principal denominated in two different currencies,
or virtually any payment stream as agreed to by the parties. A credit default swap is a credit derivative contract
between two counterparties. The buyer makes periodic payments to the seller, and in return receives protection
if
an underlying financial instrument defaults. Interest rate swaps involve the exchange by a Fund with another party of its respective
commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments.
Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses
on an underlying security. Currency swaps involve the exchange of the parties’ respective rights to make or receive
payments in specified currencies. An inflation swap is a transaction whereby one party can transfer inflation risk to
a counterparty in exchange for a fixed payment. Inflation swaps may be used to hedge inflation risk or speculatively to take
a view on expected inflation. A Fund may take long or short positions with respect to inflation. A Fund may experience
losses if inflation moves in the opposite direction anticipated by the Adviser. A Fund may also purchase and write
(sell) options contracts on swaps, commonly referred to as swaptions. A swaption is an option to enter into a swap agreement.
Warrants
are securities that give the holder the right, but not the obligation, to purchase securities from an issuer at a fixed
price within a certain time frame. Interest rate warrants are rights that are created by an issuer, typically a financial institution,
entitling the holder to purchase, in the case of a call, or sell, in the case of a put, a specific bond issue or an interest
rate index at a certain level over a fixed time period that can typically be exercised in the underlying instrument or settled
in cash. Structured notes are securities for which the amount of principal repayments and/or interest payments is based
upon the movement of one or more “factors.” These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate),
a single security, basket of securities, indices (such as the S&P 500®
Index) and commodities. Structured notes are
securities for which the amount of principal repayments and/or interest payments
is based upon the movement of one or more “factors.” These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate),
a single security, basket of securities, indices (such as the S&P
500®
Index) and commodities.
Derivatives
may be used for a wide variety of purposes, including, but not limited to, the following:
|
(i)
to manage a Fund’s interest rate, credit and currency exposure; (ii)
as a substitute for taking a position in the underlying asset (where a Fund’s Adviser or Sub-adviser, as the case may
be, believes that a derivative exposure to the underlying asset represents better value than a direct exposure); (iii)
to gain an exposure to the composition and performance of a particular index; and (iv)
to take short positions via derivatives in securities, interest rates, credits, currencies and markets. |
In
addition to the use of financial derivatives instruments, a Fund may also employ other techniques for efficient portfolio management,
such as reverse repurchase transactions.
Without
limiting the generality of the foregoing, a Fund’s Adviser or Sub-adviser may alter the currency exposure of the Fund,
solely through the use of derivative contracts (without buying or selling underlying transferable securities or currencies).
The base currency of each Fund is U.S. Dollars. Performance may be strongly influenced by movements in currency
rates because a Fund may have exposure to a particular currency that is different from the value of the securities
denominated in that currency held by the Fund. Furthermore, a Fund’s portfolio may be fully or partially hedged
back to the base currency if, in the opinion of the Fund’s adviser or sub-adviser, this is believed to be appropriate.
Derivatives
are speculative and may hurt a Fund’s performance. Derivatives present the risk of disproportionately increased
losses and/or reduced opportunities for gains when the financial asset or measure to which the derivative is linked
changes in unexpected ways. Fixed income derivatives are subject to interest rate risk. The potential benefits to be derived
from a Fund’s derivatives strategy are dependent upon the portfolio managers’ ability to discern pricing inefficiencies
and predict trends in these markets, which decisions could prove to be inaccurate. This requires different skills
and techniques than predicting changes in the price of individual equity or debt securities, and there can be no assurance
that the use of this strategy will be successful. Some additional risks of investing in derivatives include:
● |
the
other party to the derivatives contract may fail to fulfill its obligations; |
● |
their
use may reduce liquidity or present mispricing or valuation complexity and make a Fund harder to value, especially
in declining markets; |
● |
a
Fund may need to sell portfolio securities at an inopportune time to satisfy margin or payment obligations under derivatives
transactions; |
● |
a
Fund may suffer disproportionately heavy losses relative to the amount invested; and |
● |
changes
in the value of derivatives may not match or fully offset changes in the value of the hedged portfolio securities,
thereby failing to achieve the original purpose for using the derivatives. |
Regulatory
Risk –
The derivatives markets are heavily regulated in the United States and in other jurisdictions. The regulation
of derivatives may make them more costly, may limit their availability, or may otherwise adversely affect their value
or performance. Changes in regulation relating to a Fund’s use of derivatives and related instruments could potentially
limit or impact the Fund’s ability to invest in derivatives, limit the Fund’s ability to employ certain strategies that
use derivatives and/or
adversely affect the value of derivatives and the Fund’s performance.
Regulations
are now in effect that require swap dealers to post and collect variation margin (comprised of specified liquid
instruments and subject to a required haircut) in connection with trading of over-the-counter (“OTC”) swaps with a Fund.
Shares of investment companies (other than certain money market funds) may not be posted as collateral under these
regulations. Requirements for posting of initial margin in connection with OTC swaps will be phased-in through 2022.
In
addition, regulations adopted by prudential regulators that are now in effect require certain bank-regulated counterparties
and certain of their affiliates to include in certain financial contracts, including many derivatives contracts, terms
that delay or restrict the rights of counterparties, such as a Fund, to terminate such contracts, foreclose upon collateral,
exercise other default rights or restrict transfers of credit support in the event that the counterparty and/or its affiliates
are subject to certain types of resolution or insolvency proceedings.
In
October 2020, the SEC adopted new regulations applicable to a Fund’s use of derivatives, short sales, reverse repurchase
agreements, and certain other transactions that will, among other things, require a Fund to adopt a derivatives
risk management program and appoint a derivatives risk manager that will manage the program and communicate
to the board of directors of the Fund. However, subject to certain conditions, Funds that do not invest heavily
in derivatives may be deemed limited derivatives users and would not be subject to the full requirements of the new
rule. The new rule could impact the effectiveness or raise the costs of a Fund’s derivatives transactions, impede the employment
of the Fund’s derivatives strategies, or adversely affect Fund performance and cause the Fund to lose value. The
SEC also eliminated the asset segregation and cover framework arising from prior SEC guidance for covering derivatives
and certain financial instruments effective when a Fund complies with the new rule. Compliance with the new rule
became required on August 19, 2022.
The
U.S. Commodity Futures Trading Commission (the “CFTC”) and various exchanges have rules limiting the maximum
net long or short positions which any person or group may own, hold or control in any given futures contract or option
on such futures contract. The Adviser will need to consider whether the exposure created under these contracts might
exceed the applicable limits in managing a Fund, and the limits may constrain the ability of a Fund to use such contracts.
Speculative
Exposure Risk – To the extent that
a derivative or practice is not used as a hedge, a Fund is directly exposed
to its risks. Gains or losses from speculative positions in a derivative may be much greater than the derivative’s original
cost. For example, potential losses from writing uncovered call options on currencies and from speculative short positions
on currencies are unlimited.
Hedged
Exposure Risk – Losses generated
by a derivative or practice used by a Fund for hedging purposes should be
substantially offset by gains on the hedged investment. However, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Correlation
Risk – A Fund is exposed to the
risk that changes in the value of a hedging instrument will not match those
of the investment being hedged.
Counterparty
Risk – Transactions involving a
counterparty other than the issuer of the instrument, or a third party responsible
for servicing the instrument, are subject both to the credit risk of the counterparty or third party, and to the counterparty’s
or third party’s ability to perform in accordance with the terms of the transaction.
The
primary risk of swap transactions is the creditworthiness of the counterparty, since the integrity of the transaction
depends on the willingness and ability of the counterparty to maintain the agreed-upon payment stream. If there
is a default by a counterparty in a swap transaction, a Fund’s potential loss is the net amount of payments the Fund is
contractually entitled to receive for one payment period (if any, the Fund could be in a net payment position), not the entire
notional amount, which does not change hands in a swap transaction. Swaps do not involve the delivery of securities
or other underlying assets or principal as collateral for the transaction. A Fund may have contractual remedies pursuant
to the swap agreement but, as with any contractual remedy, there is no guarantee that the Fund would be successful
in pursuing them—the counterparty may be judgment proof due to insolvency, for example. A Fund thus assumes
the risk that it may be delayed or prevented from obtaining payments owed to it. The standard industry swap agreements
do, however, permit the Fund to terminate a swap agreement (and thus avoid making additional payments) in
the event that a counterparty fails to make a timely payment to the Fund.
Regulations
requiring clearing of certain swaps and posting and collection of margin for uncleared swaps will reduce,
but not eliminate counterparty risk.
Dividend
Strategy Risk – There is no guarantee
that the issuers of the securities held by the Fund will declare dividends in the
future or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis
on dividend-paying stocks could cause the Fund to underperform similar funds that invest without consideration
of a company’s track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks
may not participate in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates
or an economic downturn could cause a company to unexpectedly reduce or eliminate its dividend.
A
Fund may hold securities for short periods of time related to the dividend payment periods for those securities and may experience
loss during these periods. There is the possibility that the anticipated acceleration of dividend could not occur.
Emerging
Markets Risk – The risks of investing
in foreign securities are increased in connection with investments in emerging
markets. Emerging markets are countries generally considered to be relatively less developed or industrialized. Emerging
markets often face economic problems that could subject a Fund to increased volatility or substantial declines in
value. Emerging market securities may also be less liquid (particularly during market closures due to local holidays or other
reasons) and more difficult to value than securities economically tied to developed foreign countries. Deficiencies in
regulatory oversight, market infrastructure, shareholder protections and company laws could expose a Fund to risks beyond
those generally encountered in developed countries. Emerging market countries typically have less established legal,
accounting and financial reporting systems than those in more developed markets, which may reduce the scope or
quality of financial information available to investors. Governments in emerging market countries are often less stable and
more likely to take extra-legal action with respect to companies, industries, assets, or foreign ownership than those in more
developed markets. Moreover, it can be more difficult for investors to bring litigation or enforce judgments against issuers
in emerging markets or for U.S. regulators to bring enforcement actions against such issuers. Funds may also be subject
to Emerging Markets Risk if they invest in derivatives or other securities or instruments whose value or return are related
to the value or returns of emerging markets securities. In addition, profound social changes and business practices
that depart from norms in developed countries’ economies have hindered the orderly growth of emerging economies
and their markets in the past and have caused instability. High levels of debt tend to make emerging economies
heavily reliant on foreign capital and vulnerable to capital flight. Emerging market countries may be dependent
on the economies of certain key trading partners, and a reduction in spending on products and services or changes
in those economies or their relationships with countries in those regions may cause an adverse impact on the regional
economy. Countries in emerging markets are also more likely to experience high levels of inflation, deflation or currency
devaluation, which could also hurt their economies and securities markets, as well as political uncertainty, corruption,
military intervention, social unrest or natural disasters. The economy of some emerging markets may be particularly
exposed to or affected by a certain industry or sector, and therefore issuers and/or securities of such emerging
markets may be more affected by the performance of such industries or sectors. For these and other reasons, investments
in emerging markets are often considered speculative. A Fund may also invest in frontier markets, which involve
the same risks as emerging markets, but to a greater extent since they tend to be even smaller, less developed, and
less accessible than other emerging markets.
China
Risk. In addition to the risks discussed
above under “Emerging Markets Risk,” as well as the risks described below
under “Foreign Securities Risk,” investing in China presents additional risks. Concentrating investments in China and Hong
Kong may make a Fund significantly more volatile than geographically diverse mutual funds. Additional risks associated
with investments in China and Hong Kong include exposure to currency fluctuations, less liquidity, expropriation,
confiscatory taxation, nationalization, exchange control regulations (including currency blockage) and differing
legal standards. Any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Inflation
and rapid fluctuations in inflation and interest rates have had, and may continue to have, negative effects on
the economies and securities markets of China or Hong Kong. The Chinese government could, at any time, alter or discontinue
economic reform programs implemented since 1978. Military conflicts, either in response to internal social unrest
or conflicts with other countries, are an ever present consideration.
The
adoption or continuation of protectionist trade policies by one or more countries (including the U.S.) could lead to
decreased demand for Chinese products and have an adverse effect on the Chinese securities markets. In particular, the
current political climate has intensified concerns about a potential trade war between China and the United States, as
each country has imposed, and may in the future impose additional, tariffs on the other country’s products. These actions
may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on a Fund’s performance. Certain securities are, or may in the future
become, restricted, and a Fund may be forced to sell such restricted securities and incur a loss as a result. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly
vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the
potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs
may be imposed or other escalating actions may be taken in the future. Recent developments in relations between the
U.S. and China have raised concerns regarding trade restrictions between the two countries, which could negatively impact
a Fund. It is currently impossible to predict whether further restrictions will be placed on trade between China and the
U.S.
Chinese
authorities may intervene in the China securities market and halt or suspend trading of securities for short or
even longer periods of time. The China securities market has, at times, experienced considerable volatility and has historically
been subject to relatively frequent and extensive trading halts and suspensions. These trading halts and suspensions
have, among other things, contributed to uncertainty in the markets and reduced the liquidity of the securities
subject to such trading halts and suspensions, which could include securities held by a Fund.
A
Fund may gain exposure to companies based or operated in China by investing through legal structures known as variable
interest entities (VIEs). Instead of directly owning the equity securities of a Chinese company, a VIE enters into service
and other contracts with the Chinese company. Although the VIE has no equity ownership of the Chinese company,
the contractual arrangements permit the VIE to consolidate the Chinese company into its financial statements.
The Chinese government could intervene with respect to VIEs, which could significantly affect the Chinese company’s
performance and the enforceability of the VIE’s contractual arrangement with the Chinese company.
Exposure
to China may be gained through investments in securities that are economically tied to China or, in some cases,
through direct investment in China securities (described below under “ – Direct China Securities”). For a more detailed
analysis and explanation of the specific risks of investing in China, please see “Emerging Markets Securities – Investing
in China” in the SAI.
Direct
China Securities. Historically, direct
investments in foreign investments in stocks, bonds and warrants listed and
traded on a Mainland China stock exchange, investment companies, and other financial instruments approved by the
Chinese regulators (collectively referred to as “China Securities”) were not eligible for investment by non-Chinese investors.
aAL
has been granted a qualified foreign institutional investor license and a renminbi qualified foreign institutional
investor license, which allow aAL
to invest in China Securities for its clients. aAL
is authorized to invest in China Securities
for all of its clients only up to a specified quota established by the Chinese State Administration of Foreign Exchange
(“SAFE”) under each license (the “Quotas”). The provisions regarding such Quotas may be subject to change
with little or notice given by SAFE. The China
A Fund invests in China Securities directly, together with other aAL
clients, subject to the Quotas granted to
aAL.
The
QFII Quota is measured by aAL’s
investments across all accounts that it manages that are invested in China Securities
using the QFII Quota. The application and interpretation of the QFII regulations are subject to uncertainty as to how
they will be applied. Net realized profits may not currently be repatriated until the completion of an audit by a registered
accountant in China and payment of all applicable taxes. SAFE retains its power to exercise macro prudential supervision
over the repatriation of capital by QFIIs, based on China’s financial situation, FX market supply and demand and
international balance of payment position. Chinese authorities could change the regulations applicable to QFIIs at any
time.
Where
the China A Fund is invested through aAL’s
RQFII Quota, repatriation is subject to the RQFII regulations in effect
from time to time (“RQFII Regulations”). Currently, there is no regulatory prior approval requirement for repatriation of
funds from aAL’s
RQFII Quota but net realized profits for any financial year may not currently be repatriated until the completion
of an audit by a registered accountant in China and payment of all applicable taxes. There is no certainty that
additional regulatory restrictions will not be imposed on the repatriation of funds in the future. The RQFII license and the
RQFII Regulations governing investments by RQFIIs in China may be changed with little or no notice. The CSRC and SAFE
have been given wide discretions in the RQFII Regulations and there is no precedent as to how these discretions might
be exercised. At this stage of development, the RQFII Regulations may be subject to further revisions; there is no assurance
whether such revisions will prejudice the RQFII, or whether aAL’s
RQFII quota, which is subject to review from time
to time by CSRC and SAFE, may be removed substantially or entirely. CSRC and/or SAFE may have power in the future
to impose new restrictions or conditions on or terminate aAL’s
RQFII license, which may adversely affect the Fund and
its shareholders. It is not possible to predict how such changes would affect the Fund.
Although
China’s laws permit the use of nominee accounts for clients of investment managers who are QFII or RQFII license
holders, the Chinese regulators require the securities trading and settlement accounts to be maintained in the name
of the QFII or RQFII license holder. The Fund has been advised that, as a matter of Chinese law, the assets belong to
the relevant client and not the QFII license holder. There is a risk that creditors of aAL
may assert that aAL
is the legal owner of the securities and other
assets in the accounts. Nonetheless, if a court upholds a creditor’s assertion that the assets
held under the QFII Quota belong to aAL
as license holder, then creditors of aAL
could seek payment from the China Securities
held under the QFII Quota. For more information, please see “Investing in China” in the SAI.
Stock
Connect. Investing
in China A shares through Stock Connect involves various considerations and risks, including,
but not limited to, illiquidity risk; currency risk; greater price volatility; legal and regulatory uncertainty risk; execution
risk; operational risk; tax risk; credit risk; and economic, social and political instability of the stock market in the People’s
Republic of China (“PRC”).
In
recent years, non-Chinese investors, including the Funds, have been permitted to make investments usually only available
to foreign investors through a quota license or by purchasing from specified brokers in Shanghai or other locations
that have stock connect programs.
China
Stock Exchange-listed securities are available via brokers in Hong Kong through the Shanghai-Hong Kong Stock Connect
program, through the Shenzhen-Hong Kong Stock Connect Program, and may be available in the future
through
additional stock connect programs as they are developed in different locations (collectively, “Stock Connect Programs”).
China A shares through the Stock Connect Programs are held by third party securities settlement systems in Hong
Kong (Hong Kong Securities Clearing Company (“HKSCC”)) and the PRC (“ChinaClear”) where they are mixed with
other investors’ assets and may be
subject to lower safekeeping, segregation and record keeping requirements than investments
held domestically. It is considered unlikely that ChinaClear will become insolvent but, if it does so, HKSCC is likely
to seek to recover any outstanding China A shares from ChinaClear through available legal channels but it is not obligated
to do so. If HKSCC does not enforce claims against ChinaClear these funds may not be able to recover their China
A shares. China A shares traded through Stock Connect are uncertificated and are held in the name of HKSCC or its
nominee. PRC law may not recognize the beneficial ownership of the China A shares by these funds and, in the event of
a default of ChinaClear, it may not be possible for the China A shares held by these funds to be recovered.
Stock
Connect is subject to a daily quota (the “Daily Quota”), which limits the maximum net purchases under Stock Connect
each day and, as such, buy orders for China A Shares would be rejected once the Daily Quota is exceeded (although
the Funds will be permitted to sell China A Shares regardless of the Daily Quota balance). Further, Stock Connect,
which relies on the connectivity of the Shanghai or Shenzhen markets with Hong Kong, is subject to operational risk
and regulations that are relatively untested and subject to change. If one or both of the Chinese and Hong Kong markets
are closed on a U.S. trading day, the Funds may not be able to acquire or dispose of China A Shares through Stock
Connect in a timely manner, which could adversely affect the Funds’ performance.
India.
Political, economic, social and other factors in India may adversely affect a Fund’s performance. An emerging market
such as India has undergone and may continue to undergo rapid change and lack the social, political and economic
stability of more developed countries. The value of the Fund’s assets may be adversely affected by political, economic,
social and religious factors, changes in Indian law or regulations and the status of India’s relations with other countries.
In addition, the economy of India may differ favorably or unfavorably from the U.S. economy in such respects as
the rate of growth of gross domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Agriculture occupies a more prominent position in the Indian economy than in the United States,
and the Indian economy therefore is more susceptible to adverse changes in weather. Moreover, the Indian economy
remains vulnerable to natural disasters, such as droughts and monsoons. The Indian government has exercised and
continues to exercise significant influence over many aspects of the economy, and the number of public sector enterprises
in India is substantial. Accordingly, Indian government actions in the future could have a significant effect on the
Indian economy, which could affect private sector companies and a Fund, market conditions, and prices and yields of
securities in a Fund’s portfolio.
Further,
the economies of developing countries such as India generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. The Indian economy also has been and may continue to be adversely affected by economic
conditions in the countries with which it trades.
There
is also the possibility of nationalization, expropriation or confiscatory taxation, political changes, government regulation,
social instability or diplomatic developments (including war or terrorist attacks). All of these factors could adversely
affect the economy of India, make the prices of Indian securities generally more volatile than the prices of securities
of companies in developed markets and increase the risk of loss to a Fund.
The
securities market in India is substantially smaller, less liquid and significantly more volatile than the securities market
in the United States. The relatively small market capitalizations of, and trading values on, Indian stock exchanges may
cause the Fund’s investments in securities listed on these exchanges to be comparatively less liquid and subject to greater
price volatility than comparable U.S. investments. In addition, Indian securities markets are less developed than U.S.
securities markets. Disclosure and regulatory standards are in many respects less stringent than U.S. standards. Issuers
in India are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly,
from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements
of an Indian issuer may not reflect its financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally accepted accounting principles.
There is substantially less publicly available information about Indian issuers than there is about U.S. issuers.
A
high proportion of the shares of many Indian issuers are held by a limited number of persons, which may limit the number
of shares available for investment by a Fund. In addition, further issuances, or the perception that such issuances may
occur, of securities by Indian issuers in which a Fund has invested could dilute the earnings per share of a Fund’s investment
and could adversely affect the market price of such securities. Sales of securities by such issuer’s major stockholders,
or the perception that such sales may occur, may also significantly and adversely affect the market price of
such securities and, in turn, a Fund’s investment. A limited number of issuers represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of the Indian securities markets may also affect
the Fund’s ability to acquire or dispose of securities at the price and time that it desires.
Furthermore,
restrictions or controls applicable to foreign investment in the securities of issuers in India may also adversely
affect a Fund’s investments within the country. The availability of financial instruments with exposure to Indian financial
markets may be substantially limited by restrictions on foreign investors and subject to regulatory authorizations.
Foreign
investors are required to observe certain investment restrictions, including limits on shareholdings, which may impede
a fund’s ability to invest in certain issuers or to fully pursue its investment objective. These restrictions may also have
the effect of reducing demand for, or limiting the liquidity of, such investments. There can be no assurance that the Indian
government will not impose restrictions on foreign capital remittances abroad or otherwise modify the exchange control
regime applicable to foreign investors in such a way that may adversely affect the ability of a Fund to repatriate their
income and capital.
Indian
stock exchanges have in the past experienced substantial fluctuations in the prices of their listed securities. They
have also experienced problems such as temporary exchange closures, broker defaults, settlement delays and broker
strikes that, if they occur again in the future, could affect the market price and liquidity of the Indian securities in which
the Fund invests. In addition, the governing bodies of the various Indian stock exchanges have from time to time imposed
restrictions on trading in certain securities, limitations on price movements and margin requirements. Disputes have
also occurred from time to time among listed companies, the stock exchanges and other regulatory bodies, and in some
cases those disputes have had a negative effect on overall market sentiment. The foregoing factors could impede the
ability of the Fund to effect portfolio transactions on a timely basis and could have an adverse effect on the net asset value
of a Fund’s shares of common stock and the price at which those shares trade.
There
is less regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants
than in the United States. Moreover, issuers of securities in India are not subject to the same degree of regulation
as are U.S. issuers with respect to such matters as insider trading rules, tender offer regulation, stockholder proxy
requirements and the timely disclosure of information. Legal principles relating to corporate affairs and the validity of
corporate procedures, directors’ fiduciary duties and liabilities and stockholders’ rights may differ from those that may
apply in other jurisdictions. Stockholders’
rights under Indian law may not be as extensive as those that exist under the laws
of the United States. A Fund may therefore have more difficulty asserting its rights as a stockholder of an Indian company
in which it invests than it would as a stockholder of a comparable American company. A Fund may also have difficulty
enforcing foreign judgments against Indian companies or their management.
Taiwan.
Including risks associated with investing in emerging markets, a Fund’s investment in or exposure to Taiwan is
also subject to risks associated with, among other things, currency fluctuations, commodity shortages, less liquidity, expropriation,
confiscatory taxation, nationalization and exchange control regulations (including currency blockage). Inflation
and rapid fluctuations in inflation and interest rates have had, and may continue to have, negative effects on the economy
and securities markets of Taiwan. In addition, investments in Taiwan could be adversely affected by political and
economic relationship with China.
Equity-Linked
Notes – The China A Fund may invest
in equity-linked notes, which are generally subject to the same risks as the
foreign equity securities or the basket of foreign securities they are linked to. Upon the maturity of the note, the holder generally
receives a return of principal based on the capital appreciation of the linked security(ies). If the linked security(ies)
declines in value, the note may return a lower amount at maturity. The trading price of an equity-linked note also
depends on the value of the linked security(ies). Equity-linked notes involve further risks associated with:
● |
purchases
and sales of notes, including the possibility that exchange rate fluctuations may negatively affect the value of
a note and |
● |
the
credit quality of the note’s issuer. |
Equity-linked
notes are frequently secured by collateral. If an issuer defaults, the Fund would look to any underlying collateral
to recover its losses. Ratings of issuers of equity-linked notes refer only to the issuer’s creditworthiness and the related
collateral. They provide no indication of the potential risks of the linked securities.
Equity
Securities Risk – Although investments
in equity securities, such as stocks, historically have been a leading choice for
long-term investors, the values of stocks rise and fall depending on many factors. The stock or other security of a company
may not perform as well as expected, and may decrease in value, because of factors related to the company (such
as poorer than expected earnings or certain management decisions), to the industry in which the company is engaged
(such as a reduction in the demand for products or services in a particular industry), or to the market as a whole
(such as periods of market volatility or instability, or general and prolonged periods of economic decline). Market and
economic factors may adversely affect securities markets generally, which could in turn adversely affect the value of
a Fund’s investments, regardless of the performance or expected performance of companies in which the Fund invests.
Equity securities may be subject to increased risk during periods of economic or market uncertainty or difficulty. Holders
of common stock generally are subject to more risks than holders of preferred stock or debt securities because the
right to repayment of common stockholders’ claims is subordinated to that of preferred stock and debt securities upon
the bankruptcy of the issuer.
ESG
Integration Risk –
To the extent the ESG factors are used to evaluate investments, the consideration of such factors may
adversely affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG
characteristics may not be the only factors considered and, as a result, the issuers in which a Fund invests may not
be
issuers with favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing
differently than its benchmark index and other funds in its peer group that do not consider ESG factors or consider
different ESG factors.
Exchange-Traded
Fund Risk – To the extent that
a Fund invests in ETFs, the Fund may be subject to, among other risks, tracking
error risk and passive and, in some cases, active management investment risk. An active secondary market in ETF
shares may not develop or be maintained and may be halted or interrupted due to actions by its listing exchange, unusual
market conditions or other reasons. There can be no assurance that an ETF’s shares will continue to be listed on an
active exchange. In addition, Fund shareholders bear both their proportionate share of the Fund’s expenses and similar
expenses incurred through the Fund’s ownership of the ETF.
Fixed
Income Securities Risk – Fixed
income securities include fixed, variable and floating rate bonds, debentures, notes, mortgage-backed
securities and asset-backed securities. Investments in fixed income securities (“debt securities”) may include
investments in below-investment grade fixed income securities, which are generally referred to as “high yield securities”
or “junk bonds”. Descriptions of the ratings used by S&P and Moody’s are included in the SAI. Fixed income securities
may pay fixed, variable or floating rates of interest, and may include zero coupon obligations which do not pay interest
until maturity.
Fixed
income securities fluctuate in price based on changes in a company’s financial condition and overall market and economic
conditions, such as real or perceived adverse economic or political conditions, inflation, changes in interest or currency
rates, lack of liquidity in the bond markets or adverse investor sentiment. The value of a security may also fall due
to specific conditions that affect a particular sector of the securities market or a particular issuer.
Call
and Redemption Risk. Some bonds allow
the issuer to call a bond for redemption before it matures. If an issuer calls
a security in which the Fund has invested, the Fund may not recoup the full amount of its initial investment and may be
forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other less favorable features.
Credit
Risk. Credit risk refers to the possibility
that the issuer of a security will not be able to make principal and/ or interest
payments when due and is broadly gauged by the credit ratings of the securities in which the Fund invests. However,
ratings are only the opinions of rating agencies and are not guarantees of the quality of the securities. In addition,
the depth and liquidity of the market for a fixed income security may affect its credit risk. Credit risk of a security may
change over its life and rated securities are often reviewed and may be subject to downgrade by a rating agency. A fund
purchasing bonds faces the risk that the creditworthiness of an issuer may decline, or the market’s perception of an issuer’s
creditworthiness may decline, causing the value of the bonds to decline. In addition, an issuer may not be able to make
timely payments on the interest and/or principal on the bonds it has issued. Because the issuers of high-yield bonds
or junk bonds (bonds rated below the fourth highest category) may be in uncertain financial health, the prices of these
bonds may be more vulnerable to bad economic news or even the expectation of bad news, than investment grade
bonds. In some cases, bonds, particularly high-yield bonds, may decline in credit quality or go into default. Because the
Fund may invest in securities not paying current interest or in securities already in default, these risks may be more pronounced.
Fixed income securities are not traded on exchanges. The over-the-counter market may be illiquid, and there
may be times when no counterparty is willing to purchase or sell certain securities. The nature of the market may make
valuations difficult or unreliable. Moreover, in a rising interest rate environment, the risk that an issuer or guarantor may
default on its obligations is heightened.
The
credit quality and liquidity of the Fund’s investments in municipal obligations, if any, and other debt securities may
be dependent in part on the credit quality of third parties, such as banks and other financial institutions, which provide
credit and liquidity enhancements to the Fund’s investments. Adverse changes in the credit quality of these third parties
could cause losses to the Fund and affect its share price.
Prepayment
Risk. As interest
rates decline, debt issuers may repay or refinance their loans or obligations earlier than anticipated.
The issuers of mortgage- and asset-backed securities may, therefore, repay principal in advance. This forces
the Fund to reinvest the proceeds from the principal prepayments at lower rates, which reduces the Fund’s income.
In
addition, changes in prepayment levels can change the value and increase the volatility of prices and yields on mortgage-
and asset-backed securities. If the Fund pays a premium (a price higher than the principal amount of the bond)
for a mortgage- or asset-backed security and that security is prepaid, the Fund may not recover the premium, resulting
in a capital loss.
Extension
Risk. Extension risk is the risk that
principal repayments will not occur as quickly as anticipated, causing the
expected maturity of a security to increase. Rapidly rising interest rates may cause prepayments to occur more slowly
than expected, thereby lengthening the maturity of the securities held by the Fund and making their prices more sensitive
to rate changes and more volatile.
Inflation
Risk. Inflation risk is the risk that
prices of existing fixed-rate debt securities will decline due to inflation or the threat
of inflation. The income produced by these securities is worth less when prices for goods and services rise. To compensate
for this loss of purchasing power, the securities trade at lower prices. Inflation also reduces the purchasing power
of any income you receive from the Fund.
Interest
Rate Risk. Interest rates have an effect
on the value of the Fund’s fixed income investments because the value
of those investments will vary as interest rates fluctuate. Generally, fixed income securities will decrease in value when
interest rates rise and when interest rates decline, the value of fixed income securities can be expected to rise. The longer
the effective maturity of the Fund’s securities, the more sensitive the Fund will be to interest rate changes. (As a general
rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) Duration is a measure of the average
life of a fixed income security that was developed as a more precise alternative to the concepts of “term to maturity”
or “average dollar weighted maturity” as measures of “volatility” or “risk” associated with
changes in interest rates. With respect to
the composition of a fixed income portfolio, the longer the duration of the portfolio, generally the greater
the anticipated potential for total return, with, however, greater attendant interest rate risk and price volatility than
for a portfolio with a shorter duration.
A
Fund with a shorter duration will generally earn less income and, during periods of declining interest rates, may provide
lower total returns than funds with longer durations. A Fund may be subject to a greater risk of rising interest rates due
to the recent period of historically low rates and the effect of potential government fiscal policy initiatives and resulting
market reaction to those initiatives. In periods of market volatility, the market values of fixed income securities may
be more sensitive to changes in interest rates.
Foreign
Currency Exposure Risk – Funds
that invest in securities that trade in, or receive revenues in, foreign currencies are subject
to the risk that those currencies may fluctuate in value relative to the U.S. Dollar. Currency rates in foreign countries
may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates,
intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as
the International Monetary Fund, or by the imposition of currency controls or other political developments in the U.S. or abroad.
These risks may impact a Fund more greatly to the extent the Fund does not hedge its currency risk. To manage currency
risk, a Fund may enter into foreign currency exchange contracts to hedge against a decline in the U.S. Dollar value
of a security it already owns or against an increase in the value of an asset it expects to purchase. Not all Funds hedge
currency risk. In addition, the Adviser’s use of hedging techniques does not eliminate exchange rate risk. In certain circumstances,
the Adviser may hedge using a foreign currency other than the currency which the portfolio securities being
hedged are denominated. This type of hedging entails greater risk because it is dependent on a stable relationship between
the two currencies paired in the hedge and the relationship can be very unstable at times. If the Adviser is unsuccessful
in its attempts to hedge against exchange rate risk, the Fund could be in a less advantageous position than if
the Adviser did not establish any currency hedge. The Adviser may also employ strategies to increase a Fund’s exposure
to certain currencies, which may result in losses from such currency positions. When deemed appropriate by the
Adviser, the Adviser may from time to time seek to reduce foreign currency risk by hedging some or all of a Fund’s foreign
currency exposure back into the U.S. Dollar. Losses on foreign currency transactions used for hedging purposes may
be offset by gains on the assets that are the subject of a Fund’s hedge. Certain Funds may also purchase a foreign currency
on a spot or forward basis in order to obtain potential appreciation of such currency relative to the U.S. Dollar or to
other currencies in which a Fund’s holdings are denominated (see “Non-Hedging Foreign Currency Trading Risk” for
more detail). Losses on such transactions
may not be offset by gains from other Fund assets.
A
Fund’s gains from its positions in foreign currencies may accelerate and/or recharacterize the Fund’s income or gains at
the Fund level and its distributions to shareholders. A Fund’s losses from such positions may also recharacterize the Fund’s
income and its distributions to shareholders and may cause a return of capital to Fund shareholders.
To
the extent a foreign government limits or causes delays in the convertibility or repatriation of its currency, this will adversely
affect the U.S. dollar value and/or liquidity of investments denominated in that currency. Such actions could severely
affect security prices, impair a Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets back
into the U.S., or otherwise adversely affect the Fund’s operations.
Foreign
Securities Risk – The Funds use
various criteria to determine to which country or countries the securities in which the
Funds invest are economically tied. Because issuers often have activities and operations in several different countries, an
issuer could be considered a non-U.S. issuer even though changes in the value of its securities held by a Fund are significantly
impacted by its U.S. activities. Similarly, an issuer could be classified as a U.S. issuer even when the changes in the
value of the issuer’s securities held by a Fund are significantly impacted by non-U.S. activities. Foreign securities may be
more volatile, harder to price and less liquid than U.S. securities. Foreign investments involve some of the following risks as
well:
● |
political
and economic changes and/or instability, including adverse consequences stemming from war, terrorism, market
manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments,
public health emergencies, natural/environmental disasters, recessions, inflation, rapid interest rate changes
and supply chain disruptions; |
● |
the
impact of currency exchange rate fluctuations; |
● |
reduced
information about issuers; |
● |
higher
transaction costs; |
● |
less
stringent regulatory and accounting standards; and |
Additional
risks include the possibility that a foreign jurisdiction might impose or increase withholding taxes on income payable
with respect to foreign securities; the possible seizure, nationalization or expropriation of the issuer or foreign deposits
(in which a Fund could lose its entire investment in a certain market); and the possible adoption of foreign governmental
restrictions such as exchange controls. To the extent that a Fund invests a significant portion of its assets in a
specific geographic region or in securities denominated in a particular foreign currency, the Fund will generally have more
exposure to regional economic risks, including weather emergencies and natural disasters, associated with foreign investments.
The risks of investing in foreign securities are increased in connection with investments in emerging markets. See
“Emerging Markets Risk” above.
Frontier
Markets Risk - The
risks associated with investments in frontier market countries include all the risks described above
for investments in “Foreign Securities” and “Emerging Markets Securities,” although the risks are magnified
for frontier market countries.
Because frontier markets are among the smallest, least mature and least liquid of the emerging
markets, investments in frontier markets generally are subject to a greater risk of loss than are investments in developed
markets or traditional emerging markets. Frontier market countries have smaller economies, less developed capital
markets, greater market volatility, lower trading volume, more political and economic instability, greater risk of a market
shutdown and more governmental limitations on foreign investments than are typically found in more developed markets.
High-Yield
Bonds and Other Lower-Rated Securities Risk –
A Fund’s investments in high-yield bonds (commonly referred to as
“junk bonds”) and other lower-rated securities will subject the Fund to substantial risk of loss. Investments in high yield
bonds are speculative and issuers of these
securities are generally considered to be less financially secure and less able to
repay interest and principal than issuers of investment-grade securities. Prices of high-yield bonds tend to be very volatile.
These securities are less liquid than investment-grade debt securities and may be difficult to price or sell, particularly
in times of negative sentiment toward high-yield securities. A Fund’s investments in lower-rated securities may
involve the following specific risks:
● |
greater
risk of loss due to default because of the increased likelihood that adverse economic or company specific events
will make the issuer unable to pay interest and/or principal when due; |
● |
wider
price fluctuations due to changing interest rates and/or adverse economic and business developments; and |
● |
greater
risk of loss due to declining credit quality. |
A
Fund may incur expenses to the extent necessary to seek recovery upon issuer default or to negotiate new terms with a
defaulting issuer.
Illiquid
Securities Risk – Illiquid securities
are assets that a Fund reasonably expects cannot be sold or disposed of in current
market conditions in seven calendar days or less without the sale or disposition significantly changing the market value
of the asset.
A
Fund may invest to a greater degree in instruments that trade in lower volumes and may make investments that may be
less liquid than other investments. A Fund may make investments that may become less liquid in response to market developments
or adverse investor perceptions. When there is no willing buyer and investments cannot be readily sold at the
desired time or price, a Fund may have to accept a lower price or may not be able to sell the instrument at all. An inability
to sell a portfolio position can adversely affect a Fund’s value or prevent the Fund from being able to take advantage
of other investment opportunities. To meet redemption requests, a Fund may be forced to sell securities at an unfavorable
time and conditions.
Securities
that lack liquidity may also be difficult to value. Over recent years, the capacity of dealers to make markets in fixed
income securities has been outpaced by the growth in the size of the fixed income markets. Illiquid securities risk may
be magnified in a rising interest rate environment or when investor redemptions from fixed income funds may be higher
than normal, due to the increased supply in the market that would result from selling activity.
The
Adviser employs procedures and tests using third-party and internal data inputs that seek to assess and manage the liquidity
of a Fund’s portfolio holdings. These procedures and tests take into account a Fund’s investment strategy and liquidity
of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections during both
normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors, and monitor whether
liquidity should be adjusted based on changed market conditions. These procedures and tests are designed to assist
a Fund in determining its ability to meet redemption requests in various market conditions. In light of the dynamic nature
of markets, there can be no assurance that these procedures and tests will enable a Fund to ensure that it has sufficient
liquidity to meet redemption requests.
Impact
Investing Risk – In implementing
the Fund’s ESG investment strategy, the Adviser may select or exclude securities of
issuers in certain industries, sectors, regions or countries for reasons other than the issuer’s investment performance. For
this reason, the Fund may underperform other funds that do not implement an ESG strategy. ESG investing is qualitative
and subjective by nature. In addition, the Fund may be required to sell a security when it might otherwise be disadvantageous
for it to do so. Securities of companies with ESG practices may shift into and out of favor depending on market
and economic conditions. The definition of “impact investing” will vary according to an investor’s beliefs and values.
There is no guarantee that the Adviser’s definition of impact investing, security selection criteria or investment judgment
will reflect the beliefs or values of any particular investor.
Impact
of Large Redemptions and Purchases of Fund Shares –
Occasionally, shareholders may make large redemptions or purchases
of Fund shares, which may cause the Fund to have to sell securities or invest additional cash. These transactions
may adversely affect the Fund’s performance and increase transaction costs. In addition, large redemption requests
may exceed the cash balance of the Fund and result in credit line borrowing fees and/or overdraft charges to the
Fund until the sales of portfolio securities necessary to cover the redemption request settle.
Infrastructure-Related
Investment – Because the Global
Infrastructure Fund concentrates its investments in infrastructure-related
entities, the Fund has greater exposure to the potential adverse economic, regulatory, political and other
changes affecting such entities. Infrastructure-related entities are subject to a variety of factors that may adversely affect
their business or operations, including high interest costs in connection with capital construction programs, costs associated
with environmental and other regulations, the effects of economic slowdown and surplus capacity, increased competition
from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects
of energy conservation policies and other factors. Additionally, infrastructure-related entities may be subject to regulation
by various governmental authorities and may also be affected by governmental regulation of rates charged to customers,
service interruption due to environmental, operational or other mishaps, the imposition of special tariffs and changes
in tax laws, regulatory policies and accounting standards.
Companies
in the infrastructure sector may be subject to a variety of factors that could adversely affect their business or operations,
including high interest costs in connection with capital construction programs, high degrees of leverage, costs associated
with governmental, environmental and other regulations, the level of government spending on infrastructure projects,
and other factors. The stock prices of transportation companies may be affected by supply and demand for their
specific product, government regulation, world events and economic conditions. The profitability of energy companies
is related to worldwide energy prices, exploration, and production spending. Utilities companies face intense competition,
which may have an adverse effect on their profit margins, and the rates charged by regulated utility companies
are subject to review and limitation by governmental regulatory commissions.
Interest
Rate Risk – Interest rates have
an effect on the value of a Fund’s fixed income investments because the value of those
investments will vary as interest rates fluctuate. Generally, fixed income securities will decrease in value when interest
rates rise and when interest rates decline, the value of fixed income securities can be expected to rise. The longer the
effective maturity of a Fund’s securities, the more sensitive the Fund will be to interest rate changes. (As a general rule,
a 1% rise in interest rates means a 1% fall in value for every year of duration.) Duration is a measure of the average life
of a fixed income security that was developed as a more precise alternative to the concepts of “term to maturity” or “average
dollar weighted maturity” as measures of “volatility” or “risk” associated with changes in interest
rates. With respect to the composition of
a fixed income portfolio, the longer the duration of the portfolio, generally the greater the anticipated
potential for total return, with, however, greater attendant interest rate risk and price volatility than for a portfolio
with a shorter duration.
Investment-Grade
Debt Securities – Investment-grade
debt securities are debt securities rated within the highest
grades (AAA/Aaa through BBB-/Baa)
by S&P or Moody’s rating services, and unrated securities of comparable quality. If a Fund invests,
at the time of purchase, in a security that is investment-grade, it is possible that such security may be downgraded
after its purchase so that it is no longer investment-grade.
Issuer
Risk – The value of a security
may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services, as well as the historical and prospective
earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect
securities markets as a whole.
Market
Risk – Deteriorating market conditions
might cause a general weakness in the market that reduces the prices, or yield,
of securities in that market. Developments in a particular class of bonds or the stock market could also adversely affect
a Fund by reducing the relative attractiveness of bonds or stocks as an investment. Also, to the extent that a Fund emphasizes
bonds or stocks from any given industry, it could be hurt if that industry does not do well. Additionally, a Fund could
lose value if the individual stocks in which it maintains long positions and/or the overall stock markets on which the stocks
trade decline in price. In addition, a Fund that engages in short sales could lose value if the individual stocks which they
sell short increase in price. Stocks and stock markets may experience short-term volatility (price fluctuation) as well as
extended periods of price decline or increase. Individual stocks are affected by many factors, including:
● |
market
trends, including investor demand for a particular type of stock, such as growth or value stocks, small or large stocks,
or stocks within a particular industry. |
Stock
markets are affected by numerous factors, including interest rates, the outlook for corporate profits, the health of the
national and world economies, the fluctuation of other stock markets around the world, and financial, economic and other
global market developments and disruptions, such as those arising from war, terrorism, market manipulation, government
interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies,
natural/environmental disasters, recessions, inflation, rapid interest rate changes and supply chain disruptions.
In addition, any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the world economy, which in turn could adversely affect the Fund’s investments.
Policy
and legislative changes in the United States and in other countries are affecting many aspects of financial regulation,
and governmental and quasi-governmental authorities and regulators throughout the world have responded to
serious economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to,
direct capital infusions into companies, new monetary programs and interest rate hikes. The impact of these policies and
legislative changes on the markets, and the practical implications for market participants, may not be fully known for some
time. A reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets,
which could adversely impact the Fund’s investments. The current market environment could make identifying investment
risks and opportunities especially difficult for the Adviser.
Economies
and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or
not a Fund invests in securities of issuers located in or with significant exposure to countries experiencing economic and
financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected by such events.
Mid-Cap
Securities Risk – Securities of
medium-sized companies tend to be more volatile and less liquid than securities of larger
companies. Compared to larger companies, mid-cap securities tend to have analyst coverage by fewer Wall Street
firms and may trade at prices that reflect incomplete or inaccurate information. Medium-sized companies may have
a shorter history of operations, less access to financing and a less diversified product line and be more susceptible to
market pressures and therefore have more volatile prices and company performance than larger companies. During some
periods, securities of medium-sized companies, as an asset class, have underperformed the securities of larger companies.
Municipal
Securities Risk – Municipal securities
are subject to various risks, including the inability of the issuer to repay the obligation,
the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative
changes which could affect the market for and value of municipal securities. Additional risks include:
Municipal
Bond Tax Risk – Investments in
municipal securities rely on the opinion of the issuer’s bond counsel that the
interest paid on those securities will not be subject to federal income tax. Tax opinions are generally provided at the time
the municipal security is initially issued. However, after a Fund buys a security, the Internal Revenue Service may determine
that a bond issued as tax-exempt should in fact be taxable, and a Fund’s dividends with respect to that bond might
be subject to federal income tax. Changes in tax laws or adverse determinations by the Internal Revenue Service may
make the income from some municipal obligations taxable. From time to time, the U.S. Government and the U.S. Congress
consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income,
which would in effect reduce the income received by shareholders from a Fund by increasing taxes on that income.
In such event, the net asset value of a Fund investing in municipal bonds could also decline as yields on municipal bonds,
which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of
comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also
result in significant shareholder redemptions of a Fund’s shares as investors anticipate adverse effects on the Fund or seek
higher yields to offset the potential loss of the tax deduction. As a result, a Fund would be required to maintain higher levels
of cash to meet the redemptions, which would negatively affect the Fund’s yield.
Municipal
Market Volatility and Illiquidity Risk –
The municipal bond market can be susceptible to unusual volatility, particularly
for lower-rated and unrated securities. Liquidity can be reduced unpredictably in response to overall economic
conditions or credit tightening. During times of reduced market liquidity, a Fund may not be able to readily sell bonds
at the prices without the sale significantly changing the market value of the bonds. If a Fund needed to sell large blocks
of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
Municipal
Sector Risk – While the Funds do
not invest more than 25% of their total assets in a single industry, certain types
of municipal securities (such as general obligation, general appropriation, special assessment and special tax bonds)
are not considered a part of any “industry” for purposes of this industry concentration policy. Therefore, a Fund may
invest more than 25% of its total assets in these types of municipal securities. These types of municipal securities may
finance, or pay interest from the revenues of, projects that tend to be impacted in the same way by economic, business
or political developments which would increase credit risk. For example, legislation on the financing of a project or
a declining economic need for the project would likely affect all similar projects.
General
Obligation Bonds Risks – The full
faith, credit and taxing power of the municipality that issues a general obligation
bond secures payment of interest and repayment of principal. Timely payments depend on the issuer’s credit quality,
ability to raise tax revenues and ability to maintain an adequate tax base.
Revenue
Bonds Risks – Payments of interest
and principal on revenue bonds are made only from the revenues generated
by a particular facility, class of facilities or the proceeds of a special tax or other revenue source. These payments
depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from
another source.
Private
Activity Bonds Risks – Municipalities
and other public authorities issue private activity bonds to finance development
of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the
bond, and the issuer does not pledge its full faith, credit and taxing power for repayment. If the private enterprise defaults
on its payments, the Fund may not receive any income or get its principal back from the investment.
Moral
Obligation Bonds Risks – Moral
obligation bonds are generally issued by special purpose public authorities of a
state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment,
but not a legal obligation, of the state or municipality.
Municipal
Notes Risks – Municipal notes are
shorter term municipal debt obligations. They may provide interim financing
in anticipation of, and are secured by, tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated
proceeds, municipal notes may not be fully repaid and the Fund may lose money.
Municipal
Lease Obligations Risks – In a
municipal lease obligation, the issuer agrees to make payments when due on
the lease obligation. The issuer will generally appropriate municipal funds for that purpose, but is not obligated to do so.
Although the issuer does not pledge its unlimited taxing power for payment of the lease obligation, the lease obligation
is secured by the leased property. However, if the issuer does not fulfill its payment obligation it may be difficult to
sell the property and the proceeds of a sale may not cover the Fund’s loss.
State-Specific
Risk - A Fund may from time to time
invest a substantial amount of its total assets in municipal securities
of issuers in one or more states and, therefore, is subject to the risk that the economies of the states in which it invests,
and the revenues supporting the municipal securities, may decline. Investing a substantial amount of its total assets
in one or more states means that a Fund is more susceptible to the economic, market, political, regulatory or other occurrences
that affect the issuers in those states. The particular states in which a Fund may focus its investments may change
over time and the Fund may alter its focus at inopportune times.
California
State-Specific Risk
– To the extent the Fund invests a substantial amount of its assets in California municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of California
issuers to pay interest or repay principal.
Mississippi
State-Specific Risk
– To the extent the Fund invests a substantial amount of its assets in Mississippi municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of Mississippi
issuers to pay interest or repay principal.
New
York State-Specific Risk – To
the extent the Fund invests a substantial amount of its assets in New York municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of New
York issuers to pay interest or repay principal.
Pennsylvania
State-Specific Risk
– To the extent the Fund invests a substantial amount of its assets in Pennsylvania municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of Pennsylvania
issuers to pay interest or repay principal.
Texas
State-Specific Risk – To the extent
the Fund invests a substantial amount of its assets in Texas municipal securities,
the Fund may be affected by economic, regulatory or political developments affecting the ability of Texas issuers
to pay interest or repay principal.
Non-Diversified
Fund Risk – Certain Funds are subject
to non-diversified fund risk because they may invest a greater percentage
of their total assets in the securities of a single issuer compared to diversified funds. As a result, a single security’s
increase or decrease in value may have a greater impact on the Fund’s performance.
Non-Hedging
Foreign Currency Trading Risk –
Certain Funds may engage in forward foreign currency transactions for speculative
purposes. In pursuing this strategy, the Adviser seeks to profit from anticipated movements in currency rates by
establishing “long” and/or “short” portions in forward contracts on various foreign currencies. Foreign exchange
rates can be extremely volatile and a variance
in the degree of volatility of the market or in the direction of the market from the Adviser’s
expectations may produce significant losses to a Fund.
Portfolio
Turnover Risk – A Fund may engage
in short-term trading strategies and securities may be sold without regard to the
length of time held when, in the opinion of the Adviser, investment considerations warrant such action. These policies, together
with the ability of a Fund to effect short sales of securities and to engage in transactions in options and futures, may
have the effect of increasing the annual rate of portfolio turnover of the Fund. A high portfolio turnover rate will result in
greater brokerage and transaction costs for the Fund. It may also result in greater realization of gains, which may include
short-term gains taxable at ordinary income tax rates.
Private
Placements and Other Restricted Securities Risk –
Private placement and other restricted securities include securities
that have been privately placed and are not registered under the Securities Act of 1933 (“1933 Act”), such as unregistered
securities eligible for resale without registration pursuant to Rule 144A (“Rule 144A Securities”) and privately placed
securities of U.S. and non-U.S. issuers offered outside of the U.S. without registration with the U.S. Securities and Exchange
Commission pursuant to Regulation S (“Regulation S Securities”).
Private
placements may offer attractive opportunities for investment not otherwise available on the open market. Private placements
securities typically may be sold only to qualified institutional buyers (or, in the case of the initial sale of certain securities,
such as those issued in collateralized debt obligations or collateralized loan obligations, to accredited investors (as
defined in Rule 501(a) under the 1933 Act)), or in a privately negotiated transaction or to a limited number of purchasers,
or in limited quantities after they have been held for a specified period of time and other conditions are met pursuant
to an exemption from registration. Rule 144A Securities and Regulation S Securities may be freely traded among
certain qualified institutional investors, such as the Funds, but their resale in the U.S. is permitted only in limited circumstances.
Private
placements typically are subject to restrictions on resale as a matter of contract or under federal securities laws. Because
there may be relatively few potential purchasers for such securities, especially under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult
to sell such securities when it may be advisable to do so or it may be able to sell such securities only at prices lower
than if such securities were more widely held. At times, it also may be more difficult to determine the fair value of such
securities for purposes of computing a Fund’s net asset value due to the absence of a trading market.
Private
placements and restricted securities may be considered illiquid securities, which could have the effect of increasing
the level of a Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of purchase may subsequently
become illiquid. Restricted securities that are determined to be illiquid may not exceed a Fund’s limit on investments
in illiquid securities.
Qualified
Dividend Tax Risk – With respect
to the Dynamic Dividend Fund, no assurance can be given as to what percentage
of the distributions paid on shares, if any, will consist of tax-advantaged qualified dividend income or long-term
capital gains or what the tax rates on various types of income will be in future years. The favorable U.S. federal tax
treatment may be adversely affected, changed or repealed by future changes in tax laws at any time. In addition, it may
be difficult to obtain information regarding whether distributions by non-U.S. entities in which a Fund invests should
be
regarded as qualified dividend income. Furthermore, to receive qualified dividend income treatment, a Fund must meet
holding period and other requirements with respect to the dividend paying securities in its portfolio, and the shareholder
must meet holding period and other requirements with respect to the common shares of a Fund.
REIT
and Real Estate Risk – Investment
in REITs and securities of companies in the real estate industry involves the risks that are
associated with direct ownership of real estate and with the real estate industry in general. These risk factors include, among
others: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii)
risks related to local economic conditions, overbuilding and increased competition; (iv) increases in property taxes and
operating expenses; (v) changes in zoning laws; (vi) casualty and condemnation losses; (vii) variations in rental income,
neighborhood values or the appeal of property to tenants; and (viii) changes in interest rates. Many real estate companies
utilize leverage, which increases investment risk and could adversely affect a company’s operations and market
value in periods of rising interest rates. The value of securities of companies in the real estate industry may go through
cycles of relative under performance and out performance in comparison to equity securities markets in general.
There
are also special risks associated with particular sectors of real estate investments:
Retail
Properties. Retail properties are affected
by the overall health of the economy and may be adversely affected by,
among other things, the growth of alternative forms of retailing, bankruptcy, departure or cessation of operations of a tenant,
a shift in consumer demand due to demographic changes, changes in spending patterns and lease terminations.
Office
Properties. Office properties are affected
by the overall health of the economy, and other factors such as a downturn
in the businesses operated by their tenants, obsolescence and non-competitiveness.
Hotel
Properties. The risks of hotel properties
include, among other things, the necessity of a high level of continuing capital
expenditures, competition, increases in operating costs which may not be offset by increases in revenues, dependence
on business and commercial travelers and tourism, increases in fuel costs and other expenses of travel, and adverse
effects of general and local economic conditions. Hotel properties tend to be more sensitive to adverse economic
conditions and competition than many other commercial properties.
Healthcare
Properties. Healthcare properties and
healthcare providers are affected by several significant factors, including
federal, state and local laws governing licenses, certification, adequacy of care, pharmaceutical distribution, rates,
equipment, personnel and other factors regarding operations, continued availability of revenue from government reimbursement
programs and competition on a local and regional basis. The failure of any healthcare operator to comply
with governmental laws and regulations may affect its ability to operate its facility or receive government reimbursements.
Multifamily
Properties. The value and successful operation
of a multifamily property may be affected by a number of
factors such as the location of the property, the ability of the management team, the level of mortgage rates, the presence
of competing properties, adverse economic conditions in the locale, oversupply and rent control laws or other laws
affecting such properties.
Community
Centers. Community center properties are
dependent upon the successful operations and financial condition
of their tenants, particularly certain of their major tenants, and could be adversely affected by bankruptcy of those
tenants. In some cases a tenant may lease a significant portion of the space in one center, and the filing of bankruptcy
could cause significant revenue loss. Like others in the commercial real estate industry, community centers are
subject to environmental risks and interest rate risk. They also face the need to enter into new leases or renew leases on
favorable terms to generate rental revenues. Community center properties could be adversely affected by changes in the
local markets where their properties are located, as well as by adverse changes in national economic and market conditions.
Self-Storage
Properties. The value and successful operation
of a self-storage property may be affected by a number
of factors, such as the ability of the management team, the location of the property, the presence of competing properties,
changes in traffic patterns and effects of general and local economic conditions with respect to rental rates and
occupancy levels.
Other
factors may contribute to the risk of real estate investments:
Development
Issues. Certain real estate companies
may engage in the development or construction of real estate properties.
These companies in which a Fund invests (“portfolio companies”) are exposed to a variety of risks inherent in real
estate development and construction, such as the risk that there will be insufficient tenant demand to occupy newly developed
properties, and the risk that prices of construction materials or construction labor may rise materially during the
development.
Lack
of Insurance. Certain of the portfolio
companies may fail to carry comprehensive liability, fire, flood, earthquake
extended coverage and rental loss insurance, or insurance in place may be subject to various policy specifications,
limits and deductibles. Should any type of uninsured loss occur, the portfolio company could lose its investment
in, and anticipated profits and cash flows from, a number of properties and, as a result, a Fund’s investment performance
may be adversely affected.
Financial
Leverage. Global real estate companies
may be highly leveraged and financial covenants may affect the ability
of global real estate companies to operate effectively.
Environmental
Issues. In connection with the ownership
(direct or indirect), operation, management and development
of real properties that may contain hazardous or toxic substances, a portfolio company may be considered
an owner, operator or responsible party of such properties and, therefore, may be potentially liable for removal
or remediation costs, as well as certain other costs, including governmental fines and liabilities for injuries to persons
and property. The existence of any such material environmental liability could have a material adverse effect on the
results of operations and cash flow of any such portfolio company and, as a result, the amount available to make distributions
on shares of the Fund could be reduced.
Recent
Events. The value of real estate is particularly
susceptible to acts of terrorism and other changes in foreign and
domestic conditions.
REIT
Issues. REITs are subject to a highly
technical and complex set of provisions in the Internal Revenue Code of 1986,
as amended (the “Code” or the “Internal Revenue Code”). It is possible that a Fund may invest in a real estate
company which purports to be a REIT but which
fails to qualify as a REIT. In the event of any such unexpected failure to qualify
as a REIT, the purported REIT would be subject to corporate level taxation, significantly reducing the return to the Fund
on its investment in such company. See “REITS” below.
Financing
Issues. Financial institutions in which
a Fund may invest are subject to extensive government regulation. This
regulation may limit both the amount and types of loans and other financial commitments a financial institution can make,
and the interest rates and fees it can charge. In addition, interest and investment rates are highly sensitive and are determined
by many factors beyond a financial institution’s control, including general and local economic conditions (such
as inflation, recession, money supply and unemployment) and the monetary and fiscal policies of various governmental
agencies such as the Federal Reserve Board. These limitations may have a significant impact on the profitability
of a financial institution since profitability is attributable, at least in part, to the institution’s ability to make financial
commitments such as loans. Profitability of a financial institution is largely dependent upon the availability and cost
of the institution’s funds, and can fluctuate significantly when interest rates change.
REITS
– Investments in REITs will subject
a Fund to, first, the risk that REIT share prices will decline because of adverse developments
affecting the real estate industry and real property values, as described above. REITs often invest in highly leveraged
properties. The second risk is the risk that returns from REITs, which typically are small or medium capitalization stocks,
will trail returns from the overall stock market. The third, interest rate risk, is the risk that changes in interest rates may
hurt real estate values or make REIT shares less attractive than other income producing investments. REITs are also subject
to heavy cash flow dependency, defaults by borrowers and self-liquidation. Qualification as a REIT under the Code
in any particular year is a complex analysis that depends on a number of factors. There can be no assurance that the
entities in which the Fund invests with the expectation that they will be taxed as a REIT will qualify as a REIT. An entity that
fails to qualify as a REIT would be subject to a corporate level tax, would not be entitled to a deduction for dividends paid
to its shareholders and would not pass through to its shareholders the long-term capital gains character of such gains
earned by the entity. If the Fund were to invest in an entity that failed to qualify as a REIT, such failure could drastically
reduce the Fund’s yield on that investment. REITs can be classified as equity REITs, mortgage REITs and hybrid REITs.
Equity REITs invest primarily in real property and earn rental income from leasing those properties. They may also realize
gains or losses from the sale of properties. Equity REITs will be affected by conditions in the real estate rental market
and by changes in the value of the properties they own. Mortgage REITs invest primarily in mortgages and similar real
estate interests and receive interest payments from the owners of the mortgaged properties. They are paid interest by
the owners of the financed properties. Mortgage REITs will be affected by changes in creditworthiness of borrowers and
changes in interest rates. Hybrid REITs invest both in real property and in mortgages. Equity and mortgage REITs are dependent
upon management skills, may not be diversified and are subject to the risks of financing projects. Dividends paid
by REITs will not generally qualify for the reduced U.S. federal income tax rates applicable to qualified dividends under
the Code. The Fund’s investments in REITs may include an additional risk to shareholders in that some or all of a REIT’s
annual distributions to its investors may constitute a non-taxable return of capital. Any such return of capital will generally
reduce the Fund’s basis in the REIT investment, but not below zero. To the extent the distributions from a particular
REIT exceed the Fund’s basis in such REIT, the Fund will generally recognize gain. In part because REIT distributions
often include a nontaxable return of capital, Fund distributions to shareholders may also include a nontaxable
return of capital. Shareholders that receive such a distribution will also reduce their tax basis in their share of the
Fund, but not below zero. To the extent the distribution exceeds a shareholder’s basis in a Fund’s shares, such shareholder
will generally recognize capital gain.
Sector
Risk – To the extent that a Fund
has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly. As disclosed under “Principal
Risks” in the Summary section for the applicable Fund, certain Funds have a significant portion of their assets invested
in securities in, and are therefore subject to the risks of, the sectors described below.
Consumer
Staples Sector Risk. To the extent that
the consumer staples sector represents a significant portion of the Fund,
the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this
sector. Companies in the consumer staples sector are subject to government regulation that may affect their products
and which may negatively impact their performance. Performance of companies in the consumer staples sector
may be adversely impacted by many factors, including, among others, changes in the global economy and global events,
consumer spending, competition, demographics, and consumer preferences.
Healthcare
Sector Risk. To the extent that the healthcare
sector represents a significant portion of the Fund, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Healthcare-related companies may be smaller and less seasoned than companies in other sectors, and performance
of companies in the healthcare sector may be adversely impacted by many factors, including, among others,
government regulation. restrictions on government reimbursement for medical expenses, changes to the costs of medical
products and services, pricing pressure, increased emphasis on outpatient services, a limited number of products,
industry innovation, changes in technologies, and other market developments. Many healthcare-related companies
are dependent on patent protection, and, therefore, the expiration of patents may adversely affect the profitability
of healthcare-related companies.
Financials
Sector Risk. To the extent that the financials
sector continues to represent a significant portion of the Fund,
the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this
sector. Performance of companies in the financials sector may be adversely impacted by many factors, including, among
others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased
liquidity in credit markets. The impact of more stringent capital requirements, recent or future regulation of any
individual financial company, or recent or future regulation of the financials sector as a whole cannot be predicted. In recent
years, cyber attacks and technology malfunctions and failures have become increasingly frequent in this sector and
have caused significant losses.
Industrials
Sector Risk. The value of securities issued
by companies in the industrials sector may be adversely affected
by supply and demand related to their specific products or services and industrials sector products in general. The
products of manufacturing companies may face obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events, economic conditions and exchange rates may
adversely affect the performance of companies in the industrials sector. Companies in the industrials sector may be
adversely affected by liability for environmental damage and product liability claims. The industrials sector may also be
adversely affected by changes or trends in commodity prices, which may be influenced by unpredictable factors. Companies
in the industrials sector, particularly aerospace and defense companies, may also be adversely affected by government
spending policies because companies involved in this sector rely to a significant extent on government demand
for their products and services.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Utilities
Sector Risk. To the extent that the utilities
sector continues to represent a significant portion of the Fund, the Fund
will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector.
Performance of companies in the utilities sector may be adversely impacted by many factors, including, among others,
general economic conditions, supply and demand, financing and operating costs, rate caps, interest rates, liabilities
arising from governmental or civil actions, consumer confidence and spending, competition, resource conservation
and depletion, man-made or natural disasters, geopolitical events, and environmental, and other government
regulations. The value of securities issued by companies in the utilities sector may be negatively impacted by
changes in exchange rates, competition, conservation of energy, and government limitations on rates charged. While rate
changes of regulated utilities usually vary in approximate correlation with financing costs, utility rate changes typically
only happen following a delay after the changes in financing costs due to political and regulatory factors. Deregulation
may eliminate restrictions on the profits of certain utility companies, but may also expose these companies to
an increased risk of loss, especially through increased competition and diversification into new geographic regions and lines
of business. Current and future regulations and legislation could make it more difficult for utility companies to operate
profitably.
Small-Cap
Securities Risk – In general, securities
of small-cap companies trade in lower volumes and are subject to greater
or more unpredictable price changes than larger cap securities or the market overall. Small-cap companies may
have limited product lines or markets, be less financially secure than larger companies, or depend on a small number
of key personnel. If adverse developments occur, such as due to management changes or product failure, a
Fund’s
investment in a small-cap company may lose substantial value. Investing in small-cap companies requires a longer
term investment view and may not be appropriate for all investors. These risks may be exacerbated for micro-cap securities.
Sovereign
Debt Risk – Periods of economic
and political uncertainty may result in the illiquidity and increased price volatility
of a foreign government’s debt securities held by a Fund and impact an issuer’s ability and willingness to pay interest
or repay principal when due. A Fund may have limited recourse to compel payment in the event of a default. A foreign
government’s default on its debt securities may cause the value of securities held by a Fund to decline significantly.
The following describes principal risk factors to which investments in sovereign debt are subject:
Economic
Risk. The risks associated with the general
economic environment of a country. These can encompass, among
other things, low quality and growth rate of Gross Domestic Product (“GDP”), high inflation or deflation, high government
deficits as a percentage of GDP, weak financial sector, overvalued exchange rate, and high current account deficits
as a percentage of GDP.
Political
Risk. The risks associated with the general
political and social environment of instability, poor socioeconomic
conditions, corruption, lack of law and order, lack of democratic accountability, poor quality of the bureaucracy,
internal and external conflict, and religious and ethnic tensions. High political risk can impede the economic welfare
of a country.
Repayment
Risk. A country may be unable to pay its
external debt obligations in the immediate future. Repayment risk
factors may include but are not limited to high foreign debt as a percentage of GDP, high foreign debt services as a percentage
of exports, low foreign exchange reserves as a percentage of short-term debt or exports, and an unsustainable
exchange rate structure.
Sustainable
Investing Risk – A Fund’s
Sustainable Leaders strategies could cause it to perform differently compared to funds
that do not have such strategy. ESG considerations may be linked to long-term rather than short-term returns. The criteria
related to the Fund’s Sustainable Leaders strategy, including the exclusion of securities of companies that engage in
certain business activities, may result in the Fund forgoing opportunities to buy certain securities when it might otherwise
be advantageous to do so, or selling securities for ESG reasons when it might be otherwise disadvantageous for
it to do so. In addition, there is a risk that the companies identified as sustainable leaders by the Adviser do not operate as
expected when addressing ESG issues. There are significant differences in interpretations of what it means for a company
to have positive ESG characteristics. While the Adviser believes its definitions are reasonable, the portfolio decisions
it makes may differ with other investors’ or advisers’ views. In evaluating an issuer, the Adviser utilizes information
and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable,
which could cause the Adviser to incorrectly assess an issuer’s business practices with respect to the environment,
social responsibility and corporate governance.
Temporary
Investments – Generally, each Fund
will be fully invested in accordance with its investment objective and strategies;
however, pending investment of cash balances or for other cash management purposes or if a Fund’s management
believes that business, economic, political or financial conditions warrant, a Fund may invest without limit in cash,
cash equivalents or other short-term obligations, including:
● |
short-term
U.S. Government securities; |
● |
certificates
of deposit, bankers’ acceptances, and interest-bearing savings deposits of commercial banks; |
● |
prime
quality commercial paper; |
● |
repurchase
agreements covering any of the securities in which the Fund may invest directly; and |
● |
shares
of money market funds. |
The
use of temporary investments prevents a Fund from fully pursuing its investment objective, and the Fund may miss potential
market upswings.
With respect to the Dynamic Dividend Fund, during times of adverse market,
economic, political or other conditions, the Fund may hold certain securities for less than 61 days and, as a result, shareholders may
be unable to take advantage of the reduced U.S. federal income tax rates applicable to any qualifying dividends otherwise attributable
to such securities.
Before, during and after a closure of the Shanghai and Shenzhen markets
for five consecutive business days or longer, which typically occurs twice per year during national holidays in China, the China A Fund
may temporarily reduce its allocation to China A Shares in favor of temporary investments noted above or make a corresponding increase
in the Fund’s allocation to “H Shares” if the Adviser believes the extended closures of the Shanghai and Shenzhen exchanges
will adversely impact the Fund. H Shares are a different share class than China A Shares of companies that are dually listed in mainland
China and Hong Kong, and which are traded on the Hong Kong exchange. During these periods, the China A Fund’s replacement of a portion
of its China A Shares allocation with H Shares may temporarily prevent the China A Fund from meeting its policy to invest at least 80%
of the value of its net assets, plus any borrowings for investment purposes, in equity securities of companies that issue China A Shares.
While H Shares are generally expected to perform similarly to China A Shares issued by the same company, performance can sometimes vary
dramatically due to varying investor sentiments and demands in the different mainland China versus Hong Kong markets.
In
addition, pending investment of cash balances or for other cash management purposes, a Fund may invest without limit
in other instruments, including but not limited to, derivatives that provide exposure to markets or companies in which the
Fund may invest and in shares of other investment companies that invest in securities in which the Fund may invest, subject
to the limits of the 1940 Act. For information about the risks of investing in derivatives and other
investment companies, please see “Derivatives Risk” and “Exchange-Traded Fund Risk” above and “Derivatives
Risk” and “Securities of Other Investment Companies” in the SAI.
Tender
Option Bonds Risk – Tender option
bonds are synthetic floating-rate or variable-rate securities issued when longterm
bonds are purchased in the primary or secondary market and then deposited into a trust. Custodial receipts are
then issued to investors, such as the Funds, evidencing ownership interests in the trust. The remarketing agent for the trust
sets a floating or variable rate on typically a weekly basis. The sponsor of a highly leveraged tender option bond trust generally
will retain a liquidity provider to purchase the short-term floating-rate interests at their original purchase price upon
the occurrence of certain specified events. However, the liquidity provider may not be required to purchase the floating-rate
interests upon the occurrence of certain other events, for example, the downgrading of the municipal bonds
owned by the tender option bond trust below investment grade. The general effect of these provisions is to pass to the
holders of the floating rate interests the most severe credit risks associated with the municipal bonds owned by the tender
option bond trust and to leave with the liquidity provider the interest rate risk (subject to a cap) and certain other
risks
associated with the municipal bonds. Tender option bonds may be considered derivatives, and may expose the Funds
to the same risks as investments in derivatives, as well as risks associated with leverage, especially the risk of increased
volatility. To the extent the Funds invest in tender option bonds, it is also exposed to credit risk associated with the
liquidity provider retained by the sponsor of a tender bond option trust.
Tobacco
Related Bonds Risk – In 1998, the
largest U.S. tobacco manufacturers reached an out of court agreement, known as
the Master Settlement Agreement (the “MSA”), to settle claims against them by 46 states and six other U.S. jurisdictions.
The tobacco manufacturers agreed to make annual
payments to the government entities in exchange for the release of all
litigation claims. A number of the states have sold bonds that are backed by those future payments. The Fund may invest
in two types of those bonds: (i) bonds that make payments only from a state’s interest in the MSA and (ii) bonds that
make payments from both the MSA revenue and from an “appropriation pledge” by the state. An “appropriation pledge”
requires the state to pass a specific periodic appropriation to make the payments and is generally not an unconditional
guarantee of payment by a state.
The
MSA settlement payments are based on factors, including, but not limited to, annual domestic cigarette shipments, cigarette
consumption, inflation and the financial capability of participating tobacco companies. Payments could be reduced
if consumption decreases, if market share is lost to non-MSA manufacturers, or if there is a negative outcome in litigation
regarding the MSA.
U.S.
Government Securities Risk – Securities
issued by U.S. Government agencies or government sponsored entities may not
be guaranteed by the U.S. Treasury. The U.S. Government does not guarantee the net asset value of a Fund’s shares. The
Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly-owned U.S. Government corporation,
is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by
the Federal Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or government sponsored
entities (i.e., not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage
Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC”
or “Freddie Mac”). Pass-through
securities issued by Fannie Mae are guaranteed as the timely payment of principal and interest by Fannie
Mae but are not backed by the full faith and credit of the U.S. Government. Freddie Mac guarantees the timely payment
of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and
credit of the U.S. Government. If a government-sponsored entity is unable to meet its obligations, the performance of a
Fund that holds securities of the entity may be adversely affected. U.S. Government obligations are ordinarily viewed as having
minimal or no credit risk, but are still subject to interest rate risk.
In
2008, the U.S. Treasury Department and the Federal Housing Finance Administration (“FHFA”) placed FNMA and FHLMC into
a conservatorship under FHFA. The effect that this conservatorship may have on these companies’ debt and equity securities
is unclear. FHFA has the power to repudiate any contract entered into by FNMA or FHLMC prior to FHFA’s appointment
if FHFA determines that performance of the contract is burdensome and the repudiation of the contract promotes
the orderly administration of FNMA’s or FHLMC’s affairs. While the FHFA has indicated that it has no intention to repudiate
the guaranty obligations of FNMA or FHLMC, doing so would adversely affect holders of their mortgage backed
securities. FHFA also has the right to transfer or sell any asset or liability of FNMA or FHLMC without any approval, assignment
or consent. In addition, holders of mortgage-backed securities issued by FNMA or FHLMC may not enforce certain
rights related to such securities against FHFA, or the enforcement of such rights may be delayed, during the conservatorship.
The Federal Government continues to review issues concerning the role of these agencies in the U.S. housing
market.
Valuation
Risk – The price a Fund could receive
upon the sale of any particular portfolio investment may differ from the Fund’s
valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a
fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the
sale of an investment may be less than the value ascribed by a Fund, and a Fund could realize a greater than expected
loss or lesser than expected gain upon the sale of the investment.
Pricing
services that value fixed-income securities generally utilize a range of market-based and security-specific inputs and
assumptions, as well as considerations about general market conditions, to establish a price. Pricing services generally
value fixed-income securities assuming orderly transactions of an institutional round lot size and the strategies employed
by the Adviser generally trade in round lot sizes. In certain circumstances, fixed income securities may be held or
transactions may be conducted in smaller, odd lot sizes. Odd lots may trade at lower or, occasionally, higher prices than
institutional round lots. A Fund’s ability to value its investments may also be impacted by technological issues and/or errors
by pricing services or other third-party service providers.
In
addition, since foreign exchanges may be open on days when the Funds do not price their shares, the value of the securities
in a Fund’s portfolio may change on days when shareholders are not be able to purchase or sell that Fund’s shares.
Variable
and Floating Rate Securities Risk –
A variable rate security is one whose terms provide for the automatic establishment
of a new interest rate on set dates. A floating rate security is one whose terms provide for the automatic adjustment
of an interest rate whenever the specified interest rate changes. The interest rate on floating rate securities is
ordinarily
tied to, and is a specified margin above or below, the prime rate of a specified bank or some similar objective benchmark,
such as the yield on the 90–day U.S. Treasury Bill rate, and may change as often as daily. For floating and variable
rate obligations, there may be a lag between an actual change in the underlying interest rate benchmark and the
reset time for an interest payment of such an obligation, which could harm or benefit a Fund, depending on the interest
rate environment or other circumstances. In a rising interest rate environment, for example, a floating or variable rate
obligation that does not reset immediately would prevent a Fund from taking full advantage of rising interest rates in a
timely manner. However, in a declining interest rate environment, a Fund may benefit from a lag due to an obligation’s interest
rate payment not being immediately impacted by a decline in interest rates.
Certain
floating and variable rate obligations have an interest rate floor feature, which prevents the interest rate payable by
the security from dropping below a specified level as compared to a reference interest rate (the “reference rate”).
Such a floor protects a Fund from losses resulting
from a decrease in the reference rate below the specified level. However,
if the reference rate is below the floor, there will be a lag between a rise in the reference rate and a rise in the interest
rate payable by the obligation, and a Fund may not benefit from increasing interest rates for a significant amount of
time.
Yield
Risk – The amount of income received
by a Fund on fixed income securities will go up or down depending on day-to-day
variations in short-term interest rates, and when interest rates are very low, the Fund’s expenses could absorb
all or a significant portion of the fund’s income. If interest rates increase, the Fund’s yield may not increase proportionately.
For example, the Adviser may discontinue any temporary voluntary fee limitation or recoup amounts previously
waived and/or reimbursed.
The
SAI contains more information on the Funds’ investments and strategies and can be requested using the address and telephone
numbers on the back of this prospectus.
Other
Information
Commodity
Pool Operator Status and/or Exclusion –
CFTC regulations subject registered investment companies and/ or their
investment advisers to regulation by the CFTC if the registered investment company invests more than a prescribed level
of its NAV in commodity futures, options on commodities or commodity futures, swaps, or other financial instruments
regulated under the Commodity Exchange Act (“CEA”) (“commodity interests”), or if the registered investment
company markets itself as providing investment exposure to such commodity interests.
For
all of the Funds,
the Adviser has claimed an exclusion from the definition of commodity pool operator under CFTC Rule
4.5 with respect to each Fund, and therefore such Funds and the Adviser (with respect to such Funds) are not currently
subject to registration, disclosure, and regulatory requirements under applicable CFTC rules. The Adviser has to reaffirm
annually its eligibility for this exclusion. The Adviser intends to continue to operate each such Fund in a manner to maintain
its exclusion under CFTC Rule 4.5.
Portfolio
Holdings Disclosure – Each Fund
posts on the Trust’s internet site, https://www.abrdn.com/en-us/us/investor/ fund-centre#literature,
substantially all of its securities holdings as of the end of each month. Such portfolio holdings are available
no earlier than 7 business days after the end of the previous month for equity funds and 15 business days after the end of the previous month for fixed income funds.
A description of the Funds’ policies
and procedures regarding the release of portfolio holdings information is available in the Funds’ SAI.
Investment
Adviser
abrdn
Inc., a Delaware corporation formed in 1993, serves as the investment adviser to each Fund. The Adviser’s principal place
of business is located at 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103. The Adviser manages and supervises
the investment of each Fund’s assets on a discretionary basis.
The
Adviser is a wholly-owned subsidiary of abrdn (Holdings) PLC, which has its registered offices at 10 Queen’s Terrace, Aberdeen,
Scotland AB10 1YG. abrdn (Holdings) PLC is a wholly-owned subsidiary of abrdn plc (“abrdn”), which has registered
offices at 1 George Street, Edinburgh, Scotland EH2 2LL. abrdn plc, combined with its subsidiaries and affiliates, manages
approximately
$467.4
billion in assets as of December
31, 2023. abrdn provides asset management
and investment solutions for clients and customers
worldwide and also has
a strong position in the pensions and savings market.
In
rendering investment advisory services, the Adviser, and Sub-advisers
described below, may use the resources of investment
advisor subsidiaries of abrdn plc. These affiliates have entered into a memorandum of understanding / personnel
sharing procedures (“MOU”) pursuant to which investment professionals from each affiliate may render portfolio
management and research services to U.S. clients of the abrdn plc affiliates, including the Funds, as associated persons
of the Adviser or Sub-adviser. No remuneration is paid by the Funds with regards to the MOU.
Sub-advisers
abrdn
China A Share Equity Fund, abrdn Dynamic Dividend Fund, abrdn Emerging Markets Dividend
Fund, abrdn Emerging Markets
ex-China Fund, abrdn Emerging Markets Fund,
abrdn Emerging Markets Sustainable
Leaders Fund, abrdn Global Equity Impact
Fund, abrdn
Global Infrastructure Fund, abrdn Infrastructure
Debt Fund, abrdn International Small
Cap Fund
and abrdn Realty Income & Growth
Fund
abrdn
Investments Limited (“aIL”),
a Scottish Company, and abrdn Asia Limited (“aAL”
and together with aIL,
the “Sub-advisers”), a Singapore
corporation, serve as Sub-advisers to the above-listed Funds, as applicable. aIL’s
registered office is located at 10 Queen’s
Terrace, Aberdeen, Scotland AB10 1YG. aAL’s
principal place of business is located at 21 Church
Street, #01-01 Capital Square Two, Singapore 049480. aIL
is responsible for the day-to-day management of each
of the Dynamic
Dividend Fund, Emerging Markets Dividend Fund, Emerging Markets
ex-China Fund, Emerging Markets Sustainable
Leaders Fund, Global Equity Impact Fund, Global Infrastructure Fund, Infrastructure
Debt Fund and International
Small
Cap Fund and manages a portion of the assets
of the Realty Income & Growth Fund. aAL
is responsible for the day-to-day management
of the China A Fund. aIL
and aAL are responsible for the day-to-day
management of the Emerging Markets Fund. To
the extent that aIL
or aAL do not have management over a specific
portion of a Fund’s assets, aIL
and aAL will assist the Adviser with oversight
for the Fund. When a portfolio management team
from aIL
or aAL is allocated a specific portion of
a Fund’s assets to manage, it will receive a fee from the Adviser for its
investment management services. aIL
and aAL are both affiliates of the Adviser
and wholly owned by abrdn plc.
A
discussion regarding the basis for the Board of Trustees’ approval of the investment advisory and sub-advisory agreements
for the Funds is available in the Funds’ Annual Report to Shareholders for the period ended October 31, 2023.
Management
Fees
Each
Fund pays the Adviser a management fee based on its average daily net assets. With respect to each Fund that has
a Sub-adviser(s), the Adviser pays the Sub-adviser(s) from the management fee it receives.
The
total annual advisory fees each Fund pays the Adviser (as a percentage of its average daily net assets) are set forth in
the following table. The actual management fee rate paid by each Fund for the fiscal year ended October 31, 2023
disclosed below takes into account the expense
limitation that was in effect for the Fund during the year.
|
|
|
Fund
Assets |
Management
Fee
|
Actual
Rate for Fiscal
Year Ended October
31, 2023
|
abrdn
Focused U.S. Small Cap Equity Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
abrdn
U.S. Small Cap Equity Fund |
|
|
On
assets up to $100 million |
|
|
On
assets of $100 million and more |
|
|
|
|
|
abrdn
U.S. Sustainable Leaders Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
abrdn
China A Share Equity Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
abrdn
Emerging Markets Sustainable Leaders Fund |
|
|
On
all assets |
|
|
|
|
|
abrdn
Emerging Markets ex-China Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
abrdn
Emerging Markets Fund |
|
|
On
all assets |
|
|
|
|
|
abrdn
Infrastructure Debt Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $1 billion |
|
|
On
assets of $1 billion and more |
|
|
|
|
|
abrdn
International Small Cap Fund |
|
|
On
assets up to $100 million |
|
|
On
assets of $100 million and more |
|
|
|
|
|
|
|
|
Fund
Assets |
Management
Fee
|
Actual
Rate for Fiscal
Year Ended October
31, 2023
|
abrdn
Intermediate Municipal Income Fund |
|
|
On
assets up to $250 million |
|
|
On
assets of $250 million up to $1 billion |
|
|
On
assets of $1 billion and more |
|
|
|
|
|
abrdn
Dynamic Dividend Fund |
|
|
On
assets up to $250 million |
|
|
On
assets of $250 million and more |
|
|
|
|
|
abrdn
Global Infrastructure Fund |
|
|
On
assets up to $250 million |
|
|
On
assets of $250 million up to $750 million |
|
|
On
assets of $750 million up to $1 billion |
|
|
On
assets of $1 billion and more |
|
|
|
|
|
abrdn
Short Duration High Yield Municipal Fund |
|
|
On
assets up to $250 million |
|
|
On
assets of $250 million and more |
|
|
|
|
|
abrdn
Realty Income & Growth Fund |
|
|
On
all assets |
|
|
|
|
|
abrdn
Ultra Short Municipal Income Fund |
|
|
On
all assets |
|
|
|
|
|
abrdn
Emerging Markets Dividend Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
abrdn
Global Equity Impact Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $2 billion |
|
|
On
assets of $2 billion and more |
|
|
|
|
|
|
|
|
Fund
Assets |
Management
Fee
|
Actual
Rate for Fiscal
Year Ended October
31, 2023
|
abrdn
High Income Opportunities Fund |
|
|
On
assets up to $500 million |
|
|
On
assets of $500 million up to $1 billion |
|
|
On
assets of $1 billion and more |
|
|
(1) |
Prior
to August 18, 2022, the management fee rate for the Fund was 0.60% on assets up to $500 million, 0.55% on assets of $500 million
up to $1 billion and 0.50%
on assets of $1 billion and more. |
(2) |
Prior
to August 18, 2023, the management fee rate for the Fund was 0.65% on assets up to $5 billion, 0.63% on assets of $5 billion up
to $7.5 billion, 0.60% on assets
of $7.5 billion up to $10 billion and 0.59% on assets of $10 billion and more. Effective August 18, 2023, the Fund’s expense
limitation was reduced to 0.70%
from 0.75%. |
The
Adviser has entered into a written expense limitation agreement dated
February 28, 2017 with the Trust on behalf
of the Funds listed in the table below through
February 28,
2025. The expense limitations exclude taxes,
interest, brokerage fees, short-sale dividend
expenses, Acquired Fund Fees and Expenses, 12b-1 fees, administrative services fees,
transfer agent out of
pocket expenses for Class A, Class R and Institutional Service Class shares and
extraordinary expenses. Pursuant to such expense
limitation agreement, the Adviser has contractually agreed to waive advisory fees and, if necessary,
reimburse expenses in order to limit total annual fund operating expenses, of the Fund
as follows:
|
|
Name
of Fund |
Expense
Limitation
|
abrdn
China A Share Equity Fund |
|
abrdn
Emerging Markets Fund |
|
abrdn
Emerging Markets ex-China Fund |
|
abrdn
Emerging Markets Sustainable Leaders Fund |
|
abrdn
Infrastructure Debt Fund |
|
abrdn
Intermediate Municipal Income Fund |
|
abrdn
International Small Cap Fund |
|
abrdn
U.S. Small Cap Equity Fund |
|
abrdn
U.S. Sustainable Leaders Fund |
|
abrdn
Focused U.S. Small Cap Equity Fund |
|
The
Adviser has entered through February 28,
2025, into a separate written expense limitation
agreement dated March
6, 2018 with
the Trust on behalf of the Funds listed in the table below. The expense limitations exclude interest, brokerage commissions,
Acquired Fund Fees and Expenses and extraordinary expenses.
Pursuant to the expense limitation agreement,
the Adviser has contractually agreed to waive advisory fees and, if necessary, reimburse expenses in order to
limit total annual fund operating expenses, of the Funds as follows:
|
|
|
Name
of Fund/Class |
Class
|
Expense
Limitation
|
abrdn
Dynamic Dividend Fund |
Institutional
|
|
|
Class
A |
|
abrdn
Global Infrastructure Fund |
Institutional
|
|
|
Class
A |
|
abrdn
Realty Income & Growth Fund |
Institutional
|
|
|
Class
A |
|
abrdn
Short Duration High Yield Municipal Fund |
Institutional
|
|
|
Class
A |
|
|
Class
C |
|
abrdn
Ultra Short Municipal Income Fund |
Institutional
|
|
|
Class
A |
|
|
Class
A1 |
|
The
Adviser has entered into a written expense limitation agreement dated
June 16, 2021 with the Trust on behalf of
the Funds listed in the table below through
February 28,
2025. The expense limitation
excludes taxes, interest, brokerage fees,
short-sale dividend expenses, Acquired Fund
Fees and Expenses,
12b-1 fees
for Class A shares and extraordinary expenses. Pursuant
to such expense limitation agreement, the Adviser has contractually agreed to waive advisory fees and, if necessary,
reimburse expenses in order to limit total annual fund operating expenses, of the Funds as follows:
|
|
Name
of Fund |
Expense
Limitation
|
abrdn
Emerging Markets Dividend Fund |
|
abrdn
Global Equity Impact Fund |
|
abrdn
High Income Opportunities Fund |
|
Under
certain circumstances, the Adviser may recoup amounts reimbursed under the expense limitation agreements. Please
refer to “Fees and Expenses of the Fund” in the “Fund Summaries” section of this prospectus
for more information regarding the expense
limitation agreements.
In addition to any contractual expense limitation for the abrdn
Ultra Short Municipal Income Fund, in order to maintain a positive yield with respect each of the Fund’s classes, the Adviser may
temporarily pay, waive or absorb the class-specific ordinary operating expenses of one or more of the Fund’s classes. Any such waiver
or expense reimbursement is voluntary, not subject to recoupment, and can be discontinued at any time. There is no guarantee that the
abrdn Ultra Short Municipal Income Fund, or any of the classes of the Fund, will be able to avoid a negative yield.
Portfolio
Management
The
Adviser and Sub-adviser
generally use a team-based approach for the management of each Fund. Information about
the abrdn team members jointly and primarily responsible for managing each Fund is included below.
abrdn
Dynamic Dividend Fund, abrdn Global Equity Impact Fund, abrdn Global Infrastructure Fund, abrdn International Small Cap
Fund, abrdn Focused
U.S. Small Cap Equity Fund, abrdn U.S. Small
Cap Equity Fund and abrdn U.S. Sustainable
Leaders Fund
Each
of the Dynamic Dividend Fund, Global Equity Impact Fund, Global Infrastructure Fund, International Small Cap Fund, Focused
U.S. Small Cap Equity Fund, U.S. Small
Cap Equity Fund and U.S. Sustainable Leaders
Fund
is managed by the Developed Markets Equity
Team. The Developed Markets Equity Team works in a truly collaborative fashion with portfolio managers,
sector analysts and ESG specialists across the team working closely together. The depth and experience across
the team globally allows the Adviser and Sub-adviser(s), as applicable, to perform the diligent research required by
their process. The experience of senior managers provides the confidence needed to take a long-term view. The named
portfolio managers are jointly and primarily responsible for the day-to-day management of the Funds. They are:
|
|
Portfolio
Manager |
Funds
|
|
|
Dominic
Byrne, CFA®,
Deputy Head of Developed Markets Dominic
is Deputy Head of Developed Markets and a portfolio manager on our global
and responsible range of equity funds. Dominic joined the firm in 2000 as part
of our UK Equity Team. In December 2008, he joined the Global Equity Team
and has managed a range of global equity strategies. In 2020, Dominic was
appointed Head of Global Equity at the company. Dominic graduated with a
MEng in Engineering Science and is a CFA charterholder. |
abrdn
Global Equity Impact Fund abrdn
U.S. Sustainable Leaders Fund |
|
|
Christopher
Colarik, Head of U.S. Smaller Companies Chris
Colarik is the Head of U.S. Smaller Companies responsible for US Small and
Smid Cap strategies. Chris joins abrdn after having spent over two decades
at Glenmede Investment Management as a portfolio manager on the Small
Cap Equity strategy. Prior to joining Glenmede in 1997, he was at Brandywine
Asset Management, now Brandywine Global. Chris earned a BS in Economics
from the University of Delaware. He is a member of the CFA Institute and
the CFA Society of Philadelphia. |
abrdn
Focused U.S. Small Cap Equity Fund abrdn
U.S. Small Cap Equity Fund |
|
|
Scott
Eun, Senior Investment Director Scott
Eun is a Senior Investment Director at abrdn responsible for the US Small and
Mid-Cap strategies. Scott began his career in management consulting with
APM Incorporated in New York before getting his MBA. After business school,
Scott began his investment career in venture capital at Atlantic Medical Capital.
He then began his public investing career at AIG/SunAmerica Asset Management
as a healthcare equity analyst and then moved to mutual fund family,
The Dreyfus Corporation. Prior to joining the company in 2007, Scott was at
Lehman Brothers Equity Strategies, where he was a co-manager of a long/ short
equity fund. Scott has an MBA from The Wharton School of Business, University
of Pennsylvania and a BA in Economics from Harvard College. |
abrdn
Focused U.S. Small Cap Equity Fund abrdn
U.S. Small Cap Equity Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Martin
Connaghan, Investment Director Martin
Connaghan is an Investment Director on the Developed Markets Team at
abrdn. Martin joined Murray Johnstone in 1998, which was subsequently acquired
by Aberdeen Asset Management in 2001. Martin has held a number of
roles including Trader and ESG Analyst on the Global Equity Team; he also spent
two years as a Portfolio Analyst on the Fixed Income Team in London. Martin
primarily focuses on global and global income mandates. |
abrdn
Dynamic Dividend Fund |
|
|
Kirsty
Desson, Investment Director Kirsty
Desson is an Investment Director within the Smaller Companies Team (which
sits within the Developed Markets Team) at abrdn. She manages the global
small cap strategies and leads discussions on the team’s global small-cap
stock selection. Kirsty joined the company in September 2012 after a
break from the industry. Prior to that, Kirsty started her career as a graduate at
Martin Currie in October 2000. Following a stint on the US Equity desk, she moved
to the Asia and Emerging Markets Team as Investment Manager. Kirsty graduated
with a MA (Hons) in French from the University of St Andrews and holds
the IMC. |
abrdn
International Small Cap Fund |
|
|
Josh
Duitz, Head of Global Income Josh
Duitz is Head of Global Income at abrdn. Josh joined the company in 2018 from
Alpine Woods Capital Management where he was a Portfolio Manager. Previously,
Josh worked for Bear Stearns where he was a Managing Director, Principal
and traded international equities. Prior to that, Josh worked for Arthur Andersen
where he was a senior auditor. |
abrdn
Dynamic Dividend Fund abrdn
Global Infrastructure Fund |
|
|
Ruairidh
Finlayson, CFA®,
Investment Director Ruairidh
Finlayson is an Investment Director on the Developed Markets Team at abrdn.
Ruairidh joined the company in 2018 from Polar Capital Partners where he
worked as an Equity Analyst for the North America and Global Alpha funds. Previously,
Ruairidh worked as an Equity Analyst for Brewin Dolphin after qualifying
as a Chartered Accountant with Ernst & Young. |
abrdn
Dynamic Dividend Fund |
|
|
Christopher
Haimendorf, CFA®, Senior Investment Director Christopher
Haimendorf is a Senior Investment Director on the Developed Markets
Team at abrdn. In this role, Chris analyzes current and prospective holdings
and assists with the management of client portfolios. Chris brings a wealth
of experience to the firm. He moved from the European Equities team where
he worked as an Investment Director since 2001, having previously covered
UK Equities. Chris joined the company in 1998 after graduating from the
University of Cambridge with a BA (Hons) in Natural Sciences (Physiology) and
is a CFA charterholder. |
abrdn
U.S. Sustainable Leaders Fund |
|
|
Joanna
McIntyre, CFA®,
Investment Director Joanna
is an Investment Director in the Developed Markets Team at abrdn. Joanna
joined the company in 2010 on the graduate program from Ernst and Young
where she qualified as a Chartered Certified Accountant in 2009. She has
worked across several areas of the business including Marketing, Product Development
and the Real Estate Investment Specialists before joining the Multi-Asset
Investment Specialists in early 2013. In January 2015, Joanna joined the
Asia & GEM Equity Team before transferring to the Global Equity Team in April
2018. Joanna graduated with a MA in in Econometrics and Information Technology
from University of Szczecin, Poland. Additionally she is a Chartered Certified
Accountant, ACCA; holds the Investment Management Certificate and
is a CFA®
charterholder. |
abrdn
U.S. Sustainable Leaders Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Sarah
Norris, Head of ESG – Equities Sarah
is Head of ESG – Equities. Sarah joined the company in 2011 as a member
of the European Equity Team before transferring the Global Equity team
in 2021. Sarah previously worked at Referendum Ready, a non-profit campaign
that partnered with the Government of Southern Sudan Mission prior
to independence. She continues to work with Impact Sudan, a non-profit organisation
based in the US that supports education and community development
projects in South Sudan. Sarah has an MA (Hons) in International Relations
and MLitt Post Graduate studies, both from St Andrews University |
abrdn
Global Equity Impact Fund |
|
|
Jamie
Mills O’Brien, CFA®,
Investment Manager Jamie
Mills O’Brien is an Investment Manager in the Developed Markets Team at
abrdn. Jamie joined the company on the graduate scheme in 2015 after completing
an internship. Jamie holds an MA in History from the University of St Andrews,
and gained a distinction from BPP in the Graduate Diploma in Law and
Legal Practice Course. He is also a CFA Charterholder. |
abrdn
U.S. Sustainable Leaders Fund |
|
|
Liam
Patel, Investment Analyst Asia/GEM Liam
is an investment analyst in the Smaller Companies Team (which sits within
the Developed Markets Team) at abrdn. He is responsible for providing research
on Asia (ex Japan) and Emerging Market Small and Mid-Caps. Liam joined
the Company in November 2020 from Kingfisher plc where he worked in corporate
investor relations for one year. Previously he gained 5 years of experience
as an Emerging Market Equity Analyst at British Airways Pension Fund
where he focused on stock selection across Emerging Markets. Liam has a
Master’s (MEng) and Bachelor’s (BEng) in Chemical Engineering, IMC and CFA
UK Certificate in ESG Investing. |
abrdn
International Small Cap Fund |
|
|
Donal
Reynolds, CFA®,
Investment Director Donal
is an Investment Director on the Developed Markets Team. Donal joined abrdn
in 2006 as an Investment Process Analyst. In 2010, he transferred to the US
Equity Team in Boston as Vice President. In 2014, he was promoted to Senior Vice
President, Global Equities. Prior to this Donal worked for a number of firms, including
BIL-Dexia, ING, JP Morgan and Aegon. Donal graduated with an MA in Chinese
Studies and a BSC in Management. Additionally he holds the Investment
Management Certificate and is a CFA Charterholder. |
abrdn
Global Infrastructure Fund |
|
|
abrdn
China A Share Equity Fund, abrdn Emerging Markets Fund, abrdn Emerging Markets ex-China Fund and abrdn Emerging
Markets Sustainable Leaders Fund
The
China A Fund is managed by the Asia
Pacific Equities Team. The Emerging Markets
Fund, Emerging Markets ex-China Fund and Emerging
Markets Sustainable Leaders Fund are managed by the Global Emerging Markets Equity Team.
Each team works in a truly collaborative fashion; all team members have both portfolio construction and research responsibilities.
The Adviser
and Sub-advisers do not believe in having star managers, instead preferring to have both depth
and experience within the team. Depth of team members allows the Adviser and Sub-advisers to perform the diligent
research required by the Adviser’s process. The experience of senior managers provides the confidence needed to
take a long-term view.
The
Teams are jointly and primarily responsible for the day-to-day management of the Funds (except the individuals based
in Hong Kong who serve solely in an advice role), with the following members having the most significant responsibility
for the day-to-day management of each Fund, as indicated:
|
|
Portfolio
Manager |
Funds
|
Pruksa
Iamthongthong, CFA®,
Senior Investment Director Pruksa
Iamthongthong is Senior Investment Director on the Asian equities team.
Pruksa joined the company in 2007. Pruksa graduated with a BA in Business
Administration from Chulalongkorn University, Thailand and is a CFA charterholder.
|
abrdn
China A Share Equity Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Jim
Jiang, Investment Manager Jim
Jiang is an Investment Manager on the Chinese equities team. Jim joined the
company in 2018 after graduation. Jim graduated with a BSc in Quantitative
Finance from the Hong Kong University of Science and Technology.
|
abrdn
China A Share Equity Fund |
|
|
Elizabeth
Kwik, CFA®,
Investment Director Elizabeth
Kwik is an Investment Director on the Chinese equities team. She is responsible
for conducting investment research on Chinese companies and managing
our Chinese equity portfolios. She joined the company in 2013, based
in Hong Kong. Elizabeth graduated with a Bachelor of Science in Economics
from the London School of Economics and is a CFA Charterholder. |
abrdn
China A Share Equity Fund |
|
|
Nicholas
Yeo, CFA®,
Director and Head of Equities – China Nicholas
Yeo is Director and Head of Equities - China at abrdn. Nicholas joined the
company in 2000 via the acquisition of Murray Johnstone. He was seconded
to the London Global Emerging Market team for two years where he covered
EMEA and Latin American companies, before returning to the Asian Equities
team in Singapore in March 2004. In March 2007, he transferred to Hong
Kong to lead Chinese equity research. Nicholas holds a BA (Hons) in Accounting
and Finance from The University of Manchester and an MSc in Financial
Mathematics from Warwick Business School. Nicholas is a CFA®
charterholder.
|
abrdn
China A Share Equity Fund |
|
|
Kristy
Fong, CFA®,
Senior Investment Director Kristy
Fong is a Senior Investment Director on the Asian equities team. Kristy joined
the company in 2004 from UOB KayHian Pte Ltd where she was an Analyst.
Kristy graduated with a BA (Hons) in Accountancy from Nanyang Technological
University, Singapore and is a CFA charterholder. |
abrdn
Emerging Markets ex-China Fund abrdn
Emerging Markets Fund abrdn
Emerging Markets Sustainable Leaders Fund |
|
|
Joanne
Irvine, Deputy Head of Global Emerging Markets Joanne
Irvine is Deputy Head of Global Emerging Markets on the Global Emerging
Markets Equity Team in London at abrdn. Joanne joined the company
in 1996 in a group development role, and moved to the Global Emerging
Markets Equity Team in 1997. Prior to abrdn, Joanne was with Rutherford
Manson Dowds (subsequently acquired by Deloitte), specializing in raising
private equity and bank funding for private companies. |
abrdn
Emerging Markets Fund |
|
|
Devan
Kaloo, Global Head of Public Markets Devan
Kaloo is Global Head of Public Markets for abrdn. Devan joined the company
in 2000 as part of the Asian equities team in Singapore, before later transferring
to London where he took up the position of Head of Global Emerging
Markets Equities in 2005. In 2015 he was promoted to Global Head of Equities
and joined the company’s Group management board. Devan started in
fund management with Martin Currie in 1994 covering Latin America, before subsequently
working with the North American equities, global asset allocation and
eventually the Asian equities teams. Devan graduated with an MA (Hons) in
International Relations and Management from the University of St Andrews and
has a postgraduate diploma in Investment Analysis from the University of Stirling.
|
abrdn
Emerging Markets Fund |
|
|
Nick
Robinson, CFA®,
Senior Investment Director Nick
Robinson is a Senior Investment Director on the Global Emerging Markets Equity
Team at abrdn. Nick joined the company in 2000 and spent eight years on
the North American Equities team, including three years based in the company‘s
US offices. In 2008 he joined the Global Emerging Markets Equity team.
Nick relocated to São Paulo in 2009 to start abrdn’s operations in Brazil. In 2016
he returned to London. Nick graduated with an MSc in Chemistry from Lincoln
College, Oxford and is a CFA charterholder. |
abrdn
Emerging Markets ex-China Fund abrdn
Emerging Markets Fund abrdn
Emerging Markets Sustainable Leaders Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Nina
Petry, CFA®,
Investment Manager Nina
Petry is an Investment Manager in the Global Emerging Markets team. She co-manages
all EM Sustainable strategies and is a member of abrdn’s Impact Management
Group. As an analyst, she is responsible for the Consumer Staples,
Consumer Discretionary and Real Estate sectors. Nina joined the GEM team
in 2018 and the company in 2016 as a Graduate Analyst, during which time
she worked in Philadelphia, New York, São Paulo and Edinburgh before settling
in London. Nina is a CFA Charterholder. She graduated in 2016 with a BA
in Literature and a minor concentration in Finance & Accounting from Ursinus
College in Pennsylvania, U.S. |
abrdn
Emerging Markets Sustainable Leaders
Fund |
|
|
abrdn
Emerging Markets Dividend Fund
The
Emerging Markets Dividend Fund is managed by the Global Emerging Markets Equity Team. The team works in a truly
collaborative fashion; all team members have both portfolio construction and research responsibilities. The Adviser and
Sub-adviser do not believe in having star managers, instead preferring to have both depth and experience within the team.
Depth of team members allows the Adviser and Sub-adviser to perform the diligent research required by the
Adviser’s
process. The experience of senior managers provides the confidence needed to take a long-term view. The Team
is responsible for the day-to-day management of the Fund with Matt Williams serving as lead portfolio manager and
Gabriel Sacks heading the portfolio construction group:
|
|
Portfolio
Manager |
Funds
|
Gabriel
Sacks, CFA®,
Investment Manager Gabriel
is an Investment Director on the GEM team at abrdn and leads the portfolio
construction group responsible for managing the abrdn Emerging Markets
Dividend Fund. Gabriel joined the company in 2008 and is based in London
but spent 5 years in Singapore from 2018 to 2023, where he was focused
primarily on Asian smaller companies. Gabriel is currently a member of
the investment teams for the GEM Income strategy, the GEM Smaller Companies
strategy, the Asia Focus Investment Trust as well as abrdn’s GEM ADR
strategy. During his time in Singapore, Gabriel led the team managing the Asian
Smaller Companies strategy (until December 2022) and was also a member
of the team managing the New Dawn Investment Trust. In terms of sector
research, Gabriel is currently responsible for Information Technology and
Insurance & Capital Markets. Gabriel graduated with an MA (Hons) in Land Economy
from Selwyn College, Cambridge University and is a CFA charterholder.
|
abrdn
Emerging Markets Dividend Fund |
|
|
Matt
Williams, CFA®,
Senior Investment Director Matt
is a Senior Investment Director on the Global Emerging Markets (GEM) team
at abrdn, where he is the lead portfolio manager to the abrdn Emering Markets
Dividend Fund. Matt is also responsible for the abrdn Emerging Markets Income
Equity Fund, the Standard Life Emerging Markets Pension Fund and a segregated
account. In terms of research responsibilities, Matt is currently sector
lead for Industrials and also Communication Services. Matthew joined the
company in 1998. He has managed country funds in both Japan and Asia Pacific.
He moved from the GEM and Asia Pacific team based in Edinburgh to the
London based GEM team in April 2018 following the restructuring of the equity
division. Matthew holds a BA in Economics from Durham University in 1998
and a Diploma in Investment Analysis Associate of the Society of Investment
Professionals (formerly AIIMR). He is also a CFA charterholder. |
abrdn
Emerging Markets Dividend Fund |
abrdn
Infrastructure
Debt Fund
The
Infrastructure
Debt Fund is managed by the U.S.
Municipal Team and Global High Yield Team. The teams work in a truly
collaborative fashion. The Adviser does not
believe in having star managers, instead preferring to have both depth and
experience within the team. Depth of team members allows the Adviser to perform the diligent research required by the
Adviser’s process. The experience of senior managers provides the confidence needed to take a long-term view.
The
Teams
are jointly and primarily responsible for
the day-to-day management of the Fund,
with the following members having the most
significant responsibility for the day-to-day management of the
Fund, as indicated:
|
|
Portfolio
Manager |
Funds
|
Jonathan
Mondillo, Head of U.S. Fixed Income Jonathan
Mondillo is Head of U.S. Fixed Income at abrdn, having previously served
as Head of Municipals. He is responsible for overseeing three municipal bond
mutual funds that span investment grade ultra-short maturities to high yield
credits. Jonathan joined the firm in 2018 from Alpine Woods Capital Investors,
LLC, when two mutual funds he managed were acquired by abrdn. Prior
to that, Jonathan worked for Fidelity Capital Markets. Jonathan graduated with
a B.S. in Finance from Bentley University. |
abrdn
Infrastructure Debt Fund |
|
|
Matthew
Kence, Investment Director Matthew
Kence is an Investment Director at abrdn. He is also responsible for covering
U.S. high yield energy companies. Matt joined the company in 2010 from
Gannet Welsh & Kotler where he was a Vice President, Credit. Previously, Matt
also worked for MFS Investment Management as a high yield analyst. Matt graduated
with a BS Mechanical Engineering from Ohio University and received
his MBA from the Haas School of Business at the University of California,
Berkeley. |
abrdn
Infrastructure Debt Fund |
abrdn
Intermediate Municipal Income Fund, abrdn Short Duration High Yield Municipal Fund and abrdn Ultra Short Municipal Income
Fund
Each
of the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income
Fund is managed by the U.S. Municipal Team. The U.S. Municipal Team works in a truly collaborative fashion; all team
members have both portfolio construction and research responsibilities. The
Adviser does not believe in having star managers,
instead preferring to have both depth and experience within the team. Depth of team members allows the Adviser
to perform the diligent research required by the Adviser’s process. The experience of senior managers provides the
confidence needed to take a long-term view.
The
Team is jointly and primarily responsible for the day-to-day management of the Funds, with the following members having
the most significant responsibility for the day-to-day management of each Fund, as indicated:
|
|
Portfolio
Manager |
Funds
|
Miguel
Laranjeiro, Investment Director Miguel
Laranjeiro is an Investment Director within the Municipals team at abrdn where
he is responsible for asset allocation and investment managment decisions
for the abrdn Ultra Short Municipal Income Fund, abrdn Short Duration
High Yield Municipal Fund and abrdn Intermediate Municipal Income Fund.
Miguel’s experience includes municipal credit analysis in the high yield sector
as well as high grade tax backed sectors. Miguel joined the company in 2018
from Alpine Woods Capital Investors where he was focused on credit analysis
in the Public Finance sector for Alpine’s two municipal mutual funds, which
were acquired by abrdn. Previously, Miguel worked for Thomson Reuters as
a an analyst focused primarily on Fundamentals Analysis in the Emerging Markets
sectors. |
abrdn
Intermediate Municipal Income Fund abrdn
Short Duration High Yield Municipal
Fund abrdn Ultra Short Municipal
Income Fund |
|
|
Jonathan
Mondillo, Head of U.S. Fixed Income Jonathan
Mondillo is Head of U.S. Fixed Income at abrdn, having previously served
as Head of Municipals. He is responsible for overseeing three municipal bond
mutual funds that span investment grade ultra-short maturities to high yield
credits. Jonathan joined the firm in 2018 from Alpine Woods Capital Investors,
LLC, when two mutual funds he managed were acquired by abrdn. Prior
to that, Jonathan worked for Fidelity Capital Markets. Jonathan graduated with
a B.S. in Finance from Bentley University. |
abrdn
Intermediate Municipal Income Fund abrdn
Short Duration High Yield Municipal
Fund abrdn Ultra Short Municipal
Income Fund |
abrdn
High
Income Opportunities
Fund
The
abrdn High
Income Opportunities
Fund is managed by the Global High Yield Team.
The Adviser
utilizes a team rather than an individual
approach, because it believes the team brings both greater depth and experience to the portfolio management
process. Depth of team members allows the Adviser to perform the diligent research required by the Adviser’s
process. The experience of senior managers provides the confidence needed to take a long-term view. The team
is jointly and primarily responsible for the day-to-day management of the Fund, with the following members having
the most significant responsibility for the day-to-day management of the Fund:
|
|
Portfolio
Manager |
Funds
|
Ben
Pakenham, Head of European High Yield and Global Loans Ben
Pakenham is Head of European High Yield & Global Leveraged Loans at abrdn.
Ben joined abrdn in 2011 from Henderson Global Investors where he was
the lead fund manager on the Extra Monthly Income Bond Fund and a named
manager on various other credit portfolios including the High Yield Monthly
Income Bond Fund. Previously, Ben worked for New Star Asset Management
as a high yield analyst and assistant fund manager. Ben holds a BS
(Hons) in History from Leeds Metropolitan University. |
abrdn
High Income Opportunities Fund |
|
|
George
Westervelt, CFA®,
Head of Global High Yield George
Westervelt is Head of Global High Yield and Head of US High Yield Research.
George joined abrdn in 2009 as a Credit Analyst and joined the portfolio
management group in 2011. Prior to joining abrdn, George worked at MFS
Investment Management in Boston and Citigroup in New York. He earned a
BA in English from the University of Vermont and is a CFA charterholder. |
abrdn
High Income Opportunities Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Matthew
Kence, Investment Director Matthew
Kence is an Investment Director and at abrdn. He is also responsible for
covering US high yield Energy companies. Matt joined the company in 2010 from
Gannet Welsh & Kotler where he was a Vice President, Credit. Previously, Matt
also worked for MFS Investment Management as a high yield analyst. Matt graduated
with a BS Mechanical Engineering from Ohio University and received
his MBA from the Haas School of Business at the University of California,
Berkeley. |
abrdn
High Income Opportunities Fund |
|
|
Adam
Tabor, CFA®,
Investment Director Adam
Tabor is an Investment Director on the Global High Yield team at abrdn. Adam
joined the company in 2010 on a graduate rotation scheme having previously
interned in 2009. Adam graduated with an MA in Financial Economics
from the University of St Andrews. He is a CFA Charterholder. |
abrdn
High Income Opportunities Fund |
abrdn
Realty Income & Growth Fund
The
Realty Income & Growth Fund is managed by the Global Real Estate Team. The Global Real Estate Team works in a truly
collaborative fashion; all team members have both portfolio construction and research responsibilities.The
Adviser does not believe in having star managers,
instead preferring to have both depth and experience within the team. Depth of
team members allows the Adviser to perform the diligent research required by the Adviser’s process. The experience of
senior managers provides the confidence needed to take a long-term view.
The
Team is jointly and primarily responsible for the day-to-day management of the Funds, with the following members having
the most significant responsibility for the day-to-day management of the
Fund:
|
|
Portfolio
Manager |
Funds
|
Jay
Carlington, CFA®,
Portfolio Manager Jay Carlington
is a Portfolio Manager and is responsible for providing investment
recommendations for abrdn’s Listed Real Estate Funds, with primary
coverage in North America. Jay joined the company in 2017 from Green
Street Advisors in Newport Beach, CA where he was lead analyst covering
the U.S. Strip Center REIT Sector. Previously, Jay worked for Credit Suisse
in New York as a sell side analyst covering consumer staples and healthcare.
Prior to that, Jay worked for Moody’s Investors Service where he rated
high-yield credits in the consumer sector. Jay graduated with a BBA in Finance
from Pace University in New York City and is a CFA®
charterholder. Jay also holds his Series 7
license. |
abrdn
Realty Income & Growth Fund |
|
|
Svitlana
Gubriy, Head of Indirect Real Assets Svitlana
Gubriy is Head of Indirect Real Assets at abrdn. abrdn’s Indirect Real Assets
comprises global listed real estate, real estate multi-manager and indirect
infrastructure platforms within the wider Real Assets team that manages
over $70bn of real estate and infrastructure assets globally. Svitlana is responsible
for the team based in Boston, London, Edinburgh, Singapore and Hong
Kong manging the indirect real assets’ investments across a number of global
and regional mandates. In addition, Svitlana has primary responsibilities for
managing investments, identifying new investment opportunities and implementing
our strategy for a number listed real estate strategies. Prior to joining
the company in 2005, Ms. Gubriy worked in real estate investment banking
division of Lehman Brothers in New York. Svitlana graduated with a Diploma
with Honours in Applied Mathematics, an MA in Applied Economics and
an MBA in Finance and Corporate Accounting. Svitlana also holds the Investment
Management Certificate (IMC). |
abrdn
Realty Income & Growth Fund |
|
|
|
|
Portfolio
Manager |
Funds
|
Bill
Pekowitz, REIT Analyst / Portfolio Manager Bill
Pekowitz is a REIT Analyst / Portfolio Manager at abrdn. Bill is responsible for providing
research and analysis of the North American real estate market. In this
capacity, Bill is responsible for fundamental equity research of listed real estate
companies, as well as analysis of underlying property markets across the
region. In addition, his responsibilities include making investment recommendations
and identifying new investment opportunities for the Funds. Bill
has significant investment experience, initially working as an equity analyst for
Value Line Inc.’s research department, before joining Prudential Equity Group
as an associate analyst for REITs in 2004, and finally working for Cornerstone
Real Estate Advisers from 2006 to 2012 as a senior analyst prior to joining
Standard Life Investments. Bill graduated with a Bachelor of Science in Business
and Economics and has completed Level II of the CFA designation. |
abrdn
Realty Income & Growth Fund |
The
SAI provides additional information about each portfolio manager’s compensation, other accounts managed by the portfolio
manager and the portfolio manager’s ownership of securities in the Fund(s) managed by the portfolio manager,
if any.
Multi-Manager
Structure
The
Adviser and the Trust have received an exemptive order from the Securities and Exchange Commission for a multi-manager
structure that allows the Adviser, subject to the approval of the Board of Trustees, to hire, replace or terminate
a sub-adviser (excluding hiring a sub-adviser which is an affiliate of the Adviser) without the approval of shareholders.
The order also allows the Adviser to revise a sub-advisory agreement with an unaffiliated sub-adviser with the
approval of the Board of Trustees, but without shareholder approval.
If
a new unaffiliated sub-adviser is hired for a Fund, shareholders will receive information about the new sub-adviser within
90 days of the change. The multi-manager structure allows the Funds greater flexibility enabling them to operate more
efficiently.
Under
the multi-manager structure, the Adviser has ultimate responsibility, subject to oversight by the Board of Trustees, for
overseeing a Fund’s sub-adviser(s) and recommending to the Board of Trustees the hiring, termination or replacement
of a sub-adviser. In instances where the Adviser hires a sub-adviser, the Adviser performs the following oversight
and evaluation services to a sub-advised Fund:
● |
initial
due diligence on prospective Fund sub-advisers; |
● |
monitoring
sub-adviser performance, including ongoing analysis and periodic consultations; |
● |
communicating
performance expectations and evaluations to the sub-advisers; and |
● |
making
recommendations to the Board of Trustees regarding renewal, modification or termination of a sub-adviser’s contract.
|
The
Adviser does not currently utilize un-affiliated sub-advisers in reliance on this exemptive order for any of the Funds described
in this prospectus.
Where the Adviser does recommend sub-adviser changes, the Adviser periodically provides
written reports to the Board of Trustees regarding its evaluation and monitoring of the sub-adviser. Although the Adviser
monitors the sub-adviser’s performance, there is no certainty that any sub-adviser or Fund will obtain favorable results
at any given time.
|
|
|
Investing
with abrdn Funds |
Shares
of the Funds have not been registered for sale outside of the United States and its territories.
Share
Classes
A
Note About Share Classes
The
following sections provide more information about the share classes offered by a Fund, as applicable.
An
investment in any share class of a Fund represents an investment in the same assets of the Fund. However, the fees, sales
charges and expenses for each share class are different. The different share classes simply let you choose the cost structure
that is right for you. The fees and expenses for each Fund are set forth in the Fund Summary.
Choosing
a Share Class
When
selecting a share class, you should consider the following:
● |
which
share classes are available to you; |
● |
how
long you expect to own your shares; |
● |
how
much you intend to invest; |
● |
total
costs and expenses associated with a particular share class; and |
● |
whether
you qualify for any reduction or waiver of sales charges. |
Your
financial advisor can help you to decide which share class is best suited to your needs and for which you qualify.
The
availability of certain sales charge waivers and discounts will depend on whether you purchase your shares directly from
a Fund or through a financial intermediary. Intermediaries may have different policies and procedures regarding the
availability of front-end sales load waivers or contingent deferred (back-end) sales load (“CDSC”) waivers, which are discussed
below. In all instances, it is the purchaser’s responsibility to notify the Fund or the purchaser’s financial intermediary
at the time of purchase of any relationship or other facts qualifying the purchaser for sales charge waivers or
discounts. For waivers and discounts not
available through a particular intermediary, shareholders will have to purchase Fund
shares directly from a Fund or through another intermediary to receive these waivers or discounts. Please see the section
“Broker-Defined Sales Charge Waiver Policies” immediately before the back cover of this prospectus to determine any
sales charge discounts and waivers that may be available to you through your financial intermediary.
Minimum
investment requirements do not apply to purchases by employees of the Adviser or its affiliates (or their spouses,
children or immediate relatives), or to certain retirement plans, fee-based programs or omnibus accounts. Certain
endowments, non-profits, and charitable organizations may also be eligible for waiver of minimum investment requirements.
If you purchase shares through an intermediary, different minimum account requirements may apply. The Trust
reserves the right to waive investment minimums under certain circumstances.
Your
financial intermediary may receive different compensation for selling one class of shares than for selling another class,
which may depend on, among other things, the type of investor account and the policies, procedures and practices
adopted by your financial intermediary. You should review these arrangements with your financial intermediary.
The table below provides a comparison of Class A, Class A1 and Class C shares. Class A and Class C shares are generally
available to all investors; however, share class availability depends upon your financial intermediary’s policies and procedures.
Class A1 shares are available to investors purchasing shares through financial intermediaries who make Class A1 shares available on their
brokerage platform. In addition to Class A, A1 and/or Class C, the Funds also offer Class R, Institutional Service Class and/or Institutional
Class shares, as applicable. Class R, Institutional Service Class and Institutional Class shares are subject to different eligibility
requirements, fees and expenses, may have different minimum investment requirements, and may be entitled to different services. For eligible
investors, Class R, Institutional Service Class and Institutional Class shares may be more suitable than Class A, Class A1 or Class C
shares. However, an investor transacting in Institutional Class shares or Institutional Service Class shares may be required to pay a
commission to a broker that is not described in this prospectus. Contact your broker for more information about the commissions that your
broker may charge.
Before
you invest, compare the features of each share class, so that you can choose the class that is right for you. We describe
each share class in detail on the following pages. Your financial advisor can help you with this decision. When you
buy shares, be sure to specify the class of shares. If you do not choose a share class, your investment will be made in Class
A shares. If you are not eligible for the class you have selected, your investment may be refused. However, we recommend
that you discuss your investment with a financial advisor before you make a purchase to be sure that the Fund
and the share class are appropriate for you. In addition, consider the Fund’s investment objectives, principal investment
strategies and principal risks to determine if a Fund and which share class is most appropriate for your situation.
Investing
with abrdn Funds 161
Investing
with abrdn Funds
Comparing
Class A, Class A1 and Class C Shares
|
|
Class
A Shares |
|
Front-end
sales charge up to 5.75% (equity funds), 3.00% (Infrastructure
Debt Fund and High Income Opportunities Fund), 2.50%
(Intermediate Municipal Income Fund and Short Duration High
Yield Municipal Fund) for Class A Shares |
The
offering price of the shares includes a front-end sales charge
which means that a portion of your initial investment goes
toward the sales charge and is not invested. |
Contingent
deferred sales charge (CDSC) up to 1.00%(1)
|
Reduction
and waivers of sales charges may be available. |
Annual
service and/or 12b-1 fee of 0.25% |
Total
annual operating expenses are lower than Class C expenses
which means higher dividends and/or NAV per share.
|
Administrative
services fee of up to 0.25% |
No
conversion feature.
No
maximum investment amount. |
Class
A1 Shares (for Ultra Short Municipal Fund only) |
|
Front-end
sales charge up to 0.50% for Class A1 Shares |
The
offering price of the shares includes a front-end sales charge
which means that a portion of your initial investment goes
toward the sales charge and is not invested. |
CDSC
up to 0.25%(2)
|
Reduction
and waivers of sales charges may be available. |
Annual
service and/or 12b-1 fee of 0.25% |
No
conversion feature. |
Administrative
services fee of up to 0.25% |
No
maximum investment amount.
Only
available for purchase through financial intermediaries. |
Class
C Shares |
|
No
front-end sales charge. |
No
front-end sales charge means your full investment immediately
goes toward buying shares. |
CDSC
of 1.00%(3)
|
No
reduction of CDSC, but waivers may be available.
The
CDSC declines to zero after one year. |
Annual
service and/or 12b-1 fee of 1.00% |
Total
annual operating expenses are higher than Class A expenses,
which means lower dividends and/or NAV per share.
|
No
administrative services fee |
Converts
to Class A shares after approximately 8 years
Maximum
investment amount of $1,000,000(4).
Larger investments may
be rejected. |
(1) |
Unless
you are otherwise eligible to purchase Class A shares without a sales charge, for all Funds, except the Ultra Short Municipal Income Fund,
a CDSC of up to 1.00% (up to 0.75%
for the Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund) will be charged on Class A shares redeemed
within 18 months of purchase (12 months for the Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund) if you
paid no sales charge on the original purchase
and a finder’s fee was paid. Class A shares of the Ultra Short Municipal Income Fund are not subject to a CDSC. |
(2) |
Unless
you are otherwise eligible to purchase Class A1 shares without a sales charge, a CDSC of up to 0.25% will be charged on Class A1 shares
redeemed within 12 months of purchase if you
paid no sales charge on the original purchase and a finder’s fee was paid. |
(3) |
A
1.00% CDSC will be assessed when Class C shares are redeemed within 12 months of purchase; however, the CDSC shall not apply to the
purchases of Class C shares where the selling
broker-dealer was not paid a commission at the time of purchase. |
(4) |
This
limit was calculated based on a one-year holding period. |
162 Investing
with abrdn Funds
Investing
with abrdn Funds
Class
A and Class A1 Shares
Front-End
Sales Charges For Class A Shares (other than the
Infrastructure Debt Fund, High
Income Opportunities
Fund, Intermediate
Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund)
|
|
|
|
|
Sales
Charge as a Percentage of |
|
Amount
of Purchase |
Offering
Price* |
Net
Amount Invested (Approximately)
|
Dealer
Commissions as Percentage
of Offering Price
|
Less
than $50,000 |
|
|
|
$50,000
up to $100,000 |
|
|
|
$100,000
up to $250,000 |
|
|
|
$250,000
up to $500,000 |
|
|
|
$500,000
up to $1 million |
|
|
|
$1
million or more |
|
|
|
* |
The
offering price of Class A1
Shares of the Fund is the next determined NAV per share plus the initial sales charge listed in the table above which is paid to the
Fund’s distributor at the time of purchase of shares. |
** |
Dealer
may be eligible for a finder’s fee as described in “Purchasing Class A Shares without a Sales Charge” below. |
Front-End
Sales Charges for Class A Shares of Infrastructure
Debt Fund and High
Income Opportunities
Fund
|
|
|
|
|
Sales
Charge as a Percentage of |
|
Amount
of Purchase |
Offering
Price* |
Net
Amount Invested (Approximately)
|
Dealer Commissions
as Percentage of Offering
Price |
Less
than $100,000 |
|
|
|
$100,000
up to $250,000 |
|
|
|
$250,000
up to $1 million |
|
|
|
$1
million or more |
|
|
|
* |
The
offering price of Class A
Shares of the Fund is the next determined NAV per share plus the initial sales charge listed in the table above which is paid to the
Fund’s distributor at the time of purchase of shares. |
** |
Dealer
may be eligible for a finder’s fee as described in “Purchasing Class A Shares without a Sales Charge” below. |
Front-End
Sales Charges for Class A Shares of Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund
|
|
|
|
|
Sales
Charge as a Percentage of |
|
Amount
of Purchase |
Offering
Price*
|
Net
Amount Invested
(Approximately)
|
Dealer
Commission as
Percentage of
Offering Price
|
Less
than $100,000 |
|
|
|
$100,000
up to $250,000 |
|
|
|
$250,000
or more |
|
|
|
* |
The
offering price of Class A
Shares of the Fund is the next determined NAV per share plus the initial sales charge listed in the table above which is paid to the
Fund’s distributor at the time of purchase of shares. |
** |
Dealer
may be eligible for a finder’s fee as described in “Purchasing Class A Shares without a Sales Charge” below. |
Front-End
Sales Charges for Class A1 Shares of Ultra Short Municipal Income Fund
|
|
|
|
|
Sales
Charge as a Percentage of |
|
Amount
of Purchase |
Offering
Price* |
Net
Amount Invested (Approximately)
|
Dealer
Commission as Percentage
of Offering Price
|
Less
than $250,000 |
|
|
|
$250,000
or more |
|
|
|
* |
The
offering price of Class A1
Shares of the Fund is the next determined NAV per share plus the initial sales charge listed in the table above which is paid to the
Fund’s distributor at the time of purchase of shares. |
** |
Dealer
may be eligible for a finder’s fee as described in “Purchasing Class A Shares without a Sales Charge” below. |
Investing
with abrdn Funds 163
Investing
with abrdn Funds
Reduction
and Waiver of Class A and Class A1 Sales Charges
If
you qualify for a reduction or waiver of Class A or Class A1 sales charges, you must notify Customer Service, your financial
intermediary or other intermediary at the time of purchase and must also provide any required evidence showing
that you qualify. The value of cumulative quantity discount eligible shares equals the cost or current value of those
shares, whichever is higher. The current value of shares is determined by multiplying the number of shares by their current
NAV. In order to obtain a sales charge reduction, you may need to provide your financial intermediary or the Fund’s
transfer agent, at the time of purchase, with information regarding shares of the Funds held in other accounts which
may be eligible for aggregation. Such information may include account statements or other records regarding shares
of the Funds held in (i) all accounts (e.g., retirement accounts) with the Funds and your financial intermediary; (ii) accounts
with other financial intermediaries; and (iii) accounts in the name of immediate family household members (spouse
and children under 21). You should retain any records necessary to substantiate historical costs because the Fund,
its transfer agent, and financial intermediaries may not maintain this information. Otherwise, you may not receive the
reduction or waiver. See “Reduction of Class A and Class A1 Sales Charges”, “Waiver of Class A and Class A1 Sales
Charges” and “Broker-Defined
Sales Charge Waiver Policies” sections on pages 164, 164 and 221, respectively, of the prospectus,
and “Reduction of Class A and Class A1 Sales Charges” in the SAI for more information. Information regarding breakpoints
is available free of charge by visiting https://www.abrdn.com/en-us/us/investor/fund-centre#literature.
Reduction
of Class A and Class A1 Sales Charges
Investors
may be able to reduce or eliminate front-end sales charges on Class A and Class A1 shares through one or more
of these methods:
● |
A
Larger Investment. The sales charge decreases
as the amount of your investment increases. |
● |
Rights
of Accumulation. To qualify for the reduced
Class A or Class A1 sales charge that would apply to a larger purchase
than you are currently making (as shown in the tables above), you and other family members living at the same
address can add the value of any Class A, Class A1 or Class C shares in the Trust (each, an “abrdn Fund” and collectively,
the “abrdn Funds”) that you currently own or are currently purchasing to the value of your Class A or Class A1
purchase, as applicable. |
● |
Share
Repurchase Privilege. If you redeem Fund
shares from your account, you qualify for a one-time reinvestment privilege.
You may reinvest some or all of the proceeds in shares of the same class without paying an additional sales charge
within 30 days of redeeming shares on which you previously paid a sales charge. (Reinvestment does not affect
the amount of any capital gains tax due. However, if you realize a loss on your redemption and then reinvest all or
some of the proceeds, all or a portion of that loss may not be tax deductible.) |
● |
Letter
of Intent Discount. If you declare in
writing that you or a group of family members living at the same address intend
to purchase at least $50,000 in Class A shares (at least $100,000 in Class A shares of the Infrastructure
Debt Fund,
Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund and at least $250,000 in Class A1
shares of the Ultra Short Municipal Income Fund) during a 13-month period, your sales charge is based on the total amount
you intend to invest. You can also combine your holdings of Class A, Class A1 and Class C shares in the abrdn Funds
to fulfill your Letter of Intent. You are not legally required to complete the purchases indicated in your Letter of Intent.
However, if you do not fulfill your Letter of Intent, additional sales charges may be due and shares in your account
would be liquidated to cover those sales charges. |
Waiver
of Class A and Class A1 Sales Charges
The
following purchasers qualify for a waiver of front-end sales charges on Class A and Class A1 shares:
○ |
“Retirement
Plans” include 401(a) plans, 401(k) plans, SIMPLE 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit-sharing and money purchase pension plans, non-qualified deferred compensation plans, employer sponsored
benefit plans (including health savings accounts), defined benefit plans, and other similar employer sponsored
retirement and benefit plans. “Retirement
Plans” do not include individual retirement vehicles, such as traditional and Roth IRAs, Coverdell education
savings accounts, individual 401(k) plans, individual 403(b)(7) custodial accounts, one-person Keogh plans,
SEPs, SARSEPs, SIMPLE IRAs or similar accounts. |
● |
investment
advisory clients of the Adviser’s affiliates; |
● |
any
life insurance company separate account registered as a unit investment trust; |
● |
directors,
officers, full-time employees (and their spouses, children or immediate relatives) of companies that may be affiliated
with the Adviser from time to time; |
● |
directors,
officers, full-time employees and sales representatives and their employees of a broker-dealer that has a dealer/selling
agreement with the Funds’ distributor; |
● |
investors
purchasing on a periodic fee, asset-based fee or no transaction fee basis through a broker-dealer sponsored mutual
fund purchase program; and |
164 Investing
with abrdn Funds
Investing
with abrdn Funds
● |
financial
institutions as shareholders of record on behalf of investment advisers or financial planners for their clients, and
who charge a separate fee for their services. |
Sales
charges are waived on shares purchased through reinvestment of dividends and capital gains distributions when purchasing
shares of the same Fund.
The
SAI lists additional information regarding investors eligible for sales charge waivers.
Purchasing
Class A and Class A1 Shares Without a Sales Charge
Purchases
of $1 million or more of Class A shares (or $250,000 or more of Class A shares of the Intermediate Municipal Income
Fund and Short Duration High Yield Municipal Fund and Class A1 shares of the Ultra Short Municipal Income Fund)
have no front-end sales charge. Any purchase of Class A shares of the Ultra Short Municipal Income Fund has no front-end
sales charge. You can purchase $1 million or more (or $250,000 or more) in Class A and Class A1 shares in one or
more abrdn Funds (including the Funds in this prospectus) at one time. Or, you can utilize the Rights of Accumulation Discount
and Letter of Intent Discount as described above. However, a contingent deferred sales charge (CDSC) may apply
when you redeem your shares in certain circumstances (see “Contingent Deferred Sales Charges on Certain Redemptions
of Class A and Class A1 Shares”).
Other
than with respect to the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short
Municipal Income Fund, a CDSC of up to 1.00% (of up to 0.50% or 1.00%, as described below, for U.S. Small Cap Equity
Fund) applies to purchases of $1 million or more of Class A Shares if a “finder’s fee” is paid by the Funds’
distributor or Adviser to your financial advisor
or intermediary and you redeem your shares within 18 months of purchase. The CDSC covers
the finder’s fee paid to the selling dealer.
For
the Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund, a CDSC of up to 0.75% (0.25% for
Class A1 shares of the Ultra Short Municipal Income Fund) applies to purchases of $250,000 or more of Class A Shares if
a “finder’s fee” is paid by the Funds’ distributor or Adviser to your financial advisor or intermediary and
you redeem your shares within 12 months of
purchase. The CDSC covers the finder’s fee paid to the selling dealer.
The
CDSC does not apply:
● |
if
you are eligible to purchase Class A or Class A1 shares without a sales charge for another reason; or |
● |
if
no finder’s fee was paid; or |
● |
to
shares acquired through reinvestment of dividends or capital gains distributions. |
*
The Distributor or the Fund’s Adviser may pay a finder’s fee to financial intermediaries who sell Class A shares in purchase
amounts of $250,000 or more. For the selling dealer to be eligible for the finder’s fee, the following requirements apply:
● |
The
purchase can be made in any combination of the funds of the Trust. The amount of the finder’s fee will be determined
based on the particular combination of the funds purchased. The applicable finder’s fee will be determined
on a pro rata basis to the purchase of each particular fund. |
● |
The
shareholder will be subject to a CDSC for shares redeemed in any redemption within the first 12 months of purchase.
|
The
finder’s fee rates will equal the CDSC percentages noted below under “Contingent Deferred Sales Charge on Certain Redemptions
of Class A Shares”. Finders’ fees are not paid in connection with purchases of Class A shares on certain account
types, as described in the section titled “Waiver of Class A Sales Charges”. Investors can consult with their financial
advisor who purchased shares on their behalf to confirm whether a finder’s fee was paid in connection with the purchase
of such shares.
Class
A shares of the Ultra Short Municipal Income Fund are not subject to a CDSC.
Contingent
Deferred Sales Charge on Certain Redemptions of Class A Shares (other than the Intermediate Municipal Income Fund,
Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund)
|
|
Amount
of Purchase |
Amount
of CDSC |
$1
Million up to $4 Million |
|
$4
Million up to $25 Million |
|
$25
Million or More |
|
Investing
with abrdn Funds 165
Investing
with abrdn Funds
Contingent
Deferred Sales Charge on Certain Redemptions of Class A Shares of the Intermediate Municipal Income Fund and
Short Duration High Yield Municipal Fund
|
|
Amount
of Purchase |
Amount
of CDSC |
$250,000
up to $4 Million |
|
$4
Million up to $25 Million |
|
$25
Million or More |
|
Class
A1 Shares of the Ultra Short Municipal Income Fund
|
|
Amount
of Purchase |
Amount
of CDSC |
$250,000
or more |
|
A
shareholder may be subject to a CDSC if he or she did not pay an up-front sales charge and redeems Class A shares within
18 months of the date of purchase (within 12 months of the date of purchase for the Intermediate Municipal Income
Fund and Short Duration High Yield Municipal Fund, or with respect to Class A1 of the Ultra Short Municipal Income
Fund). Any CDSC is based on the original purchase price or the current market value of the shares being redeemed,
whichever is less. If you redeem a portion of your shares, shares that are not subject to a CDSC are redeemed first,
followed by shares that you have owned the longest. This minimizes the CDSC you pay. Please see “Waiver of Contingent
Deferred Sales Charges-Class A, Class A1 and Class C Shares” for a list of situations where a CDSC is not charged.
The CDSC of Class A or Class A1 shares for the Funds in this prospectus are described above; however, the CDSC
for Class A or Class A1 shares of other Funds of the Trust may be different and are described in their respective prospectuses.
If you purchase more than one Fund of the Trust and subsequently redeem those shares, the amount of the
CDSC is based on the specific combination of Funds purchased and is proportional to the amount you redeem from each
Fund.
Waiver
of Contingent Deferred Sales Charges – Class A, Class A1 and Class C Shares
The
CDSC may be waived on:
● |
the
redemption of Class A, Class A1 or Class C shares purchased through reinvested dividends or distributions; |
● |
Class
A, Class A1 or Class C shares sold following the death or disability of a shareholder, provided the redemption occurs
within one year of the shareholder’s death or disability; |
○ |
mandatory
withdrawals of Class A, Class A1 or Class C shares from traditional IRA accounts after age 72 (73
if you reach 72
after December 31, 2022) and for other required
distributions from retirement accounts; |
○ |
redemptions
of Class C shares from “Retirement Plans,” as defined on page 164, if no commission was paid by the Adviser
on the purchase of the shares being redeemed; and |
● |
redemptions
of Class C shares purchased through financial intermediaries who did not receive advanced sales commission
payments. |
If
a CDSC is charged when you redeem your Class C shares, and you then reinvest the proceeds in Class C shares within 30
days, shares equal to the amount of the CDSC are re-deposited into your new account.
If
you qualify for a waiver of a CDSC, you must notify Customer Service, your financial advisor or intermediary at the time of
purchase and must also provide any required evidence showing that you qualify. Your financial intermediary may have its
own sales charge waiver policies, which could mean that it may not have the capability to waive such sales charges; for
more complete information, see “Broker-Defined Sales Charge Waiver Policies” on page 221 of this prospectus.
Class
C Shares
Class
C shares may be appropriate if you are uncertain how long you will hold your shares. If you redeem your Class C shares
within the first year after you purchase them you must pay a CDSC of 1.00% unless you qualify for a waiver; however,
the CDSC shall not apply to the purchases of Class C shares where the selling broker-dealer was not paid a commission
at the time of purchase.
For
Class C shares, the CDSC is based on the original purchase price or the current market value of the shares being redeemed,
whichever is less. If you redeem a portion of your shares, shares that are not subject to a CDSC are redeemed first,
followed by shares that you have owned the longest. This minimizes the CDSC that you pay. See “Waiver of Contingent
Deferred Sales Charges - Class A, Class A1 and Class C Shares” for a list of situations where a CDSC may be waived.
The
Fund’s distributor or Adviser may compensate broker-dealers and financial intermediaries for sales of Class C shares
from its own resources at the rate of 1.00% of sales. Pursuant to financing arrangements with the Fund’s distributor,
the Adviser may advance 1.00% of the purchase price of Class C shares, at the time of purchase, to selling brokers,
dealers, or other financial intermediaries that have entered into distribution agreements with the distributor. Such
advance will be from the Adviser’s own resources. During the period the CDSC is applicable with respect to such
166 Investing
with abrdn Funds
Investing
with abrdn Funds
shares,
the Class C Rule 12b-1 fees (as described in the section entitled “Sales Charges and Fees – Distribution and Service
Fees”) attributable to those shares will be paid to the Adviser in satisfaction of the advance. If a CDSC is not (or is no
longer) applicable with respect to such shares, the Class C Rule 12b-1 fees attributable to those shares will be paid to the
selling broker, dealer or other financial intermediary.
Conversion
of Class C Shares to Class A Shares
Class
C shares of the Funds will automatically convert to Class A shares after 8 years. Conversions of Class C shares to Class
A shares will occur during the month following the 8th anniversary of the share purchase date.
All
conversions from Class C shares to Class A shares will be based on the per share net asset value without the imposition
of any sales load, fee or other charge. The conversion from Class C shares to Class A shares is not considered a
taxable event for Federal income tax purposes. For Class C shares that have been acquired through an exchange from another
abrdn Fund, the purchase date is calculated from the date the shares were originally purchased in the other abrdn
Fund. When Class C shares that a shareholder acquired through a purchase or exchange convert to Class A shares,
any Class C shares that the shareholder acquired through reinvestment of dividends and distributions related to the
shares being converted also will convert to Class A shares on a pro rata basis.
Certain
financial intermediaries currently do not have the ability to track an individual shareholder’s holding periods and, therefore,
may not know how long a shareholder has held Class C shares. If a shareholder holds Class C shares through a financial
intermediary in an omnibus account, it is the responsibility of the shareholder or financial intermediary to notify the
Fund that the shareholder is eligible for the conversion of Class C shares to Class A shares, and the shareholder or financial
intermediary may be required to provide the Fund with records that substantiate the holding period of Class C shares.
In these circumstances, it is the financial intermediary’s (and not the Fund’s) responsibility to keep records and to ensure
that the shareholder is credited with the proper holding period. Please consult with your financial intermediary.
Share
Classes Available Only to Institutional Accounts
Certain
Funds offer Institutional Service Class and Class R shares. All of the Funds offer Institutional Class shares. Only certain
types of entities and selected individuals are eligible to purchase shares of these classes.
If
an institution or retirement plan has hired an intermediary and is eligible to invest in more than one class of shares, the intermediary
can help determine which share class is appropriate for that retirement plan or other institutional account. Plan
fiduciaries should consider their obligations under ERISA when determining which class is appropriate for the retirement
plan.
Other
fiduciaries should also consider their obligations in determining the appropriate share class for a customer including:
● |
the
level of distribution and administrative services the plan requires; |
● |
the
total expenses of the share class; and |
● |
the
appropriate level and type of fee to compensate the intermediary. An intermediary may receive different compensation
depending on which class is chosen. |
Class
R Shares
Class
R shares are available to retirement plans including:
● |
profit
sharing and money purchase pension plans; |
● |
non-qualified
deferred compensation plans; and |
● |
other
retirement accounts in which the retirement plan or the retirement plan’s financial services firm has an agreement
with the Fund, the Funds’ Adviser or the Funds’ distributor to use Class R shares. |
The
above-referenced plans are generally small and mid-sized retirement plans that have at least $1 million in assets and
shares held through omnibus accounts that are represented by an intermediary such as a broker, third-party administrator,
registered investment adviser or other plan service provider.
Class
R shares are not available to:
● |
institutional
non-retirement accounts; |
● |
traditional
and Roth IRAs; |
● |
Coverdell
Education Savings Accounts; |
Investing
with abrdn Funds 167
Investing
with abrdn Funds
● |
one-person
Keogh plans; |
● |
individual
403(b) plans; or |
Institutional
Service Class Shares
Institutional
Service Class shares are available for purchase only by the following:
● |
retirement
plans advised by financial professionals who are not associated with brokers or dealers primarily engaged in
the retail securities business and rollover individual retirement accounts from such plans; |
● |
retirement
plans for which third-party administrators provide recordkeeping services and are compensated by the Funds
for these services; |
● |
a
bank, trust company or similar financial institution investing for its own account or for trust accounts for which it has authority
to make investment decisions as long as the accounts are part of a program that collects an administrative services
fee; |
● |
registered
investment advisers investing on behalf of institutions and high net worth individuals. This may also include registered
investment advisers as well as financial intermediaries with clients enrolled in certain fee-based/advisory platforms
where compensation for advisory services is derived exclusively from clients; |
● |
financial
intermediaries that have entered into an agreement with the Distributor to offer Institutional Service Class shares
through a no-transaction fee platform; or |
● |
life
insurance separate accounts using the investment to fund benefits for variable annuity contracts issued to governmental
entities as an investment option for 457 or 401(k) plans. |
Institutional
Class Shares
Institutional
Class shares are available for purchase only by the following:
● |
funds
of funds offered by affiliates of the Funds; |
● |
independent
directors, officers, full-time employees (and their spouses, children or immediate relatives) of the Advisor and
its affiliates; |
● |
retirement
plans for which no third-party administrator receives compensation from the Funds; |
● |
institutional
advisory accounts of the Adviser’s affiliates, those accounts which have client relationships with an affiliate of
the Adviser, its affiliates and their corporate sponsors, subsidiaries; and related retirement plans; |
● |
rollover
individual retirement accounts from such institutional advisory accounts; |
● |
a
bank, trust company or similar financial institution investing for its own account or for trust accounts for which it has authority
to make investment decisions as long as the accounts are not part of a program that requires payment of Rule
12b-1 or administrative services fees to the financial institution; |
● |
registered
investment advisers investing on behalf of institutions and high net-worth individuals. This may also include registered
investment advisers as well as financial intermediaries with clients enrolled in certain fee-based/advisory platforms
where compensation for advisory services is derived exclusively from clients; |
● |
financial
intermediaries that have entered into an agreement with the Distributor to offer Institutional Class shares through
a no-transaction fee platform; |
● |
high
net-worth individuals who invest directly without using the services of a broker, investment adviser or other financial
intermediary; or |
● |
brokerage
platforms of firms that have agreements with the fund’s distributor to offer such shares solely when acting as
an agent for the investor. An investor transacting in Institutional Class shares in these programs may be required to pay
a commission and/or other forms of compensation to the broker. |
Sales
Charges and Fees
Sales
Charges
Sales
charges, if any, are paid to the Funds’ distributor. These fees are either kept or paid to your financial advisor or other intermediary.
Distribution
and Service Fees
Each
Fund has adopted a Distribution Plan under Rule 12b-1 of the Investment Company Act of 1940 with respect to Class
A, Class A1, Class C and Class R shares, which permits Class A, Class A1, Class C and Class R shares of the Funds (if applicable)
to compensate the Funds’ distributor or any other entity approved by the Board of Trustees (collectively, “payees”)
for expenses associated with the distribution-related and/or shareholder services provided by such entities. These
fees are paid to the Funds’ distributor and are either kept or paid to your financial advisor or other intermediary for distribution
and shareholder services. Institutional Class and Institutional Service Class shares pay no 12b-1 fees.
168 Investing
with abrdn Funds
Investing
with abrdn Funds
These
12b-1 fees are in addition to applicable sales charges and are paid from the Funds’ assets on an ongoing basis. The
12b-1 fees are accrued daily and paid monthly. As a result, 12b-1 fees increase the cost of your investment and over time
may cost more than other types of sales charges. Under the Distribution Plan, Class A, Class A1, Class C and Class R shares
pay the Funds’ distributor annual amounts not exceeding the following:
|
|
Class
|
As
a % of Daily Net Assets |
Class
A |
0.25%
|
|
(distribution
or service fee) |
Class
A1 |
0.25%
|
|
(distribution
or service fee) |
Class
C |
1.00%
|
|
(0.25%
service fee) |
Class
R |
0.50%
|
|
(0.25%
of which will be a distribution fee and 0.25% of which will be a service fee) |
Administrative
Services Fees/Sub-Transfer Agency Fees
The
Funds may pay and/or reimburse administrative services fees/sub-transfer agent expenses to certain broker-dealers
and financial intermediaries who provide administrative support services to beneficial shareholders on behalf
of the Funds (sometimes referred to as “sub-transfer agency fees”), subject to certain limitations approved by the Board
of Trustees. (These fees may be in addition to the Rule 12b-1 fees described above.) Sub-transfer agency fees generally
include, but are not limited to, costs associated with recordkeeping, networking, sub-transfer agency or other administrative
or shareholder services.
Class
A, Class A1, Class R and Institutional Service Class shares of the Funds pay for such services pursuant to an Administrative
Services Plan adopted by the Board of Trustees. Under the Administrative Services Plan, a Fund may pay a broker-dealer
or other intermediary a maximum annual administrative services fee of 0.25% for Class A, Class A1, Class R and
Institutional Service Class shares (or under an amendment to the Administrative Services Plan that is in effect until at least
February 28,
2025, a maximum of 0.15% for contracts
with fees that are calculated as percentage of Fund assets and
a maximum of $16 per account for contracts with fees that are calculated on a dollar per account basis); however, many
intermediaries do not charge the maximum permitted fee or even a portion thereof. Class C and Institutional Class shares
may also pay for the services described above directly and not pursuant to an Administrative Services Plan.
Because
these fees are paid out of a Fund’s assets on an ongoing basis, these fees will increase the cost of your investment
in such share class over time and may cost you more than paying other types of fees.
Revenue
Sharing
The
Adviser and/or its affiliates (collectively, “abrdn”) may make payments for marketing, promotional or related services provided
by broker-dealers, platforms, and other financial intermediaries that sell shares of the Trust or which include them
as investment options for their respective customers. The Adviser may also pay and/or reimburse sub-transfer agency
fees or portions thereof to certain broker-dealers and financial intermediaries who provide administrative support
services to beneficial shareholders on behalf of the Funds, subject to certain limitations approved by the Board.
These
payments, or a portion of these payments in certain instances, are often referred to as “revenue sharing payments.”
The existence or level of such payments may be based on factors that include, without limitation, differing levels
or types of services provided by the broker-dealer or other financial intermediary, the expected level of assets or sales
of shares, the placing of some or all of the Funds on a recommended or preferred list and/or access to an intermediary’s
personnel and other factors. Current revenue sharing payments have various structures and typically may
be made in one or more of the following forms, one time payments of up to 0.25% on gross sales, asset-based payments
of up to 0.23%, one time ticket charges pertaining to purchases placed through advisory platforms, flat fees or minimum
aggregate fees of up to $75,000 annually. These amounts are subject to change at the discretion of abrdn.
Revenue
sharing payments are paid from abrdn’s own legitimate profits and other of its own resources (not from the Funds)
and may be in addition to any Rule 12b-1 payments that are paid to broker-dealers and other financial intermediaries.
The Board of Trustees will monitor these revenue sharing arrangements as well as the payment of advisory
fees paid by the Funds to ensure that the levels of such advisory fees do not involve the indirect use of the Funds’ assets
to pay for marketing, promotional or related services. Because revenue sharing payments are paid by abrdn, and not
from the Funds’ assets, the amount of any revenue sharing payments is determined by abrdn.
In
addition to the revenue sharing payments described above, abrdn may offer other incentives to sell shares of the Funds
in the form of sponsorship of educational or other client seminars relating to current products and issues, assistance
in training or educating an intermediary’s personnel, and/or entertainment or meals. These payments may also
include, at the direction of a retirement plan’s named fiduciary, amounts to a retirement plan intermediary to offset certain
plan expenses or otherwise for the benefit of plan participants and beneficiaries.
The
recipients of such payments may include:
Investing
with abrdn Funds 169
Investing
with abrdn Funds
● |
the
Funds’ distributor and other affiliates of the Adviser; |
● |
financial
institutions; and |
● |
other
financial intermediaries through which investors may purchase shares of a Fund. |
Payments
may be based on current or past sales, current or historical assets or a flat fee for specific services provided. In some
circumstances, such payments may create an incentive for an intermediary or its employees or associated persons
to sell shares of a Fund to you instead of shares of funds offered by competing fund families.
Contact
your financial intermediary for details about revenue sharing payments it may receive.
Notwithstanding
the revenue sharing payments described above, the Adviser and all sub-advisers to the Trust are prohibited
from considering a broker-dealer’s sale of any of the Trust’s shares in selecting such broker-dealer for the execution
of Fund portfolio transactions, except as may be specifically permitted by law.
Fund
portfolio transactions nevertheless may be effected with broker-dealers who coincidentally may have assisted customers
in the purchase of Fund shares, although neither such assistance nor the volume of shares sold of the Trust or any
affiliated investment company is a qualifying or disqualifying factor in the Adviser’s or a sub-adviser’s selection of such
broker-dealer for portfolio transaction execution.
Investing
Through Financial Intermediaries
Financial
intermediaries may provide varying arrangements for their clients to purchase and redeem shares of the Funds.
In addition, financial intermediaries are responsible for providing to you any communication from a Fund to its shareholders,
including but not limited to, prospectuses, prospectus supplements, proxy materials and notices regarding the
source of dividend payments under Section 19 of the Investment Company Act of 1940. They may charge additional fees
not described in this prospectus to their customers for such services.
If
shares of a Fund are held in a “street name” account with financial intermediary, all recordkeeping, transaction processing
and payments of distributions relating to your account will be performed by the financial intermediary, and not
by the Fund and its transfer agent. Since the Funds will have no record of your transactions, you should contact your financial
intermediary to purchase, redeem or exchange shares, to make changes in or give instructions concerning the account
or to obtain information about your account. The transfer of shares in a “street name” account to an account with
another dealer or to an account directly with a Fund involves special procedures and may require you to obtain historical
purchase information about the shares in the account from your financial intermediary. If your financial intermediary’s
relationship with abrdn is terminated, and you do not transfer your account to another financial intermediary,
the Trust reserves the right to redeem your shares. The Trust will not be responsible for any loss in an investor’s
account resulting from a redemption.
Financial
intermediaries may be authorized to accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, to designate other financial intermediaries to
accept such orders. In these cases:
● |
A
Fund will be deemed to have received an order that is in good form when the order is received by the financial intermediary
on a business day, and the order will be priced at a Fund’s net asset value per share (adjusted for any applicable
sales charge) next determined after such receipt. |
● |
Financial
intermediaries are responsible for transmitting received orders to a Fund within the time period agreed upon by
them. |
You
should contact your financial intermediary to learn whether it is authorized to accept orders for the Trust.
Contacting
abrdn Funds
Customer
Service Representatives are available
8 a.m. to 6 p.m. Eastern Time, Monday through Friday at 866-667-9231.
Automated
Voice Response Call 866-667-9231, 24 hours
a day, seven days a week, for easy access to mutual fund information.
Choose from a menu of options to:
● |
hear
fund price information; and |
● |
obtain
mailing and wiring instructions. |
Internet
Go to https://www.abrdn.com/en-us/us/investor
24 hours a day, seven days a week, for easy access to your mutual
fund accounts. The website provides instructions on how to select a password and perform transactions. On the website,
you can:
● |
download
Fund prospectuses; |
● |
obtain
information on the abrdn Funds; |
● |
access
your account information; and |
170 Investing
with abrdn Funds
Investing
with abrdn Funds
● |
request
transactions, including purchases, redemptions and exchanges. |
By
Regular Mail
abrdn Funds
P.O.
Box 219534
Kansas City MO 64121-9534
By
Overnight Mail
abrdn Funds
c/o
SS&C GIDS, Inc.
430 W. 7th Street,
Ste. 219534
Kansas City, MO 64105-1407
By
Fax 866-923-4269.
Share
Price
The
net asset value or “NAV” is the value of a single share. A separate NAV is calculated for each share class of a Fund. The
NAV is:
● |
calculated
at the close of regular trading (usually 4 p.m. Eastern Time) each day the New York Stock Exchange is open. |
● |
generally
determined by dividing the total net market value of the securities and other assets owned by a Fund allocated
to a particular class, less the liabilities allocated to that class, by the total number of outstanding shares of that
class. |
The
purchase or “offering” price for Fund shares is the NAV for a particular class next determined after the order is received
in good form by a Fund’s transfer agent or an authorized intermediary, plus any applicable sales charge. An order
is in “good form” if the Funds’ transfer agent has all the information and documentation it deems necessary to effect
your order.
Please
note the following with respect to the price at which your transactions are processed:
Fund
shares will generally not be priced on any day the New York Stock Exchange is closed, although fixed income Fund shares
may be priced on such days if the Securities Industry and Financial Markets Association (“SIFMA”) recommends that
the bond markets remain open for all or part of the day. On any business day when the SIFMA recommends that the bond
markets close early, a fixed income Fund reserves the right to close at or prior to the SIFMA recommended closing time.
If a fixed income Fund does so, it will cease granting same business day credit for purchase and redemption orders received
after the Fund’s closing time and credit will be given to the next business day.
The
Trust reserves the right to reprocess purchase (including dividend reinvestments), redemption and exchange transactions
that were processed at a NAV that is subsequently adjusted, and to recover amounts from (or distribute amounts
to) shareholders accordingly based on the official closing NAV, as adjusted.
The
time at which transactions and shares are priced and the time by which orders must be received may be changed in case
of an emergency or if regular trading on the New York Stock Exchange and/or the bond markets are stopped at a time
other than their regularly scheduled closing time. In the event the New York Stock Exchange and/or the bond markets
do not open for business, the Trust may, but is not required to, open one or more Funds for purchase, redemption and
exchange transactions if the Federal Reserve wire payment system is open. To learn whether a Fund is open for business
during this situation, please call 1-866-667-9231.
The
Funds do not calculate NAV on days when the New York Stock Exchange is regularly closed (except as described above
for fixed income Funds). The New York Stock Exchange is closed on the following days:
● |
Martin
Luther King, Jr. Day |
● |
Juneteenth
National Independence Day |
● |
Other
days as determined by the New York Stock Exchange. |
Foreign
securities may trade on their local markets on days when a Fund is closed. As a result, if a Fund holds foreign securities,
its NAV may be impacted on days when investors may not be able to purchase or redeem shares.
Investing
with abrdn Funds 171
Investing
with abrdn Funds
Buying,
Exchanging and Selling Shares
Fund
Transactions
All
transaction orders must be received by the Funds’ transfer agent in Kansas City, Missouri or an authorized intermediary
prior to the calculation of each Fund’s NAV to receive that day’s NAV. The Fund has the right to close your account
after a period of inactivity, as determined by state law, and transfer your shares to the appropriate state.
How
to Buy Shares
Be
sure to specify the class of shares you wish to purchase. Each Fund may reject any order to buy shares and may suspend
the offering of shares at any time.
Through
an authorized intermediary. The Funds
or the Funds’ distributor have relationships with certain brokers and other financial
intermediaries who are authorized to accept purchase, exchange and redemption orders for the Funds. Your transaction
is processed at the NAV next calculated after the Funds’ transfer agent or an authorized intermediary receives
your order in proper form.
By
mail. Complete an application and send
with a check made payable to: abrdn Funds. Payment must be made in U.S. Dollars
and drawn on a U.S. bank. The Funds do not accept cash, starter checks, third-party checks, travelers’ checks, credit
card checks or money orders.
By
telephone. You will have automatic telephone
privileges unless you decline this option on your application. The Funds follow
procedures to confirm that telephone instructions are genuine and will not be liable for any loss, injury, damage or expense
that results from executing such instructions. The Funds may revoke telephone privileges at any time, without notice
to shareholders.
On-line.
Transactions may be made through the abrdn Funds’ website at https://www.abrdn.com/us-online-access.
However, the Funds may discontinue on-line
transactions of Fund shares at any time.
By
bank wire. You may have your bank transmit
funds by federal funds wire to the Funds’ custodian bank. The authorization
will be in effect unless you give the Funds written notice of its termination.
● |
if
you choose this method to open a new account, you must call our toll-free number before you wire your investment and
arrange to fax your completed application. |
● |
your
bank may charge a fee to wire funds. |
● |
the
wire must be received by 4:00 p.m. Eastern
Time in order to receive the current day’s
NAV. |
By
Automated Clearing House (ACH). You can
fund your abrdn Funds’ account with proceeds from your bank via ACH on the
second business day after your purchase order has been processed. A voided check must be attached to your application.
Money sent through ACH typically reaches abrdn Funds from your bank in two business days. There is no fee for
this service. The authorization will be in effect unless you give the Funds written notice of its termination.
By
Automatic Investment Plan (AIP). Once
your account has been opened, you may make regular investments automatically
in amounts of not less than $50 per month in Class A or Class C shares
of a Fund. You will need to complete the appropriate
section of the Mutual Fund Application for New Accounts or contact your financial intermediary or the Funds’ transfer
agent to do this. Your financial institution must be a member of the Automated Clearing House (ACH) network to participate
in an AIP. Any request to change or terminate your AIP should be submitted to the Funds’ transfer agent 10 days
prior to effective date. Please call abrdn Funds at (866) 667-9231 for further information. If you redeem shares purchased
via the AIP within 10 days, the Funds’ transfer agent may delay payment until it is assured that the purchase has
cleared your account.
Retirement
plan participants should contact their
retirement plan administrator regarding transactions. Retirement plans or
their administrators wishing to conduct transactions should call our toll-free number 866-667-9231. Eligible entities or individuals
wishing to conduct transactions in Institutional Service Class or Institutional Class shares should call our toll-free
number 866-667-9231.
How
to Exchange*,
or Sell**
Shares
* |
Exchange
privileges may be amended or discontinued upon 60 days written notice to shareholders. |
** |
A
medallion signature guarantee may be required. See “Medallion Signature Guarantee” below. |
Through
an authorized intermediary. The Funds
or the Funds’ distributor have relationships with certain brokers and other financial
intermediaries who are authorized to accept purchase, exchange and redemption orders for the Funds. Your transaction
is processed at the NAV next calculated after the Funds’ transfer agent or an authorized intermediary receives
your order in proper form.
By
mail or fax. You may request an exchange
or redemption by mailing or faxing a letter to abrdn Funds. The letter must include
your account number(s) and the name(s) of the Fund(s) you wish to exchange from and to. The letter must be signed
by all account owners. We reserve the right to request original documents for any faxed requests.
172 Investing
with abrdn Funds
Investing
with abrdn Funds
By
telephone. You will have automatic telephone
privileges unless you decline this option on your application. The Funds follow
procedures to confirm that telephone instructions are genuine and will not be liable for any loss, injury, damage or expense
that results from executing such instructions. The Funds may revoke telephone privileges at any time, without notice
to shareholders. For redemptions, shareholders who own shares in an IRA account should call 866-667-9231. It may
be difficult to make telephone transactions in times of unusual economic or market conditions.
Additional
information for selling shares. A check
made payable to the shareholder(s) of record will be mailed to the address
of record. The Funds may record telephone instructions to redeem shares, and may request redemption instructions
in writing, signed by all shareholders on the account.
Online.
Transactions may be made through the abrdn Funds’ website at https://www.abrdn.com/us-online-access.
However, the Funds may discontinue on-line
transactions of Fund shares at any time.
By
bank wire. The Funds can wire the proceeds
of your redemption directly to your account at a commercial bank. A voided
check must be attached to your application. The authorization will be in effect unless you give the Funds written notice
of its termination.
● |
your
proceeds typically will be wired to your bank on the next business day after your order has been processed. |
● |
abrdn
Funds deducts a $20 service fee from the redemption proceeds for this service. |
● |
your
financial institution may also charge a fee for receiving the wire. |
● |
funds
sent outside the U.S. may be subject to higher fees. |
Bank
wire is not an option for exchanges.
By
Automated Clearing House (ACH). Your redemption
proceeds can be sent to your bank via ACH on the second business
day after your order has been processed. A voided check must be attached to your application. Money sent through
ACH should reach your bank in two business days. There is no fee for this service. The authorization will be in effect
unless you give the Funds written notice of its termination. ACH
is not an option for exchanges.
Retirement
plan participants should contact their
retirement plan administrator regarding transactions. Retirement plans or
their administrators wishing to conduct transactions should call our toll-free number 866-667-9231. Eligible entities or individuals
wishing to conduct transactions in Institutional Service Class or Institutional Class shares should call our toll-free
number 866-667-9231.
Pricing
of Fund Shares
The
Funds value their securities at current market value or fair value, consistent with regulatory requirements. “Fair value”
is defined in the Funds’ Valuation
and Liquidity Procedures as the price that could be received to sell an asset or paid to transfer
a liability in an orderly transaction between willing market participants without a compulsion to transact at the measurement
date. Pursuant to Rule 2a-5 under the 1940
Act, the Board of Trustees (the “Board”)
designated the
Adviser as
the valuation designee (“Valuation Designee”) for the Funds to perform the fair value determinations relating to Fund investments
for which market quotations are not readily available
or deemed unreliable.
Equity
securities that are traded on an exchange are valued at the last quoted sale price or
the official close price on the principal
exchange on which the security is traded at the “Valuation Time”
subject to application, when appropriate, of the
valuation factors described in the paragraph below. Under normal circumstances, the Valuation Time is as of the close
of regular trading on the New York Stock Exchange (”NYSE”)
(usually 4:00 p.m. Eastern Time). In the absence
of a sale price, the security is valued at
the mean of the bid/ask price
quoted at the close on the principal exchange
on which the security is traded. Securities
traded on NASDAQ are valued at the NASDAQ official closing price. Open-end mutual funds
are valued at the respective net asset value as reported by such company. The prospectuses for the registered open-end
management investment companies in which a Fund invests explain the circumstances under which those companies
will use fair value pricing and the effects of using fair value pricing. Closed-end funds and ETFs are valued at the
market price of the security at the Valuation Time.
Foreign
equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying
valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent
pricing service provider. These valuation factors are used when pricing a Fund’s portfolio holdings to estimate
market movements between the time foreign markets close and the time a Fund values such foreign securities. These
valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates,
and local exchange opening and closing prices of each security. When prices with the application of valuation factors
are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices of the securities
on their primary markets. Valuation factors are not utilized if the independent pricing service provider is unable to
provide a valuation factor or if the valuation factor falls below a predetermined threshold.
Long-term
debt and other fixed
income securities are valued at the last quoted or evaluated bid price on the valuation date
provided by an independent pricing service provider.
If there are no current day bids, the security is valued at the previously
applied bid. Pricing services generally price debt securities assuming orderly transactions of an institutional “round
lot” size, and the strategies employed by the Adviser as
Valuation Designee generally trade in round
lot sizes. In
Investing
with abrdn Funds 173
Investing
with abrdn Funds
certain
circumstances, fixed income securities may be held or transactions may be conducted in smaller, “odd lot” sizes. Odd
lots may trade at lower
or occasionally
higher prices than institutional round lot trades. Short-term debt
securities (such as commercial paper and U.S.
treasury bills) having a remaining maturity of 60 days or less are valued at the last quoted
or evaluated bid price on the valuation date provided by an independent pricing service, or on the basis of amortized
cost if it represents the best approximation for fair value.
Derivative
instruments are generally valued according to the following procedures. Forward currency exchange contracts
are generally valued based on the current spot exchange rates and the forward exchange rate points (ex. 1-month,
3-month) that are obtained from an approved pricing agent. Based on the actual settlement dates of the forward
contracts held, an interpolated value of the forward points is combined with the spot exchange rate to derive the valuation.
Futures contracts are generally valued at the most recent settlement price as of NAV determination. Swap agreements
are generally valued by an approved pricing agent based on the terms of the swap agreement (including future
cash flows). When market quotations or exchange rates are not readily available, or if the Adviser as
Valuation Designee concludes
that such market quotations do not accurately reflect fair value, the fair value of a Fund’s assets are determined
in good faith in accordance with the Valuation Procedures.
In-Kind
Purchases
Each
Fund may accept payment for shares in the form of securities that are permissible investments for the Fund.
Customer
Identification Information
To
help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person that opens a new account, and to determine
whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations.
As
a result, unless such information is collected by the broker-dealer or other financial intermediary pursuant to an agreement,
the Funds must obtain the following information for each person that opens a new account:
● |
date
of birth (for individuals); |
● |
residential
or business street address (although post office boxes are still permitted for mailing); and |
● |
Social
Security number, taxpayer identification number, or other identifying number. |
You
may also be asked for a copy of your driver’s license, passport or other identifying document in order to verify your identity.
In addition, it may be necessary to verify your identity by cross-referencing your identification information with a consumer
report or other electronic database. Additional information may be required to open accounts for corporations
and other entities. Federal law prohibits the Funds and other financial institutions from opening a new account
unless they receive the minimum identifying information listed above. After an account is opened, the Funds may
restrict your ability to purchase additional shares until your identity is verified. The Funds may close your account or take
other appropriate action if they are unable to verify your identity within a reasonable time. If your account is closed for
this reason, your shares will be redeemed at the NAV next calculated after the account is closed. If the NAV on the redemption
date is lower than the NAV on your original purchase date, you will receive less than your original investment amount
when the account is closed (less any applicable CDSC).
Accounts
with Low Balances
Maintaining
small accounts is costly for the Funds and may have a negative effect on performance. Shareholders are encouraged
to keep their accounts above each Fund’s minimum.
● |
If
the value of your account falls below $1,000, you are generally subject to a $5 quarterly fee (with an annual maximum
of $20 per account). Shares from your account are redeemed each quarter to cover the fee, which is returned
to the Fund to offset small account expenses. Under some circumstances, each Fund may waive the quarterly
fee. See the SAI for information about the circumstances under which this fee will not be assessed. |
● |
Each
Fund reserves the right to redeem your remaining shares and close your account if a redemption of shares brings
the value of your account below $1,000. In such cases, you will be notified and given 60 days to purchase additional
shares before the account is closed. |
Exchanging
Shares
If
you hold Class A, Class C, Institutional Class or Institutional Service Class shares
(as applicable), you may exchange your
Fund shares for shares of any fund of the Trust that is currently accepting new investments as long as:
● |
your
financial intermediary’s policies and procedures permit exchanges; |
● |
both
accounts have the same registration; |
● |
your
first purchase in the new fund meets its minimum investment requirement; and |
174 Investing
with abrdn Funds
Investing
with abrdn Funds
● |
you
purchase the same class of shares. For example, you may exchange between Class A shares of any Fund of the Trust,
but may not exchange between Class A shares and Class C shares. |
The
exchange privileges may be amended or discontinued upon 60 days’ written notice to shareholders.
Generally,
you may exchange all or part of your shares for shares of the same class of another abrdn Fund without paying
a front-end sales charge or CDSC at the time of the exchange. However,
● |
if
you exchange Class A shares that are subject to a CDSC, and then redeem those shares within 18 months of the original
purchase (within 12 months of the original purchase of the Intermediate Municipal Income Fund and Short Duration
High Yield Municipal Fund, or with respect to Class A1 of the Ultra Short Municipal Income Fund), the CDSC applicable
to the original purchase is charged. |
For
purposes of calculating a CDSC, the length of ownership is measured from the date of original purchase and is not affected
by any permitted exchange.
You
should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.
Moving
Share Classes in the Same Fund
A
financial intermediary may exchange shares in one class held on behalf of its customers for another class of the same Fund
with a lower total expense ratio, subject to any agreements between the customer and the intermediary. All such transactions
are subject to meeting any investment minimum or eligibility requirements. Neither the Fund nor the Adviser will
make any representations regarding the tax implications of such exchanges.
Financial
intermediaries may offer investment programs (a “Program”) to their clients that are governed by specific terms.
The Program terms may permit the financial intermediary to exchange Institutional Class shares held in a client’s account
for a class of shares of the same Fund with a higher expense structure. For example, if a financial intermediary client
account holds Institutional Class shares and has ceased his or her participation in a Program that utilizes Institutional
Class shares, or the financial intermediary has determined to utilize Class A shares rather than Institutional Class
shares in its Program, or the shareholder transfers to a Program that utilizes Class A shares, the financial intermediary
may exchange Institutional Class shares held in the client account for Class A shares of the same Fund. Based
on the Program terms, such exchange may be on the basis of the relative NAVs of the shares, without imposition of any
sales load, fee, or other charge. If the Program terms do not include a waiver of such charges, the client account may be
subject to the payment of a sales load upon a transfer from Institutional Class to Class A shares. There could be tax consequences
for any such exchange. Investors in such Programs should consult their tax advisor to determine if there are
tax consequences if the intermediary makes such an exchange.
Systematic
Withdrawal Program
You
may elect to automatically redeem shares in a minimum amount of $50. Complete the appropriate section of the Mutual
Fund Application for New Accounts or contact your financial intermediary or the Funds’ transfer agent. Your account
value must meet the minimum initial investment amount at the time the program is established. This program may
reduce, and eventually deplete, your account. Generally, it is not advisable to continue to purchase Class A, Class A1 or
Class C shares subject to a sales charge while redeeming shares using this program. A systematic withdrawal plan for Class
C shares will be subject to any applicable CDSC.
Systematic
Exchange Plan and Dividend Moves
This
systematic exchange plan allows you to transfer $50 or more to one abrdn Fund from another abrdn Fund systematically,
monthly or quarterly. Accounts participating in a systematic exchange plan have a minimum balance requirement
of $5,000. You will need to complete the appropriate section of the Mutual Fund Application for New Accounts
or contact your financial intermediary or the Funds’ transfer agent to do this. Dividends of any amount can be moved
automatically from one Fund to another at the time they are paid. This systematic exchange plan may not be permitted
by the policies and procedures of your financial intermediary. Please consult your financial advisor for more information.
Selling
Shares
You
can sell, or in other words redeem, your Fund shares at any time, subject to the restrictions described below. The price
you receive when you redeem your shares is the NAV (minus any applicable sales charges) next determined after the
Fund’s authorized intermediary or an agent of the Fund receives your properly completed redemption request. The value
of the shares you redeem may be worth more or less than their original purchase price depending on the market value
of the Fund’s investments at the time of the redemption.
You
may not be able to redeem your Fund shares or the Funds may delay paying your redemption proceeds if:
● |
the
New York Stock Exchange is closed (other than customary weekend and holiday closings); |
● |
trading
is restricted; or |
● |
an
emergency exists (as determined by the Securities and Exchange Commission). |
Investing
with abrdn Funds 175
Investing
with abrdn Funds
Generally,
a Fund will issue payment for shares that you redeem the next business day after your redemption request is received
in good order. The proceeds will be sent to you thereafter and delivery time may vary depending on the method
by which you owned your shares (for example, directly or through a broker). Payment for shares that you recently
purchased by check may be delayed up to 10 business days from the purchase date to allow time for your payment
to clear. A Fund may delay forwarding redemption proceeds for up to seven days:
● |
if
the account holder is engaged in excessive trading or |
● |
if
the amount of the redemption request would disrupt efficient portfolio management or adversely affect the Fund. |
Occasionally,
large shareholder redemption requests may exceed the cash balance of a Fund and result in overdraft charges
to the Fund until the sale of portfolio securities to cover the redemption request settle, which is typically a few days.
If
you choose to have your redemption proceeds mailed to you and the redemption check is returned as undeliverable or is
not presented for payment within six months, the Funds reserve the right to reinvest the check proceeds and future distributions
in shares of the particular Fund at the Fund’s then-current NAV until you give the Funds different instructions.
Under
normal circumstances, each Fund expects to meet redemption requests by using cash in its portfolio or by selling portfolio
securities to generate cash. During periods of stressed market conditions, when a significant portion of a Fund’s portfolio
may be comprised of less-liquid investments, such Fund may be more likely to limit cash redemptions and may determine
to pay redemption proceeds by borrowing under its overdraft facility, and/or by transferring some of the securities
held by the Fund directly to an account holder as a redemption-in-kind of securities (instead of cash). For more about
abrdn Funds’ ability to make a redemption-in-kind, see the SAI.
The
Board of Trustees has adopted procedures for redemptions in-kind by shareholders including affiliated and unaffiliated
persons of a Fund. Affiliated persons of a Fund include shareholders who are affiliates of the Adviser and shareholders
of a Fund owning 5% or more of the outstanding shares of that Fund. These procedures provide that a redemption-in-kind
shall be effected at approximately the affiliated shareholder’s proportionate share of the Fund’s current
net assets, and are designed so that such redemptions will not favor the affiliated shareholder to the detriment of any
other shareholder. Further, the procedures require that, in general, in-kind redemptions may be distributed on a pro rata
basis whereby the redeeming shareholder would receive a proportionate share of every investment held by the Fund
including cash. In certain circumstances, however, pro rata distribution with some adjustments may be made when the
redeeming shareholder is restricted by law from taking possession of certain securities or the Fund’s Adviser believes such
a distribution is in the best interests of shareholders.
Medallion
Signature Guarantee
A
medallion signature guarantee is required for sales of shares of the Funds in any of the following instances:
● |
if
ownership is being changed on your account; |
● |
the
redemption check is made payable to anyone other than the registered shareholder; |
● |
the
proceeds are mailed to an address other than the address of record; |
● |
your
account address has changed within the last 15 calendar days; |
● |
the
redemption proceeds are being wired or sent by ACH to a bank for which instructions are currently not on your account;
or |
● |
the
redemption proceeds are being wired or sent by ACH to a bank account that has been added or changed within the
past 15 calendar days. |
A
medallion signature guarantee is a certification by a bank, brokerage firm or other financial institution that a customer’s signature
is valid. Medallion signature guarantees can be provided by members of the STAMP program. We reserve the right
to require a medallion signature guarantee in other circumstances, without notice.
Excessive
or Short-Term Trading
abrdn
Funds seek to discourage short-term or excessive trading (often described as “market timing”). Excessive trading (either
frequent exchanges between Funds of the Trust or sales and repurchases of Funds within a short time period) may:
● |
disrupt
portfolio management strategies; |
● |
increase
brokerage and other transaction costs; and |
● |
negatively
affect fund performance. |
Each
Fund may be more or less affected by short-term trading in Fund shares, depending on various factors such as the size
of the Fund, the amount of assets the Fund typically maintains in cash or cash equivalents, the dollar amount, number
and frequency of trades in Fund shares and other factors. Funds that invest in foreign securities may be at greater
risk for excessive trading. Investors may attempt to take advantage of anticipated price movements in securities held
by the Funds based on events occurring after the close of a foreign market that may not be reflected in a Fund’s NAV
176 Investing
with abrdn Funds
Investing
with abrdn Funds
(referred
to as “arbitrage market timing”). Arbitrage market timing may also be attempted in funds that hold significant investments
in small-cap securities, high-yield (junk) bonds and other types of investments that may not be frequently traded.
There is the possibility that arbitrage market timing, under certain circumstances, may dilute the value of Fund shares
if redeeming shareholders receive proceeds (and buying shareholders receive shares) based on NAVs that do not reflect
appropriate fair value prices.
The
Ultra Short Municipal Income Fund is not subject to the prohibitions on frequent purchases and redemptions. Because the Ultra Short Municipal
Income Fund is designed for short-term investing and frequent purchases and redemptions of the Fund’s shares generally are not
expected to harm other shareholders of the Fund, the Board of Trustees has determined that, at the present time, policies and procedures
to prevent frequent purchases and redemptions of Fund shares are unnecessary and a redemption fee for the Fund is not necessary or appropriate.
However, frequent purchases and redemptions of the Ultra Short Municipal Income Fund’s shares may result in additional costs for
the Fund.
The
Board of Trustees has adopted and implemented the following policies and procedures to detect, discourage and prevent
excessive short-term trading in the Funds (except the Ultra Short Municipal Income Fund).
Monitoring
of Trading Activity
The
Funds, through the Adviser, its sub-adviser(s) (if
applicable) and its agents, monitor selected trades and flows of money in and out of the Funds in an effort to detect excessive short-term
trading activities. If a shareholder is found to have engaged in excessive short-term trading, the Funds may, in their discretion, ask
the shareholder to stop such activities or refuse to process purchases or exchanges in the shareholder’s account. Despite its
best efforts, the Trust may be unable to identify or deter excessive trades conducted through certain intermediaries or omnibus accounts
that transmit aggregate purchase, exchange and redemption orders on behalf of their customers. In short, the Trust may not be able to
prevent all market timing and its potential negative impact.
Restrictions
on Transactions
Whenever
a Fund is able to identify short-term trades or traders, such Fund has broad authority to take discretionary action
against market timers and against particular trades and uniformly will apply the short-term trading restrictions to all
such trades that the Fund identifies. A Fund also has sole discretion to:
● |
restrict
purchases or exchanges that the Fund or its agents believe constitute excessive trading and |
● |
reject
transactions that violate a Fund’s excessive trading policies or its exchange limits. |
In
general if you make an exchange equaling 1% or more of a Fund’s NAV, the exchange into another abrdn Fund may be rejected.
The
Funds, at their discretion, may choose to exempt certain types of transactions from short-term trading restrictions if the
Adviser believes the Fund share activity is not to the detriment of the Fund or its shareholders. The following, among others,
are examples of transaction descriptions that may qualify for an exemption: transactions made by a participant in Fund-sponsored
systematic purchase, exchange and redemption programs; required minimum distributions from retirement
accounts; transactions placed by fund-of-funds organized as registered investment companies; transactions placed
at the direction of a retirement plan administrator; and transactions made pursuant to an asset allocation or advisory
program.
Fair
Valuation
The
Trust has fair value pricing procedures in place as described above in “Investing with abrdn Funds: Pricing of Fund Shares.”
Unclaimed
Share Accounts
Please
be advised that abandoned or unclaimed property laws for certain states require financial organizations to transfer
(escheat) unclaimed property (including Fund shares) to the state. Each state has its own definition of unclaimed
property, and Fund shares could be considered “unclaimed property” due to account inactivity (e.g., no owner-generated
activity for a certain period), returned mail (e.g., when mail sent to a shareholder is returned to the Fund’s
transfer agent as undeliverable), or a combination of both. If your Fund shares are categorized as unclaimed, your financial
advisor or the Fund’s transfer agent will follow the applicable state’s statutory requirements to contact you, but if unsuccessful,
laws may require that the shares be escheated to the appropriate state. Escheatment of retirement account
assets may be subject to U.S. federal withholding tax. If this happens, you will have to contact the state to recover your
property, which may involve time and expense. For more information on unclaimed property and how to maintain an
active account, please contact your financial adviser or the Fund’s transfer agent.
Investing
with abrdn Funds 177
Distributions
and Taxes
The
following information is provided to help you understand the income and capital gains you can earn while you own Fund
shares, as well as the federal income taxes you may have to pay. The amount of any distribution will vary and there is
no guarantee the Fund will pay either income dividends or capital gain distributions. For tax advice about your personal tax
situation, please speak with your tax adviser.
Income
and Capital Gain Distributions
Each
Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the “Code” or the “Internal Revenue Code”). As a regulated investment company, a Fund
generally pays no federal income tax on the
income and capital gains it distributes to you. Each of the China A Fund, Emerging
Markets Dividend Fund,
Emerging Markets Fund,
Emerging Markets ex-China Fund, Emerging Markets
Sustainable Leaders Fund, Focused
U.S. Small Cap Equity Fund, Global Equity
Impact Fund, International Small Cap Fund, U.S.
Small Cap Equity Fund
and U.S. Sustainable Leaders Fund
expects to declare and distribute its net investment income, if
any, to shareholders as dividends annually. Each of the Global Infrastructure Fund and Realty
Income & Growth Fund expects to declare and distribute its net investment income, if any, to shareholders as dividends
quarterly. Each
of the Dynamic Dividend Fund,
High Income Opportunities and Infrastructure Debt Fund
expects to declare and distribute its net
investment income, if any, to shareholders as dividends monthly. Each of the Intermediate
Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund expects
to declare daily and distribute its net investment income, if any, to shareholders as dividends monthly. Capital gains,
if any, may be distributed at least annually. A Fund may distribute income dividends and capital gains more frequently,
if necessary, in order to reduce or eliminate federal excise or income taxes on a Fund. All income and capital gain
distributions are automatically reinvested in shares of the applicable Fund. You may request in writing a payment in cash
if the distribution is in excess of $5.
If
you choose to have dividends or capital gain distributions, or both, mailed to you and the distribution check is returned as
undeliverable or is not presented for payment within six months, the Trust reserves the right to reinvest the check proceeds
and future distributions in shares of the particular Fund at the Fund’s then-current NAV until you give the Trust different
instructions.
Tax
Considerations
Most
of the income dividends you receive from the Intermediate Municipal Income Fund, Short Duration High Yield Municipal
Fund and Ultra Short Municipal Income Fund, if applicable, are expected to be exempt from regular federal income
taxes. If you are a taxable investor, a portion of the dividends and capital gain distributions you receive from a Fund,
whether you reinvest your distributions in additional Fund shares or receive them in cash, are subject to federal income
tax, state taxes and possibly local taxes:
● |
distributions
are taxable to you at either ordinary income or capital gains tax rates (except as described below with respect
to exempt-interest dividends); |
● |
distributions
of short-term capital gains are paid to you as ordinary income that is taxable at applicable ordinary income
tax rates; |
● |
distributions
of long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned
your Fund shares; |
● |
for
individuals, a portion of the income dividends paid may be qualified dividend income eligible for long-term capital gain
tax rates, provided that certain holding period requirements are met; |
● |
for
individuals, a portion of the income dividends paid may be eligible for a 20% “qualified business income” deduction
available through 2025 to the extent attributable
to ordinary real estate investment trust (“REIT”) dividends, provided that
certain holding period requirements are met; |
● |
for
corporate shareholders, a portion of income dividends may be eligible for the corporate dividends-received deduction,
subject to certain limitations; and |
● |
distributions
declared in October, November or December to shareholders of record in such month, but paid in January,
are taxable as if they were paid in December. |
In
addition, if you are a shareholder of the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund or
Ultra Short Municipal Income Fund, you should be aware of the following basic tax points about tax-exempt mutual funds:
● |
exempt-interest
dividends (dividends paid from interest earned on municipal securities) are exempt from regular federal
income tax; |
● |
exempt-interest
dividends are taken into account when determining the taxable portion of your Social Security or railroad
retirement benefits; |
● |
income
paid from tax-exempt bonds whose proceeds are used to fund private, for-profit organizations (private activity
bonds) are a tax preference item subject to the federal alternative minimum tax; |
178 Distributions
and Taxes
● |
income
dividends from interest earned on municipal securities of a state or its political subdivisions are generally exempt
from that state’s income taxes. Almost all states, however, tax interest earned on municipal securities of other states;
|
● |
income
dividends from the Fund’s investments in securities that do not pay tax-exempt income and market discount are
paid to you as ordinary income. |
None
of the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income
Fund is managed to address state or local taxes. Each of these Funds, as a tax-free fund, may not be a suitable investment
for retirement plans and other tax-exempt investors. Corporate shareholders should note that exempt-interest
dividends may be fully taxable in states that impose corporate franchise taxes, and they should consult with
their tax advisers about the taxability of this income before investing in the Funds.
While
each of the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal
Income Fund endeavors to purchase only bona fide tax-exempt securities, there are risks that: (a) a security issued
as tax-exempt may be reclassified by the IRS or a state tax authority as taxable and/or (b) future legislative, administrative
or court actions could adversely impact the qualification of income from a tax-exempt security as tax-free.
Such reclassifications or actions could cause interest from a security to become taxable, possibly retroactively, subjecting
you to increased tax liability. In addition, such reclassifications or actions could cause the value of a security, and
therefore, a Fund’s shares, to decline.
The
amount and type of income dividends and the tax status of any capital gains distributed to you are reported on Form 1099-DIV
(any exempt interest dividends will be reported on Form 1099-INT), which we send to you annually during tax season
(unless you hold your shares in a qualified tax-deferred plan or account or are otherwise not subject to federal income
tax). A Fund may reclassify income after your tax reporting statement is mailed to you. This can result from the rules
in the Internal Revenue Code that effectively prevent mutual funds, such as the Funds, from ascertaining with certainty,
until after the calendar year end, and in some cases a Fund’s fiscal year end, the final amount and character of distributions
the Fund has received on its investments during the prior calendar year. Prior to issuing your statement, each Fund
makes every effort to search for reclassified income to reduce the number of corrected forms mailed to shareholders.
However, when necessary, the Fund will send you a corrected Form 1099-DIV to reflect reclassified information.
Distributions
from the Funds (both taxable dividends and capital gains) are normally taxable to you when made, regardless
of whether you reinvest these distributions or receive them in cash (unless you hold your shares in a qualified tax-deferred
plan or account or are otherwise not subject to federal income tax). If you are a taxable investor and invest in
a Fund shortly before the record date of a taxable distribution, the distribution will lower the value of the Fund’s shares by
the amount of the distribution, and you will in effect receive some of your investment back, but in the form of a taxable distribution.
This is commonly known as “buying a dividend.”
Dividends
and other distributions by a Fund are generally treated under the Internal Revenue Code as received by the shareholders
at the time the dividend or distribution is made. However, any dividend or capital gain distribution declared by
a Fund in October, November or December of any calendar year and payable to shareholders of record on a specified
date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid
by the Fund during January of the following calendar year.
In
certain situations, a Fund may, for a taxable year, defer all or a portion of its net capital loss realized after October (or if there
is no net capital loss, then any net long-term or short-term capital loss) and its late-year ordinary loss (defined as the
sum of the excess of post-October non-U.S. currency and passive non-U.S. investment company (“PFIC”) losses over post-October
non-U.S. currency and PFIC gains plus the excess of post-December ordinary losses over post-December ordinary
income) until the next taxable year in computing its investment company taxable income and net capital gain, which
will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after
October (or December) may affect the tax character of shareholder distributions.
If
more than 50% of a Fund’s total assets at the end of a fiscal year is invested in foreign securities, the Fund may elect to
pass through to you your pro rata share of
foreign taxes paid by the Fund. If a Fund elects to do so, then any foreign taxes it
pays on these investments may be passed through to you either as a deduction (in calculating U.S. taxable income, but only
for investors who itemize their deductions on their personal tax returns) or as a foreign tax credit.
Selling
and Exchanging Shares
Selling
your shares may result in a realized capital gain or loss, which is subject to federal income tax. For tax purposes, an exchange
of one Fund of the Trust for another is the same as a sale. For individuals, any long-term capital gains you realize
from selling Fund shares are currently taxed at 15% or 20%, depending on whether your income exceeds certain threshold
amounts, which are adjusted annually for inflation. You or your tax adviser should track your purchases, tax basis,
sales and any resulting gain or loss. If you redeem Fund shares for a loss, you may be able to use this capital loss to offset
any other capital gains you have.
Distributions
and Taxes 179
Tax
Status for Retirement Plans and Other Tax-Deferred Accounts
When
you invest in a Fund through a qualified employee benefit plan, retirement plan or some other tax-deferred account,
dividend and capital gain distributions generally are not subject to current federal income taxes. In general, these
entities are governed by complex tax rules. You should ask your tax adviser or plan administrator for more information
about your tax situation, including possible state or local taxes.
Backup
Withholding
By
law, you may be subject to backup withholding on a portion of your taxable distributions and redemption proceeds unless
you provide your correct Social Security or taxpayer identification number and certify that (1) this number is correct,
(2) you are not subject to backup withholding, and (3) you are a U.S. person (including a U.S. resident alien). You may
also be subject to withholding if the Internal Revenue Service instructs us to withhold a portion of your distributions and
proceeds.
Other
Distributions
and gains from the sale or exchange of your Fund shares may be subject to state and local taxes, even if not subject
to federal income taxes. State and local tax laws vary; please consult your tax adviser. Non-U.S. investors may be subject
to U.S. withholding at a 30% or lower treaty tax rate, U.S. estate tax and special U.S. tax certification requirements to
avoid backup withholding and claim any treaty benefits. Properly reported dividends received by a non-U.S. investor are
generally exempt from U.S. federal withholding tax when they (i) are paid in respect of the Fund’s “qualified net interest
income” (generally, the Fund’s U.S. source interest income, reduced by expenses that are allocable to such income),
or (ii) are paid in connection with the Fund’s “qualified short-term capital gains” (generally, the excess of the
Fund’s net short-term capital gain
over the Fund’s long-term capital loss for such taxable year). However, depending on the
circumstances, the Fund may report all, some or none of the Fund’s potentially eligible dividends as such qualified net interest
income or as qualified short-term capital gains, and a portion of the Fund’s distributions (e.g., interest from non- U.S.
sources or any foreign currency gains) would be ineligible for this potential exemption from withholding. Exemptions from
U.S. withholding tax are also provided for exempt-interest dividends and capital gain dividends paid by a Fund from long-term
capital gains, if any. However, notwithstanding such exemption from U.S. withholding at the source, any dividends
and distributions of income or capital gains will be subject to backup withholding if you fail to properly certify that
you are not a U.S. person.
Under
current law, the Funds serve to block unrelated business taxable income from being realized by their tax-exempt shareholders.
Notwithstanding the foregoing, a tax-exempt shareholder could realize unrelated business taxable income by
virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt
shareholder within the meaning of Section 514(b) of the Code. Certain types of income received by the Fund
from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund
to report some or all of its distributions as “excess inclusion income.” To Fund shareholders, such excess inclusion income
may (i) constitute taxable income, as “unrelated business taxable income” for those shareholders who would otherwise
be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain
charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced
U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be subject to
tax if certain “disqualified organizations” as defined by the Code are Fund shareholders. If a charitable remainder annuity
trust or a charitable remainder unitrust (each as defined in Section 664 of the Code) has unrelated business taxable
income for a taxable year, a 100% excise tax on the unrelated business taxable income is imposed on the trust.
A
3.8% Medicare contribution tax is imposed on net investment income, including, among other things, dividends and net gain
from investments, of U.S. individuals with income exceeding $200,000 ($250,000 if married filing jointly), and of estates
and trusts.
Additionally,
a 30% withholding tax is currently imposed on fund dividends paid to (i) foreign financial institutions including non-U.S.
investment funds unless they agree to collect and disclose to the Internal Revenue Service (“IRS”) information regarding
their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information
regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i)
enter into agreements with the IRS that state that they will provide the IRS information, including the names, addresses and
taxpayer identification numbers of direct and indirect U.S. account holders, comply with due diligence procedures with
respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained,
agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account
holders who fail to provide the required information, and determine certain other information as to their account holders,
or (ii) in the event that an applicable intergovernmental agreement and implementing legislation are adopted, provide
local revenue authorities with similar account holder information. Other foreign entities will need to either provide the
name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S.
ownership unless certain exceptions apply. Under some circumstances, a foreign shareholder may be eligible for refunds
or credits of such taxes.
180 Distributions
and Taxes
This
discussion of “Distributions and Taxes” is not intended or written to be used as tax advice. Because everyone’s tax
situation is unique, you should consult
your tax professional about federal, state, local or foreign tax consequences before making
an investment in the Funds.
Distributions
and Taxes 181
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page was intentionally left blank)
The
financial highlights tables are intended to help you understand the Funds’ financial performance for the past five years
or periods ended October 31. Certain information reflects financial results for a single Fund share. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions and no sales charges). The information for the fiscal year ended October 31,
2023
was derived from the financial statements which were audited by KPMG LLP, independent registered public accounting
firm, whose report, along with the Funds’ financial statements, is included in the Funds’ most recent annual report,
which is available upon request.
The
financial highlights information presented for each of the Emerging
Markets Dividend Fund, Global Equity Impact
Fund and High
Income Opportunities
Fund prior to December 3, 2021 is that of
each Fund’s Predecessor Fund.
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn Focused
U.S. Small Cap Equity Fund (formerly, abrdn
U.S. Sustainable Leaders Smaller Companies Fund)
|
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|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
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Year
Ended October 31, 2022 |
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Year
Ended October 31, 2021 |
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Year
Ended October 31, 2020 |
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Year
Ended October 31, 2019 |
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Class
R Shares |
Year
Ended October 31, 2023 |
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Year
Ended October 31, 2022 |
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Year
Ended October 31, 2021 |
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Year
Ended October 31, 2020 |
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Year
Ended October 31, 2019 |
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Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
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Year
Ended October 31, 2022 |
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Year
Ended October 31, 2021 |
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|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
Includes
interest expense that amounts to less than 0.01% for Class A, Class C, Class R, Institutional Service Class and Institutional Class
for the years ended October 31, 2021 and October
31, 2020. |
(g) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn Focused
U.S. Small Cap Equity Fund (formerly, abrdn
U.S. Sustainable Leaders Smaller Companies Fund)
(concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net
of Reimbursements/
Waivers) to Average
Net Assets
|
Ratio
of Expenses (Prior
to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment
Income (Loss)
to Average Net Assets
|
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
U.S. Small Cap Equity Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
U.S. Small Cap Equity Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
China A Share Equity Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to 0.03% for the year ended October 31, 2023. Includes interest expense that amounts to less than 0.01%
for the years ended October 31, 2022, October
31, 2021, October 31, 2020, and October 31, 2019, respectively. |
(f) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(g) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
China A Share Equity Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Sustainable Leaders Fund
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
Less
than $0.005 per share. |
(g) |
Includes
interest expense that amounts to 0.02% for Class C and Institutional class. Includes interest expense that amounts to 0.01% for
Class A, Class R and Institutional Service
Class. |
(h) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Sustainable Leaders Fund (concluded)
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Net
Asset Value, End of
Period |
Total
Return(b)
|
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets
|
Ratio
of Expenses (Prior to
Reimbursements) to Average
Net Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average
Net Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets ex-China Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(g) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets ex-China Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(f) |
Includes
interest expense that amounts to less than 0.01%. |
(g) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Infrastructure Debt Fund
(formerly, abrdn Global Absolute Return Strategies
Fund)
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023* |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023* |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023* |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares.
|
(e) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(f) |
Interest
expense is less than 0.001%. |
(g) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Infrastructure Debt Fund
(formerly, abrdn Global Absolute Return Strategies
Fund)
(concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
International Small Cap Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
R Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments.
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
International Small Cap Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Intermediate Municipal Income Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Interest
expense is less than 0.001%. |
(f) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Intermediate Municipal Income Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
U.S. Sustainable Leaders Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Service Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
Less
than $0.005 per share. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
U.S. Sustainable Leaders Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Dynamic Dividend Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Tax
Return of Capital
|
Total
Distributions
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Less
than $0.005 per share. |
(f) |
Includes
interest expense that amounts to less than 0.01%. |
(g) |
Included
within Net Investment Income per share, Total Return, and Ratio of Net Investment Income to Average Net Assets reflects the effects of
a liability accrued on February 28, 2022 relating
to withholding tax refunds that the Fund previously received and recorded which are being contested by the local tax
authority. The accrued liability resulted in a decrease in net assets of approximately 0.87% as of October 31, 2022. (See Note 2i
of the Notes to Financial Statements). If
such amounts were excluded, the Net Investment Income per share, Total Return, and Ratio of Net Investment Loss to Average Net
Assets for Class A Shares would have been $0.24, (15.67%), and 5.49%, respectively. For Institutional Class Shares, these amounts
would have been $0.24, (15.45%), and 5.67%,
respectively. |
(h) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments.
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Dynamic Dividend Fund (concluded)
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Net
Asset Value, End of Period |
Total
Return(b)
|
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets
|
Ratio
of Expenses (Prior to
Reimbursements) to Average
Net Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average
Net Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Global Infrastructure Fund
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and
Unrealized Gains
(Losses) on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Tax
Return of Capital
|
Total
Distributions
|
Redemption
Fees
|
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Global Infrastructure Fund (concluded)
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Net
Asset Value, End of
Period |
Total
Return(b)
|
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets
|
Ratio
of Expenses (Prior to
Reimbursements) to Average
Net Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average
Net Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Short Duration High Yield Municipal Fund
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Total
Distributions
|
Net
Asset Value, End
of Period |
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Class
C Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021(h)
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Amount
is less than 0.005%. |
(f) |
Includes
interest expense that amounts to 0.05% for the year ended October 31, 2023. Includes interest expense that amounts to 0.03% for
the year ended October 31, 2022. Includes
interest expense that amounts to less than 0.01% for the year ended October 31, 2020.
|
(g) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(h) |
For
the period from December 21, 2020 (commencement of operations) through October 31, 2021. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Short Duration High Yield Municipal Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Realty Income & Growth Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Net
Realized Gains
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Includes
interest expense that amounts to less than 0.01%, 0.01%, 0.01%, 0.05%, and 0.03% for Class A and Institutional Class
for the years ended October 31, 2023, October
31, 2022, October 31, 2021, October 31, 2020, October 31, 2019, respectively. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Realty Income & Growth Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(b)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(c)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Ultra Short Municipal Income Fund
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss) |
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Total
Distributions
|
Net
Asset Value, End
of Period |
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Class
A1 Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019(g)
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
(a) |
Excludes
sales charge. |
(b) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(c) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(d) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(e) |
Includes
interest expense that amounts to less than 0.01%. |
(f) |
Less
than $0.005 per share. |
(g) |
For
the period from February 28, 2019 (commencement of operations) through October 31, 2019. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Ultra Short Municipal Income Fund (concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return(a)
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets |
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(b)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Dividend
Fund (formerly, abrdn International Sustainable
Leaders Fund)
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Total
Return |
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Beginning
with the year ended October 31, 2022, income taxes on recovered refunds were included in foreign tax withholding on the Statement of Operations
and, as such, are not included within the ratios of expenses to average net assets. Income taxes on recovered refunds for years prior
to October 31, 2022 were reflected as expenses
on the Statement of Operations and included within the ratios of expenses to average net assets. |
(c) |
Includes
interest expense that amounts to less than 0.01%. |
(d) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(e) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(f) |
Included
within Net Investment Income per share, Total Return, and Ratio of Net Investment Income to Average Net Assets are the effects of withholding
tax refunds and income taxes on recovered
refunds (See Note 2i of the Notes to Financial Statements). If such amounts were excluded, the Net Investment
Income per share, Total Return, and Ratio of Net Investment Loss to Average Net Assets for Class A Shares would have been $0.07, (37.36%),
and 0.24%, respectively. For Institutional
Class Shares, these amounts would have been $0.08, (37.18%), and 0.29%, respectively. |
(g) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(h) |
Included
within Total Return is the effect of withholding tax refunds and income taxes on recovered refunds (See Note 2i of the Notes to Financial
Statements). If such amounts were excluded,
the Total Return for Class A Shares would have been (0.38%). For Institutional Class Shares, this amount would
have been (0.11%). |
(i) |
Included
within Net Investment Income per share, Total Return, and Ratio of Net Investment Income to Average Net Assets are the effects of withholding
tax refunds and income taxes on recovered
refunds (See Note 2i of the Notes to Financial Statements). If such amounts were excluded, the Net Investment
Income per share, Total Return, and Ratio of Net Investment Loss to Average Net Assets for Class A Shares would have been $0.28, 12.13%,
and 1.13%, respectively. For Institutional
Class Shares, these amounts would have been $0.37, 12.41%, and 1.42%, respectively. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Emerging Markets Dividend
Fund (formerly, abrdn International Sustainable
Leaders Fund)
(concluded)
|
|
|
|
|
|
Ratios/Supplemental
Data |
|
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net
of Reimbursements/
Waivers Excluding
Accruals for Estimated
Tax Due on Foreign
Tax Refund Recoveries)
to Average Net
Assets(b)
|
Ratio
of Expenses (Net
of Reimbursements/
Waivers) to Average
Net Assets(b)(c)
|
Ratio
of Expenses (Prior
to Reimbursements)
to Average Net
Assets(b)(c)(d)
|
Ratio
of Net Investment
Income (Loss)
to Average Net Assets
|
Portfolio
Turnover(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Global Equity Impact Fund
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Total
Distributions
|
Net
Asset Value, End
of Period |
Class
A Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023 |
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
(a) |
Net
investment income is based on average shares outstanding during the period. |
(b) |
Beginning
with the year ended October 31, 2022, income taxes on recovered refunds were included in foreign tax withholding on the Statement of Operations
and, as such, are not included within the ratios of expenses to average net assets. Income taxes on recovered refunds for years prior
to October 31, 2022 were reflected as expenses
on the Statement of Operations and included within the ratios of expenses to average net assets. |
(c) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated.
|
(d) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(e) |
Included
within Net Investment Income per share, Total Return, and Ratio of Net Investment Income to Average Net Assets are the effects of withholding
tax refunds and income taxes on recovered
refunds (See Note 2i of the Notes to Financial Statements). If such amounts were excluded, the Net Investment
Income per share, Total Return, and Ratio of Net Investment Loss to Average Net Assets for Class A Shares would have been $0.07, (30.98%)
and 0.47%, respectively. For Institutional
Class Shares, these amounts would have been $0.07, (30.83%) and 0.49%, respectively. |
(f) |
Less
than $0.005 per share. |
(g) |
The
total return shown above includes the impact of financial statement rounding of the NAV per share and/or financial statement adjustments. |
(h) |
Included
within Total Return is the effect of withholding tax refunds and income taxes on recovered refunds (See Note 2i of the Notes to Financial
Statements). If such amounts were excluded,
the Total Return for Class A Shares would have been 15.82%. For Institutional Class Shares, this amount would
have been 16.12%. |
(i) |
Included
within Net Investment Income per share, Total Return, and Ratio of Net Investment Income to Average Net Assets are the effects of withholding
tax refunds and income taxes on recovered
refunds (See Note 2i of the Notes to Financial Statements). If such amounts were excluded, the Net Investment
Income per share, Total Return, and Ratio of Net Investment Loss to Average Net Assets for Class A Shares would have been $0.08, 13.56%,
and 0.77%, respectively. For Institutional
Class Shares, these amounts would have been $0.11, 13.81%, and 1.03%, respectively. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
Global Equity Impact Fund (concluded)
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return |
Net
Assets at End of Period
(000’s) |
Ratio
of Expenses (Net of Reimbursements/
Waivers Excluding
Accruals for Estimated
Tax Due on Foreign
Tax Refund Recoveries)
to Average Net
Assets(b)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets(b)(c)
|
Ratio
of Expenses (Prior to
Reimbursements) to Average
Net Assets(b)(c)
|
Ratio
of Net Investment Income
(Loss) to Average
Net Assets |
Portfolio
Turnover(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
High Income Opportunities
Fund (formerly, abrdn Global High Income Fund)
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Tax
Return of Capital
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Class
A Shares |
Year
Ended October 31, 2023* |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2018 |
|
|
|
|
|
|
|
|
Institutional
Class Shares |
Year
Ended October 31, 2023* |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2022 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2021 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2020 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2019 |
|
|
|
|
|
|
|
|
Year
Ended October 31, 2018 |
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(c) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(d) |
Includes
interest expense that amounts to less than 0.01%. |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
High Income Opportunities
Fund (formerly, abrdn Global High Income Fund)
(concluded)
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
Total
Return |
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets(b)
|
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(b)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets |
Portfolio
Turnover(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-Defined
Sales Charge Waiver Policies
Merrill
Lynch:
Purchases
or sales of front-end (i.e. Class A) or level-load (i.e., Class C) mutual fund
shares through a Merrill platform
or account will be eligible only for the following
sales load
waivers (front-end,
contingent deferred, or back-end waivers)
and discounts, which differ
from those disclosed elsewhere in this Fund’s
prospectus. Purchasers will have to buy mutual fund
shares directly from the mutual fund company or through another intermediary to be eligible for waivers or discounts
not listed below.
It
is the client’s responsibility to notify Merrill at the time of purchase or sale of any relationship or other facts that qualify
the transaction for a
waiver or discount. A Merrill representative may ask for reasonable documentation of such facts and Merrill
may condition the granting of a waiver or discount on the timely receipt of such documentation.
Additional
information on waivers and discounts is available in the Merrill Sales Load Waiver and Discounts Supplement (the
“Merrill SLWD Supplement”) and in the Mutual Fund Investing at Merrill pamphlet at ml.com/funds. Clients are encouraged
to review these documents and speak with their financial advisor to determine whether a transaction is eligible
for a waiver or discount.
|
Front-end
Load Waivers Available at Merrill |
Shares
of mutual funds available for purchase by employer-sponsored retirement, deferred compensation, and employee benefit plans
(including health savings accounts) and trusts used to fund those plans provided the shares are not held in a commission-based
brokerage account and shares are held for the benefit of the plan. For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans |
Shares
purchased through a Merrill investment advisory program |
Brokerage
class shares exchanged from advisory class shares due to the holdings moving from a Merrill investment advisory program
to a Merrill brokerage account |
Shares
purchased through the Merrill Edge Self-Directed platform |
Shares
purchased through the systematic reinvestment of capital gains distributions and dividend reinvestment when purchasing shares
of the same mutual fund in the same account |
Shares
exchanged from level-load shares to front-end load shares of the same mutual fund in accordance with the description in the
Merrill SLWD Supplement |
Shares
purchased by eligible employees of Merrill or its affiliates and their family members who purchase shares in accounts within the
employee's Merrill Household (as defined in the Merrill SLWD Supplement) |
Shares
purchased by eligible persons associated with the fund as defined in this prospectus (e.g. the fund's officers or trustees)
|
Shares
purchased from the proceeds of a mutual fund redemption in front-end load shares provided (1) the repurchase is in a mutual
fund within the same fund family; (2) the repurchase occurs within 90 calendar days from the redemption trade date, and (3)
the redemption and purchase occur in the same account (known as Rights of Reinstatement). Automated transactions (i.e. systematic
purchases and withdrawals) and purchases made after shares are automatically sold to pay Merrill's account maintenance
fees are not eligible for Rights of Reinstatement |
|
Contingent
Deferred Sales Charge ("CDSC") Waivers on Front-end, Back-end, and Level Load Shares Available at Merrill |
Shares
sold due to the client's death or disability (as defined by Internal Revenue Code Section 22I(3)) |
Shares
sold pursuant to a systematic withdrawal program subject to Merrill's maximum systematic withdrawal limits as described in
the Merrill SLWD Supplement |
Shares
sold due to return of excess contributions from an IRA account |
Shares
sold as part of a required minimum distribution for IRA and retirement accounts due to the investor reaching the qualified age
based on applicable IRS regulation |
Front-end
or level-load shares held in commission-based, non-taxable retirement brokerage accounts (e.g. traditional, Roth, rollover,
SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans) that are transferred to fee-based accounts or platforms and exchanged for
a lower cost share class of the same mutual fund |
|
Discounts
Available at Merrill: Breakpoints, Rights of Accumulation & Letters of Intent |
Breakpoint
discounts, as described in this prospectus, where the sales load is at or below the maximum sales load that Merrill permits
to be assessed to a front-end load purchase, as described in the Merrill SLWD Supplement |
Rights
of Accumulation (ROA), as described in the Merrill SLWD Supplement, which entitle clients to breakpoint discounts based on the
aggregated holdings of mutual fund family assets held in accounts in their Merrill Household |
Letters
of Intent (LOI), which allow for breakpoint discounts on eligible new purchases based on anticipated future eligible purchases
within a fund family at Merrill, in accounts within your Merrill Household, as further described in the Merrill SLWD Supplement
|
Broker-Defined
Sales Charge Waiver Policies 221
Broker-Defined
Sales Charge Waiver Policies
Morgan
Stanley:
Front-end
Sales Charge Waivers on Class A Shares available for Morgan Stanley Wealth Management Transactional Brokerage
Accounts
Shareholders
purchasing Fund shares through a Morgan Stanley Wealth Management transactional brokerage account will
be eligible only for the following front-end sales charge waivers with respect to Class A shares, which may differ from and
may be more limited than those disclosed elsewhere in these Funds’ Prospectus or SAI.
● |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and
money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement
plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans |
● |
Morgan
Stanley employee and employee-related accounts according to Morgan Stanley’s account linking rules |
● |
Shares
purchased through reinvestment of dividends and capital gains distributions when purchasing shares of the same
fund |
● |
Shares
purchased through a Morgan Stanley self-directed brokerage account |
● |
Class
C (i.e., level-load) shares that are no longer subject to a contingent deferred sales charge and are converted to Class
A shares of the same fund pursuant to Morgan Stanley Wealth Management’s share class conversion program |
● |
Shares
purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within
90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed
shares were subject to a front-end or deferred sales charge. |
Raymond
James:
Shareholders
purchasing fund shares through a Raymond James platform or account, or through an introducing broker-dealer
or independent registered investment adviser for which Raymond James provides trade execution, clearance,
and/or custody services, will be eligible only for the following load waivers (front-end sales charge waivers and
contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere
in this fund’s prospectus or SAI.
Front-end
sales load waivers on Class A shares available at Raymond James
● |
Shares
purchased in an investment advisory program. |
● |
Shares
purchased within the same fund family through a systematic reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other fund within the fund family). |
● |
Employees
and registered representatives of Raymond James or its affiliates and their family members as designated by
Raymond James. |
● |
Shares
purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within
90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed
shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement). |
● |
A
shareholder in the Fund’s Class C shares will have their shares converted at net asset value to Class A shares (or the appropriate
share class) of the Fund if the shares are no longer subject to a CDSC and the conversion is in line with the policies
and procedures of Raymond James. |
CDSC
Waivers on Classes A and C shares available at Raymond James
● |
Death
or disability of the shareholder. |
● |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s prospectus. |
● |
Return
of excess contributions from an IRA Account. |
● |
Shares
sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching
age 70½ as described in the fund’s prospectus. |
● |
Shares
sold to pay Raymond James fees but only if the transaction is initiated by Raymond James. |
● |
Shares
acquired through a right of reinstatement. |
Front-end
load discounts available at Raymond James: breakpoints, and/or rights of accumulation
● |
Breakpoints
as described in this prospectus. |
● |
Rights
of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the
aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible
fund family assets not held at Raymond James may be included in the calculation of rights of accumulation calculation
only if the shareholder notifies his or her financial advisor about such assets. |
● |
Letters
of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over a 13-month
time period. Eligible fund family assets not held at Raymond James may be included in the calculation of letters
of intent only if the shareholder notifies his or her financial advisor about such assets. |
222 Broker-Defined
Sales Charge Waiver Policies
Broker-Defined
Sales Charge Waiver Policies
Janney
Montgomery Scott:
Effective
May 1, 2020, if you purchase fund shares through a Janney Montgomery Scott LLC (“Janney”) brokerage account,
you will be eligible for the following load waivers (front-end sales charge waivers and contingent deferred sales charge
(“CDSC”), or back-end sales charge, waivers) and discounts, which may differ from those disclosed elsewhere in this
fund’s Prospectus or SAI.
Front-end
sales charge* waivers on Class A shares available at Janney
● |
Shares
purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares
of the same fund (but not any other fund within the fund family). |
● |
Shares
purchased by employees and registered representatives of Janney or its affiliates and their family members as designated
by Janney. |
● |
Shares
purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within
ninety (90) days following the redemption, (2) the redemption and purchase occur in the same account, and (3)
redeemed shares were subject to a front-end or deferred sales load (i.e., right of reinstatement). |
● |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and
money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement
plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans. |
● |
Shares
acquired through a right of reinstatement. |
● |
Class
C shares that are no longer subject to a contingent deferred sales charge and are converted to Class A shares of the
same fund pursuant to Janney’s policies and procedures. |
CDSC
waivers on Class A and C shares available at Janney
● |
Shares
sold upon the death or disability of the shareholder. |
● |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s Prospectus. |
● |
Shares
purchased in connection with a return of excess contributions from an IRA account. |
● |
Shares
sold as part of a required minimum distribution for IRA and other retirement accounts due to the shareholder reaching
age 70½ as described in the fund’s Prospectus. |
● |
Shares
sold to pay Janney fees but only if the transaction is initiated by Janney. |
● |
Shares
acquired through a right of reinstatement. |
● |
Shares
exchanged into the same share class of a different fund. |
Front-end
sales charge* discounts available at Janney: breakpoints, rights of accumulation, and/or letters of intent
● |
Breakpoints
as described in the fund’s Prospectus. |
● |
Rights
of accumulation (“ROA”), which entitle shareholders to breakpoint discounts, will be automatically calculated based
on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Janney. Eligible
fund family assets not held at Janney may be included in the ROA calculation only if the shareholder notifies his or
her financial advisor about such assets. |
● |
Letters
of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over a 13-month
time period. Eligible fund family assets not held at Janney Montgomery Scott may be included in the calculation
of letters of intent only if the shareholder notifies his or her financial advisor about such assets. |
|
*Also
referred to as an “initial sales charge” |
Oppenheimer
& Co. Inc. (“OPCO”):
Effective
June 18, 2020, shareholders purchasing Fund shares through an OPCO platform or account are eligible only for the
following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and
discounts, which may differ from those disclosed elsewhere in this Fund’s prospectus or SAI.
Front-end
Sales Load Waivers on Class A Shares available at OPCO
● |
Employer-sponsored
retirement, deferred compensation and employee benefit plans (including health savings accounts)
and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account
and shares are held for the benefit of the plan |
● |
Shares
purchased by or through a 529 Plan |
● |
Shares
purchased through an OPCO affiliated investment advisory program |
● |
Shares
purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares
of the same fund (but not any other fund within the fund family) |
● |
Shares
purchased form the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within
90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed
shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement) |
Broker-Defined
Sales Charge Waiver Policies 223
Broker-Defined
Sales Charge Waiver Policies
● |
A
shareholder in the Fund’s Class C shares will have their shares converted at net asset value to Class A shares (or the appropriate
share class) of the Fund if the shares are no longer subject to a CDSC and the conversion is in line with the policies
and procedures of OPCO |
● |
Employees
and registered representatives of OPCO or its affiliates and their family members |
● |
Trustees
of the Fund, and employees of the Fund’s investment adviser or any of its affiliates, as described in this prospectus
|
CDSC
Waivers on A and C Shares available at OPCO
● |
Death
or disability of the shareholder |
● |
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s prospectus |
● |
Return
of excess contributions from an IRA Account |
● |
Shares
sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching
age 72 (70½ if you reach 70½ before January 1, 2020) as described in the prospectus |
● |
Shares
sold to pay OPCO fees but only if the transaction is initiated by OPCO |
● |
Shares
acquired through a right of reinstatement |
Front-end
load Discounts Available at OPCO: Breakpoints, Rights of Accumulation & Letters of Intent
● |
Breakpoints
as described in this prospectus. |
● |
Rights
of Accumulation (ROA) which entitle shareholders to breakpoint discounts will be automatically calculated based
on the aggregated holding of fund family assets held by accounts within the purchaser’s household at OPCO. Eligible
fund family assets not held at OPCO may be included in the ROA calculation only if the shareholder notifies his or
her financial advisor about such assets |
Baird:
Effective
June 18, 2020, shareholders purchasing fund shares through a Baird platform or account will only be eligible for the
following sales charge waivers (front-end sales charge waivers and CDSC waivers) and discounts, which may differ from
those disclosed elsewhere in this prospectus or the SAI.
Front-End
Sales Charge Waivers on Class A shares Available at Baird
● |
Shares
purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing share
of the same fund |
● |
Share
purchased by employees and registered representatives of Baird or its affiliates and their family members as designated
by Baird |
● |
Shares
purchased from the proceeds of redemptions from another abrdn Fund, provided (1) the repurchase occurs within
90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed
shares were subject to a front-end or deferred sales charge (known as rights of reinstatement) |
● |
A
shareholder in the Funds’ Class C Shares will have their shares converted at net asset value to Class A shares of the Fund
if the shares are no longer subject to CDSC and the conversion is in line with the policies and procedures of Baird |
● |
Employer-sponsored
retirement plans or charitable accounts in a transactional brokerage account at Baird, including 401(k)
plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined
benefit plans. For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple
IRAs or SAR-SEPs |
CDSC
Waivers on Class A and C shares Available at Baird
● |
Shares
sold due to death or disability of the shareholder |
● |
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s prospectus |
● |
Shares
bought due to returns of excess contributions from an IRA Account |
● |
Shares
sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching
age 72 as described in the Fund’s prospectus |
● |
Shares
sold to pay Baird fees but only if the transaction is initiated by Baird |
● |
Shares
acquired through a right of reinstatement |
Front-End
Sales Charge Discounts Available at Baird: Breakpoints and/or Rights of Accumulations
● |
Breakpoints
as described in this prospectus |
● |
Rights
of accumulations which entitles shareholders to breakpoint discounts will be automatically calculated based on the
aggregated holding of abrdn Funds assets held by accounts within the purchaser’s household at Baird. Eligible abrdn
Funds assets not held at Baird may be included in the rights of accumulations calculation only if the shareholder notifies
his or her financial advisor about such assets |
224 Broker-Defined
Sales Charge Waiver Policies
Broker-Defined
Sales Charge Waiver Policies
● |
Letters
of Intent (LOI) allow for breakpoint discounts based on anticipated purchases of abrdn Funds through Baird, over
a 13-month period of time |
Ameriprise
Financial:
Class
A Shares Front-End Sales Charge Waivers Available at Ameriprise Financial:
The
following information applies to Class A shares purchases if you have an account with or otherwise purchase Fund shares
through Ameriprise Financial:
Shareholders
purchasing Fund shares through an Ameriprise Financial brokerage account are eligible for the following front-end
sales charge waivers, which may differ from those disclosed elsewhere in this Fund’s prospectus or SAI:
● |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and
money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement
plans do not include SEP IRAs, Simple IRAs or SAR-SEPs. |
● |
Shares
purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares
of the same Fund (but not any other fund within the same fund family). |
● |
Shares
exchanged from Class C shares of the same fund in the month of or following the 7-year anniversary of the purchase
date. To the extent that this prospectus elsewhere provides for a waiver with respect to exchanges of Class C
shares or conversion of Class C shares following a shorter holding period, that waiver will apply. |
● |
Employees
and registered representatives of Ameriprise Financial or its affiliates and their immediate family members. |
● |
Shares
purchased by or through qualified accounts (including IRAs, Coverdell Education Savings Accounts, 401(k)s, 403(b)
TSCAs subject to ERISA and defined benefit plans) that are held by a covered family member, defined as an Ameriprise
financial advisor and/or the advisor’s spouse, advisor’s lineal ascendant (mother, father, grandmother, grandfather,
great grandmother, great grandfather), advisor’s lineal descendant (son, step-son, daughter, stepdaughter,
grandson, granddaughter, great grandson, great granddaughter) or any spouse of a covered family member
who is a lineal descendant. |
● |
Shares
purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within
90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed
shares were subject to a front-end or deferred sales load (i.e. Rights of Reinstatement). |
Broker-Defined
Sales Charge Waiver Policies 225
Broker-Defined
Sales Charge Waiver Policies
Please
read this prospectus
before you invest, and keep it with your records. The following documents – which may be obtained
free of charge – contain additional information about the Funds:
● |
Statement
of Additional Information (incorporated by reference into this prospectus)
|
● |
Annual
Reports (which, when available, will contain discussions of the market conditions and investment strategies that
significantly affected the Funds’ performance) |
● |
Semi-Annual
Reports (when available) |
While
this prospectus
and the Statement of Additional Information of the Trust describe pertinent information about the Trust
and the Funds, neither this prospectus
nor the Statement of Additional Information represents a contract between the
Trust or a Fund and any shareholder or any other party.
To
obtain any of the above documents free of charge (when available), to request other information about the Funds, or to
make other shareholder inquiries, contact us at the address or number listed below. You can also access and download
the annual and semi-annual reports (when available) and the Statement of Additional Information at the Funds’
website https://www.abrdn.com/en-us/us/investor/fund-centre#literature.
To
reduce the volume of mail you receive, only one copy of financial reports, prospectuses, other regulatory materials and
other communications will be mailed to your household (if you share the same last name and address). You can call us
at 866-667-9231, or write to us at the address listed below, to request (1) additional copies free of charge, or (2) that we
discontinue our practice of mailing regulatory materials together.
If
you wish to receive regulatory materials and/or account statements electronically, you can sign-up for our free e-delivery
service. Please visit the Funds’ website at https://www.abrdn.com/en-us/us/investor/fund-centre#literature or
call 866-667-9231 for additional information.
For
Additional Information Contact:
By
Regular Mail:
abrdn
Funds
P.O. Box 219534
Kansas
City MO 64121-9534
By
Overnight Mail:
abrdn
Funds
c/o SS&C GIDS, Inc.
430
W. 7th Street, Ste. 219534
Kansas City,
MO 64105-1407
For
24-hour Access:
866-667-9231
(toll free)
Customer
Service Representatives are available 8 a.m. - 6 p.m. Eastern Time, Monday through Friday. Call after 7 p.m. Eastern
Time for closing share prices.
Also,
visit the Funds’ website at https://www.abrdn.com/en-us/us/investor/fund-centre#literature.
Information
from the Securities and Exchange Commission (SEC) You can obtain information about the Funds, including the
SAI from the SEC:
● |
on
the SEC’s EDGAR database via the Internet at www.sec.gov;
or |
● |
by
electronic request to publicinfo@sec.gov
(the SEC charges a fee for this service). |
THE
TRUST’S INVESTMENT COMPANY ACT FILE NO.: 811-22132
226 Information
from abrdn Funds
|
|
|
abrdn
Funds |
|
Statement
of Additional Information |
|
February
29, 2024 |
|
abrdn
Focused
U.S. Small Cap Equity Fund (formerly, abrdn U.S.
Sustainable Leaders Smaller Companies Fund)
Class
A - MLSAX ■
Class R - GLSRX ■
Institutional Class - GGUIX ■
Institutional Service Class - AELSX
abrdn
U.S. Small Cap Equity Fund
Class
A - GSXAX ■
Class C - GSXCX ■
Class R - GNSRX ■
Institutional Class - GSCIX ■
Institutional Service Class - GSXIX
abrdn
China A Share Equity Fund
Class
A - GOPAX ■
Class C - GOPCX ■
Class R - GOPRX ■
Institutional Class - GOPIX ■
Institutional Service Class - GOPSX
abrdn
Emerging Markets Sustainable Leaders Fund
Class
A - GIGAX ■
Class C - GIGCX ■
Class R - GIRRX ■
Institutional Class - GIGIX ■
Institutional Service Class - GIGSX
abrdn
Emerging Markets ex-China Fund
Class
A - GLLAX ■
Class C - GLLCX ■
Class R - GWLRX ■
Institutional Class - GWLIX ■
Institutional Service Class - GLLSX
abrdn
Emerging Markets Fund
Class
A - GEGAX ■
Class C - GEGCX ■
Class R - GEMRX ■
Institutional Class - ABEMX ■
Institutional Service Class - AEMSX
abrdn
Infrastructure
Debt Fund (formerly, abrdn Global Absolute
Return Strategies Fund)
Class
A - CUGAX ■
Institutional Class - AGCIX ■
Institutional Service Class - CGFIX
abrdn
International Small Cap Fund
Class
A – WVCCX ■
Class C – CPVCX ■
Class R – WPVAX ■
Institutional Class – ABNIX
abrdn
Intermediate Municipal Income Fund
Class
A – NTFAX ■
Class C – GTICX ■
Institutional Class – ABEIX ■
Institutional Service Class – ABESX
abrdn
U.S. Sustainable Leaders Fund
Class
A – GXXAX ■
Class C – GXXCX ■
Institutional Class – GGLIX ■
Institutional Service Class – GXXIX
abrdn
Dynamic Dividend Fund
Class
A – ADAVX ■
Institutional Class – ADVDX
abrdn
Global Infrastructure Fund
Class
A – AIAFX ■
Institutional Class – AIFRX
abrdn
Short Duration High Yield Municipal Fund
Class
A – AAHMX ■
Class C – ACHMX ■
Institutional Class – AHYMX
abrdn
Realty Income & Growth Fund
Class
A – AIAGX ■
Institutional Class – AIGYX
abrdn
Ultra Short Municipal Income Fund
Class
A – ATOAX ■
Class A1 – ATOBX ■
Institutional Class – ATOIX
abrdn
Emerging Markets
Dividend Fund (formerly, abrdn International
Sustainable Leaders Fund)
Class
A – BJBIX ■
Institutional Class – JIEIX
abrdn
Global Equity Impact Fund
Class
A – JETAX ■
Institutional Class – JETIX
abrdn
High Income Opportunities
Fund (formerly, abrdn Global High Income
Fund)
Class
A – BJBHX ■
Institutional Class – JHYIX
abrdn
Funds (the “Trust”) is a registered open-end investment company consisting of 19 series as of the date hereof. This Statement
of Additional Information (“SAI”)
relates to the series of the Trust listed above (each, a “Fund” and collectively, the “Funds”). This SAI is
not a prospectus but is incorporated by reference
into the Prospectus for the Funds. It contains information in addition to and more detailed than
that set forth in the Prospectus and should be read in conjunction with the Prospectus for the Funds dated February 29,
2024, as amended.
Terms
not defined in this SAI have the meanings assigned to them in the Prospectus. You can order copies of the Prospectus without charge
by writing to abrdn Funds, c/o SS&C GIDS, Inc. (”SS&C”)
at 430 W. 7th Street, Ste. 219534, Kansas City, MO 64105- 1407 or calling (toll-free)
866-667-9231.
The
audited financial statements with respect to each of the Funds for the fiscal year ended October 31, 2023,
and the related report of KPMG,
LLP (“KPMG”), independent registered public accounting firm for the Funds, which are contained in the Funds’ October
31, 2023 Annual
Report, are incorporated herein
by reference in the section “Financial Statements.” No other parts of the Annual Report are incorporated
by reference herein. A copy of the Annual Report may be obtained upon request and without charge by writing to abrdn Funds
at 430 W. 7th Street, Ste. 219534, Kansas City, MO 64105-1407 or by calling 866-667-9231.
General
Information
The
Trust is an open-end management investment company formed as a statutory trust under the laws of the state of
Delaware by a Certificate of Trust filed on September 27, 2007. The Trust currently consists of 19 separate series, each with
its own investment objective.
Certain
Funds in this SAI were formed to acquire the assets and liabilities of the corresponding Fund of the Nationwide
Mutual Funds (the
“Nationwide Predecessor Funds”) as shown in the chart below.
|
|
Fund
|
Corresponding
Predecessor Fund |
abrdn
Emerging Markets ex-China Fund (“Emerging Markets ex-China Fund”) |
Nationwide
Worldwide Leaders Fund |
abrdn
China A Share Equity Fund (“China A Fund”) |
Nationwide
China Opportunities Fund |
abrdn
Emerging Markets Sustainable Leaders Fund (“Emerging Markets Sustainable
Leaders Fund”) |
Nationwide
International Growth Fund |
abrdn
Focused U.S. Small Cap Equity Fund (formerly, abrdn U.S. Sustainable Leaders
Smaller Companies Fund) (“Focused U.S. Small Cap Equity Fund”) |
Nationwide
U.S. Growth Leaders Long-Short Fund |
abrdn
U.S. Small Cap Equity Fund (“U.S. Small Cap Equity Fund”) |
Nationwide
Small Cap Fund |
abrdn
Intermediate Municipal Income Fund (“Intermediate Municipal Income Fund”)
|
Nationwide
Tax-Free Income Fund |
The
Nationwide Predecessor Funds, for purposes of the relevant reorganization, are considered the accounting survivors
and accordingly, certain financial history of the Nationwide Predecessor Funds is included in this SAI. Prior to February
28, 2022, the Intermediate Municipal Income Fund was known as the Aberdeen Intermediate Municipal Income Fund.
Prior to February 28, 2019, the Intermediate Municipal Income Fund was known as the Aberdeen Tax-Free Income Fund.
Prior to February 28, 2022, the China A Fund was known as the Aberdeen China A Share Equity Fund. Prior
to June 13, 2019, the
China A Fund was known as the Aberdeen China Opportunities Fund.
Prior to February 29, 2024, the Focused U.S.
Small Cap Equity Fund was known as the abrdn U.S. Sustainable Leaders Smaller Companies Fund. Prior
to February
28, 2022, the U.S. Sustainable Leaders Smaller Companies Fund was known as the Aberdeen U.S. Sustainable Leaders
Smaller Companies Fund. Prior to December 1, 2020, the U.S. Sustainable Leaders Smaller Companies Fund was known
as the Aberdeen Focused U.S. Equity Fund, and prior to November 15, 2017, the Aberdeen Focused U.S. Equity Fund
was known as the Aberdeen Equity Long-Short Fund. Prior to February 28, 2022, the Emerging Markets Sustainable Leaders
Fund was known as the Aberdeen Emerging Markets Sustainable Leaders Fund. Prior to December 1, 2020, the Emerging
Markets Sustainable Leaders Fund was known as the Aberdeen International Equity Fund. Prior to February 28, 2022,
the abrdn Emerging Markets ex-China Fund was known as the Aberdeen Global Equity Fund.
Certain
Funds in this SAI were formed to acquire the assets and liabilities of the corresponding Fund of the Credit Suisse
Funds (each a “Credit Suisse Predecessor Fund,” and collectively, the “Credit Suisse Predecessor Funds”) as
shown in the chart below.
|
|
Fund
|
Corresponding
Predecessor Fund |
abrdn
Infrastructure Debt Fund (formerly, abrdn Global Absolute Return Strategies Fund)
(“Infrastructure Debt Fund”) |
Credit
Suisse Global Fixed Income Fund |
abrdn
International Small Cap Fund (“International Small Cap Fund”) |
Credit
Suisse Global Small Cap Fund |
The
Credit Suisse Predecessor Funds, for purposes of the relevant reorganization, are considered the accounting survivors
and accordingly, certain financial history of the Credit Suisse Predecessor Funds is included in this SAI. Prior to August
18, 2023, the abrdn Infrastructure Debt Fund was known as the abrdn Global Absolute Return Strategies Fund. Prior
to February 28, 2022, the abrdn
Global Absolute Return Strategies Fund was
known as the Aberdeen Global Absolute Return
Strategies Fund. Prior to November 15, 2019, the Aberdeen
Global Absolute Return Strategies Fund was
known as the Aberdeen Global Unconstrained
Fixed Income Fund, and prior to August 15, 2016, the Aberdeen Global Unconstrained
Fixed Income Fund was known as the Aberdeen Global Fixed Income Fund. Prior to February 28, 2022, the International
Small Cap Fund was known as the Aberdeen International Small Cap Fund.
Certain
Funds in this SAI acquired the assets and liabilities of the corresponding Fund of the Pacific Capital Funds (each
a “Pacific Capital Predecessor Fund,” and collectively, the “Pacific Capital Predecessor Funds”), as shown
in the chart below.
|
|
Fund
|
Corresponding
Predecessor Fund |
U.S.
Small Cap Equity Fund |
Pacific
Capital Small Cap Fund |
Class
A Shares |
Class
A and B Shares |
Class
C Shares |
Class
C Shares |
Institutional
Class Shares |
Class
Y Shares |
Prior
to February 28, 2022, the abrdn Emerging Markets Fund (“Emerging Markets Fund”) was known as the Aberdeen
Emerging Markets Fund. The Emerging Markets Fund was formed to acquire the assets and liabilities of a former
Aberdeen Emerging Markets Fund, which was a series of The Advisors’ Inner Circle Fund II (the “Emerging Markets Predecessor
Fund”). On May 21, 2012, the Emerging Markets Fund acquired the assets of the Aberdeen Emerging Markets
Fund (the “Acquired Fund”), another series of the Trust, which had Class A, C and R Shares. The Emerging Markets
Predecessor Fund, for purposes of the reorganization, is considered the accounting survivor and accordingly, certain
financial history of the Emerging Markets Predecessor Fund is included in this SAI.
Prior
to February 28, 2022, the abrdn U.S. Sustainable Leaders Fund (“Sustainable Leaders Fund”) was known as the Aberdeen
U.S. Sustainable Leaders Fund, and prior to December 1, 2020, the U.S. Sustainable Leaders Fund was known as the
Aberdeen U.S. Multi-Cap Equity Fund (“U.S. Multi-Cap Equity Fund”). Prior to October 31, 2015, the U.S. Multi-Cap Equity
Fund was known as the Aberdeen U.S. Equity Fund. The Aberdeen U.S. Equity Fund (“U.S. Equity Fund”) was created to
acquire the assets and liabilities of the Credit Suisse Large Cap Blend Fund, Inc., a Maryland corporation, and a former series
of the Trust with a U.S. equity strategy (“Aberdeen U.S. Equity Predecessor Fund”). The Aberdeen U.S. Equity Predecessor
Fund, for purposes of the reorganization, is considered the accounting survivor and accordingly, certain financial
history of the Aberdeen U.S. Equity Predecessor Fund is included in this SAI. On February 25, 2013, the U.S. Equity Fund
acquired the assets of the Aberdeen U.S. Equity II Fund, another series of the Trust, which offered Class A, Class C, Class
R, Institutional Class and Institutional Service Class Shares. The U.S. Equity Fund, for purposes of the reorganization, is
considered the accounting survivor.
Certain
Funds in this SAI were formed to acquire the assets and liabilities of certain series of the Alpine Equity Trust, Alpine
Series Trust or Alpine Income Trust (each, an “Alpine Predecessor Fund,” and collectively, the “Alpine Predecessor
Funds”), as shown in the chart below.
|
|
Fund
|
Corresponding
Predecessor Fund |
abrdn
Dynamic Dividend Fund (“Dynamic Dividend Fund”) |
Alpine
Dynamic Dividend Fund, a series of Alpine Series
Trust |
abrdn
Global Infrastructure Fund (“Global Infrastructure Fund”) |
Alpine
Global Infrastructure Fund, a series of Alpine
Equity Trust |
abrdn
Realty Income & Growth Fund (“Realty Income & Growth Fund”) |
Alpine
Realty Income & Growth Fund, a series of Alpine
Equity Trust |
abrdn
Short Duration High Yield Municipal Fund (“Short Duration High Yield Municipal
Fund”) |
Alpine
High Yield Managed Duration Municipal Fund,
a series of Alpine Income Trust |
abrdn
Ultra Short Municipal Income Fund (“Ultra Short Municipal Income Fund”) |
Alpine
Ultra Short Municipal Income Fund, a series of
Alpine Income Trust |
The
Alpine Predecessor Funds, for purposes of the relevant reorganization, are considered the accounting survivors and
accordingly, certain financial history of the Alpine Predecessor Funds is included in this SAI.
Prior
to February 28, 2022, the Dynamic Dividend Fund was known as the Aberdeen Dynamic Dividend Fund. Prior to February
28, 2022, the Global Infrastructure Fund was known as the Aberdeen Global Infrastructure Fund. Prior to February
28, 2022, the Realty Income & Growth Fund was known as the Aberdeen Realty Income & Growth Fund. Prior to February
28, 2022, the Short Duration High Yield Municipal Fund was known as the Aberdeen Short Duration High Yield Municipal
Fund. Prior to February 28, 2019, the Short Duration High Yield Municipal Fund was known as the Aberdeen High Yield
Managed Duration Municipal Fund. Prior to February 28, 2022, the Ultra Short Fund was known as the Aberdeen Ultra
Short Municipal Income Fund.
Certain
Funds in this SAI were formed to acquire the assets and liabilities of certain series of the corresponding Fund of
the Aberdeen Investment Funds (each, an “Aberdeen Investment Funds Predecessor Fund,” and collectively, the “Aberdeen
Investment Funds Predecessor Funds”), as shown in the chart below.
|
|
Fund
|
Corresponding
Aberdeen Investment Funds Predecessor Fund |
abrdn
Emerging Markets Dividend Fund (formerly, abrdn International Sustainable Leaders
Fund) (“Emerging Markets Dividend Fund”) |
Aberdeen
International Sustainable Leaders Fund,
a series of Aberdeen Investment Funds |
abrdn
Global Equity Impact Fund (“Global Equity Impact Fund”) |
Aberdeen
Global Equity Impact Fund, a series of Aberdeen
Investment Funds |
abrdn
High Income Opportunities Fund (formerly, abrdn Global High Income Fund) (“High
Income Opportunities Fund”) |
Aberdeen
Global High Income Fund, a series of Aberdeen
Investment Funds |
The
Aberdeen Investment Funds Predecessor Funds, for purposes of the relevant reorganization, are considered the accounting
survivors and accordingly, certain financial history of the Aberdeen Investment Funds Predecessor Funds is included
in this SAI. Prior to February 29,
2024, the Emerging Markets Dividend Fund was known as the abrdn International Sustainable
Leaders Fund. Prior to February 28, 2022,
the Emerging
Markets Dividend Fund was known as the Aberdeen
International Sustainable Leaders Fund. Prior
to February 28, 2022, the Global Equity Impact Fund was known as the
Aberdeen
Global Equity Impact Fund. Prior to August
18, 2023, the High Income Opportunities Fund was known as the abrdn
Global High Income Fund. Prior to February
28, 2022, the abrdn Global
High Income Fund was known as the Aberdeen
Global High Income Fund.
Each
of the Funds, except the Realty Income & Growth Fund, is a diversified open-end management investment company
as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). The Realty Income & Growth Fund
is a non-diversified open-end management investment company as defined in the 1940 Act.
Additional
Information on Portfolio Instruments and Investment Policies
The
Funds invest in a variety of securities and employ a number of investment techniques that involve certain risks. The
Prospectus for the Funds highlights the principal investment strategies, investment techniques and risks. This SAI contains
additional information regarding the principal investment strategies for the Funds and information about non-principal
investment strategies of the Funds. The following tables set forth additional information concerning permissible
investments and techniques for each of the Funds and risk factors. A “●”
in the table indicates that the Fund may invest
in the corresponding instrument or technique or is subject to such risk factor. An empty box indicates that the Fund
does not intend to invest in the corresponding instrument or follow the corresponding technique or is not subject to such
risk factor.
Please
review the discussions in the Prospectus for further information regarding the investment objective and policies
of each Fund.
References
to the “Adviser” in this section also include the Subadviser(s),
as applicable.
|
|
|
|
|
|
|
|
|
Type
of Investment, Technique
or Risk Factor |
China
A Fund |
Emerging
Markets Dividend
Fund |
Emerging
Markets ex-China
Fund |
Emerging Markets
Fund |
Emerging
Markets Sustainable Leaders
Fund |
Focused
U.S. Small Cap
Equity Fund |
U.S.
Small Cap Equity
Fund |
U.S.
Sustainable Leaders
Fund |
Adjustable,
Floating and
Variable Rate Instruments
|
●
|
|
●
|
●
|
●
|
●
|
●
|
●
|
Bank
Obligations |
|
●
|
|
|
|
●
|
●
|
●
|
Borrowing
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Common
Stock |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Convertible
Securities |
●
|
●
|
|
|
|
●
|
●
|
●
|
Currency
Transactions |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Custody/Sub-Custody
Risk
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Cybersecurity
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Debt
Securities |
●
|
|
|
|
|
●
|
●
|
●
|
Depositary
Receipts |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Derivatives
|
●
|
●
|
|
|
|
●
|
●
|
●
|
Dividend
Strategy Risk |
|
●
|
|
|
|
|
|
|
Emerging
Markets Securities
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Equity-Linked
Securities
|
●
|
|
|
|
|
|
|
|
Event
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Exchange-Traded
Funds
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Focus
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Foreign
Commercial Paper
|
|
●
|
●
|
●
|
●
|
|
|
|
Foreign
Currencies Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Foreign
Government Securities
|
●
|
●
|
●
|
●
|
●
|
|
|
|
Foreign
Securities |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Frontier
Market Securities
|
●
|
●
|
●
|
●
|
●
|
|
|
|
Futures
|
●
|
●
|
|
|
|
●
|
●
|
●
|
Illiquid
Investments Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Impact
of Large Redemptions
and Purchases
of Fund Shares
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Indexed
Securities |
●
|
|
●
|
●
|
●
|
●
|
●
|
●
|
Inflation/Deflation
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
6 Additional
Information on Portfolio Instruments and Investment Policies
|
|
|
|
|
|
|
|
|
Type
of Investment, Technique
or Risk Factor |
China
A Fund |
Emerging
Markets Dividend
Fund |
Emerging
Markets ex-China
Fund |
Emerging Markets
Fund |
Emerging
Markets Sustainable Leaders
Fund |
Focused
U.S. Small Cap
Equity Fund |
U.S.
Small Cap Equity
Fund |
U.S.
Sustainable Leaders
Fund |
Initial
Public Offerings |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Interests
in Publicly Traded
Limited Partnerships
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Market
Events Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Medium
Company, Small
Company and Emerging
Growth Securities
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Money
Market Instruments
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Operational
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Options
|
●
|
●
|
|
|
|
●
|
●
|
●
|
Preferred
Stock |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Private
Placements and
Other Restricted Securities
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Real
Estate Investment Trusts
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Real
Estate Securities Risk
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Regulation
of Commodity
Interests |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Repurchase
Agreements
|
●
|
|
|
|
|
|
●
|
●
|
Reverse
Repurchase Agreements
|
●
|
|
|
|
|
|
●
|
●
|
Rights
Issues and Warrants
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Secondary
Offerings |
●
|
|
●
|
●
|
●
|
●
|
●
|
●
|
Securities
Lending |
●
|
|
●
|
●
|
●
|
|
●
|
|
Securities
of Investment
Companies
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
“Special
Situations” Companies
Risk |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Strategic
Transactions, Derivatives
and Synthetic
Investments |
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
Sustainable
Investing Risk
|
|
|
|
|
●
|
|
|
●
|
Tax
Reclaim Risk |
|
●
|
|
|
●
|
|
|
|
Temporary
Investments
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
U.S.
Government Securities
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
When-Issued
Securities
and Delayed-Delivery
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
●
|
|
|
|
|
|
|
Type
of Investment, Technique or Risk
Factor |
Dynamic Dividend
Fund |
Global
Equity Impact
Fund |
Global Infrastructure Fund
|
International Small
Cap Fund |
Realty
Income & Growth
Fund |
Adjustable,
Floating and Variable
Rate Instruments |
|
|
|
|
●
|
Additional
Information on Portfolio Instruments and Investment Policies 7
|
|
|
|
|
|
Type
of Investment, Technique or Risk
Factor |
Dynamic Dividend
Fund |
Global
Equity Impact
Fund |
Global Infrastructure Fund
|
International Small
Cap Fund |
Realty
Income & Growth
Fund |
Asset-Backed
Securities |
|
|
|
|
●
|
Borrowing
|
●
|
●
|
●
|
●
|
●
|
Business
Development Companies (“BDCs”) |
●
|
|
|
|
●
|
Closed-end
Funds |
●
|
|
●
|
|
●
|
Common
Stock |
●
|
●
|
●
|
●
|
●
|
Convertible
Securities |
|
●
|
|
●
|
●
|
Currency
Transactions |
●
|
●
|
●
|
●
|
|
Custody/Sub-Custody
Risk |
●
|
●
|
●
|
●
|
●
|
Cybersecurity
Risk |
●
|
●
|
●
|
●
|
●
|
Debt
Securities |
|
|
|
●
|
●
|
Depositary
Receipts |
●
|
●
|
●
|
●
|
●
|
Derivatives
|
●
|
●
|
●
|
●
|
●
|
Dividend
Strategy Risk |
●
|
|
●
|
|
●
|
Emerging
Markets Securities |
●
|
●
|
●
|
●
|
|
Equity-Linked
Securities |
●
|
|
●
|
|
●
|
Event
Risk |
●
|
●
|
●
|
●
|
●
|
Exchange-Traded
Funds |
●
|
●
|
●
|
●
|
●
|
Focus
Risk |
|
●
|
●
|
●
|
|
Foreign
Commercial Paper |
|
●
|
|
|
●
|
Foreign
Currencies Risk |
●
|
●
|
●
|
●
|
●
|
Foreign
Government Securities |
|
●
|
|
|
|
Foreign
Securities |
●
|
●
|
●
|
●
|
●
|
Frontier
Market Securities |
●
|
●
|
●
|
●
|
|
Futures
|
●
|
●
|
●
|
|
|
Illiquid
Investments Risk |
●
|
●
|
●
|
●
|
●
|
Impact
Investing Risk |
|
●
|
|
|
|
Impact
of Large Redemptions and Purchases of Fund Shares |
●
|
●
|
●
|
●
|
●
|
Indexed
Securities |
|
|
|
|
●
|
Inflation/Deflation
Risk |
●
|
●
|
●
|
●
|
●
|
Initial
Public Offerings |
●
|
●
|
●
|
●
|
●
|
Interests
in Publicly Traded Limited Partnerships |
●
|
●
|
●
|
●
|
●
|
Market
Events Risk |
●
|
●
|
●
|
●
|
●
|
Medium
Company, Small Company and Emerging Growth Securities
|
●
|
●
|
●
|
●
|
●
|
Money
Market Instruments |
●
|
●
|
●
|
●
|
●
|
Mortgage-Related
Securities |
|
|
|
|
●
|
Operational
Risk |
●
|
●
|
●
|
●
|
●
|
Options
|
●
|
●
|
●
|
|
|
Preferred
Stock |
●
|
●
|
●
|
●
|
●
|
Private
Placements and Other Restricted Securities Risk |
●
|
|
●
|
●
|
|
Real
Estate Investment Trusts |
●
|
●
|
●
|
●
|
●
|
Real
Estate Related Securities Risk |
|
|
|
|
●
|
Real
Estate Securities Risk |
●
|
●
|
●
|
●
|
●
|
Regulation
of Commodity Interests |
●
|
●
|
●
|
●
|
●
|
Rights
Issues and Warrants |
●
|
●
|
●
|
●
|
●
|
Secondary
Offerings |
●
|
|
●
|
●
|
●
|
Securities
Lending |
|
|
●
|
●
|
●
|
8 Additional
Information on Portfolio Instruments and Investment Policies
|
|
|
|
|
|
Type
of Investment, Technique or Risk
Factor |
Dynamic Dividend
Fund |
Global
Equity Impact
Fund |
Global Infrastructure Fund
|
International Small
Cap Fund |
Realty
Income & Growth
Fund |
Securities
of Investment Companies |
●
|
●
|
●
|
●
|
●
|
“Special
Situations”Companies Risk |
●
|
●
|
●
|
●
|
|
Strategic
Transactions, Derivatives and Synthetic Investments |
●
|
●
|
●
|
|
|
Tax
Reclaim Risk |
●
|
●
|
|
|
|
Temporary
Investments |
●
|
●
|
●
|
●
|
●
|
U.S.
Government Securities |
|
●
|
|
●
|
●
|
When-Issued
Securities and Delayed-Delivery |
●
|
●
|
●
|
●
|
●
|
|
|
|
|
|
|
Type
of Investment, Technique
or Risk Factor |
Infrastructure
Debt Fund
|
High
Income Opportunities
Fund
|
Intermediate Municipal Income
Fund |
Short
Duration High
Yield Municipal
Fund |
Ultra
Short Municipal Income
Fund |
Adjustable,
Floating and Variable Rate Instruments |
●
|
●
|
●
|
●
|
●
|
Asset-Backed
Securities |
●
|
●
|
●
|
●
|
●
|
Bank
Loans |
|
●
|
|
|
|
Bank
Obligations |
●
|
●
|
●
|
●
|
●
|
Bonds
with Warrants Attached |
●
|
●
|
|
|
|
Borrowing
|
●
|
●
|
●
|
●
|
●
|
Bridge
Loans |
●
|
●
|
|
|
|
Catastrophe
Bond |
●
|
●
|
●
|
●
|
●
|
Common
Stock |
●
|
●
|
|
|
|
Convertible
Securities |
●
|
●
|
|
|
|
Corporate
Obligations |
●
|
●
|
●
|
●
|
●
|
Credit
Linked Notes |
●
|
●
|
|
|
|
Currency
Transactions |
●
|
●
|
|
|
|
Custody/Sub-Custody
Risk |
●
|
●
|
|
|
|
Cybersecurity
Risk |
●
|
●
|
●
|
●
|
●
|
Debt
Securities |
●
|
●
|
●
|
●
|
●
|
Derivatives
|
●
|
●
|
|
|
|
Direct
Debt Instruments |
|
●
|
|
|
|
Distressed
Securities |
|
●
|
●
|
●
|
|
Emerging
Markets Securities |
●
|
●
|
|
|
|
Equity-Linked
Securities |
●
|
●
|
|
|
|
Eurodollar
Instruments |
●
|
●
|
|
|
|
European
Sovereign Debt Risk |
●
|
●
|
|
|
|
Event
Risk |
●
|
●
|
|
|
|
Exchange-Traded
Funds |
●
|
●
|
●
|
●
|
●
|
Foreign
Commercial Paper |
●
|
●
|
|
|
|
Foreign
Currencies |
●
|
●
|
|
|
|
Foreign
Fixed Income Securities |
●
|
●
|
|
|
|
Foreign
Government Securities |
●
|
●
|
|
|
|
Foreign
Securities |
●
|
●
|
|
|
|
Frontier
Market Securities |
●
|
●
|
|
|
|
Futures
|
●
|
●
|
|
|
|
Illiquid
Investments Risk |
●
|
●
|
●
|
●
|
●
|
Impact
of Large Redemptions and Purchases of Fund Shares |
●
|
●
|
●
|
●
|
●
|
Income
Deposit Securities |
|
●
|
|
|
|
Indexed
Securities |
●
|
●
|
|
|
|
Inflation/Deflation
Risk |
●
|
●
|
●
|
●
|
●
|
Additional
Information on Portfolio Instruments and Investment Policies 9
|
|
|
|
|
|
Type
of Investment, Technique
or Risk Factor |
Infrastructure
Debt Fund
|
High
Income Opportunities
Fund
|
Intermediate Municipal Income
Fund |
Short
Duration High
Yield Municipal
Fund |
Ultra
Short Municipal Income
Fund |
Inverse
Floating Rate Instruments |
●
|
●
|
●
|
●
|
●
|
LIBOR
and Replacement Rates Risk |
●
|
●
|
|
|
|
Loans
|
●
|
●
|
●
|
●
|
●
|
Market
Events Risk |
●
|
●
|
●
|
●
|
●
|
Medium
Company, Small Company and Emerging Growth Securities
|
●
|
●
|
|
|
|
Money
Market Instruments |
●
|
●
|
●
|
●
|
●
|
Mortgage-Related
Securities |
●
|
●
|
|
|
|
Municipal
Securities |
●
|
●
|
●
|
●
|
●
|
Non-Deliverable
Forwards |
●
|
●
|
|
|
|
Operational
Risk |
●
|
●
|
●
|
●
|
●
|
Options
|
●
|
●
|
|
|
|
Pay-In-Kind
Bonds and Deferred Payment Securities |
●
|
●
|
|
|
|
Preferred
Stock |
●
|
●
|
|
|
|
Private
Placements and Other Restricted Securities |
●
|
●
|
●
|
●
|
●
|
Put
Bonds |
●
|
●
|
●
|
●
|
●
|
Real
Estate Investment Trusts |
●
|
●
|
|
|
|
Real
Estate Securities Risk |
●
|
●
|
|
|
|
Regulation
of Commodity Interests |
●
|
●
|
●
|
●
|
●
|
Repurchase
Agreements |
●
|
●
|
|
|
|
Reverse
Repurchase Agreements |
●
|
●
|
|
|
|
Rights
Issues and Warrants |
●
|
●
|
●
|
●
|
●
|
Securities
Backed by Guarantees |
●
|
●
|
●
|
●
|
●
|
Securities
Lending |
●
|
●
|
●
|
●
|
●
|
Securities
of Investment Companies |
●
|
●
|
●
|
●
|
●
|
Short
Sales |
|
●
|
|
|
|
“Special
Situations” Companies Risk |
●
|
●
|
|
|
|
Standby
Commitment Agreements |
●
|
●
|
●
|
●
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Strategic
Transactions, Derivatives and Synthetic Investments |
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Structured
Notes |
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Structured
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Supranational
Entities |
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Swaps,
Caps, Floors and Collars |
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Temporary
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Transactions
Leverage Risk |
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Trust
Preferred Securities |
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U.S.
Government Securities |
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When-Issued
Securities and Delayed-Delivery |
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Zero
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General
Information about the Fund’s Portfolio Instruments and Investment Policies
The
following is a description of various types of securities, instruments and techniques that may be purchased and/or used by
the Funds as well as certain risks to which the Funds are subject.
Adjustable,
Floating and Variable Rate Instruments.
Floating, adjustable rate or variable rate obligations bear interest at
rates that are not fixed, but vary with changes in specified market rates or indices, such as the prime rate, or at specified
intervals. The interest rate on floating-rate securities varies with changes in the underlying index (such as the Treasury
bill rate), while the interest rate on variable or adjustable rate securities changes at preset times based upon an underlying
index. Certain of the floating or variable rate obligations that may be purchased by a Fund may carry a demand
feature that would permit the holder to tender them back to the issuer of the instrument or to a third-party at par
value prior to maturity.
10 Additional
Information on Portfolio Instruments and Investment Policies
The
interest rates paid on the adjustable rate securities in which a Fund may invest generally are readjusted at intervals
of one year or less to an increment over some predetermined interest rate index. There are three main categories
of indices: those based on U.S. Treasury securities, those derived from a calculated measure such as a cost of funds
index and those based on a moving average of mortgage rates. Commonly used indices include the one-year, three-year
and five-year constant maturity Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill rate,
rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, and the National Median
Cost of Funds. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror changes in market
interest rate levels. Others, such as the 11th Federal District Home Loan Bank Cost of Funds index, tend to lag behind
changes in market rate levels and tend to be somewhat less volatile.
Auction
rate securities are variable rate bonds whose interest rates are reset at specified intervals through a “Dutch” auction
process. A “Dutch” auction is a competitive bidding process designed to determine a single uniform clearing rate that
enables purchases and sales of the auction rate securities to take place at par. All accepted bids and holders of the auction
rate securities receive the same rate. Auction rate securities holders rely on the liquidity generated by the auction.
There is a risk that an auction will fail due to insufficient demand for the securities. If an auction fails, an auction rate
security may become illiquid until a subsequent successful auction is conducted, the issuer redeems the issue, or a secondary
market develops. See “Municipal Securities” below for more information about
auction rate securities.
Demand
Instruments. Demand instruments
usually have a stated maturity of more than one year but contain a demand
feature (or “put”) that enables the holder to redeem the investment. Variable-rate demand instruments provide for
automatic establishment of a new interest rate on set dates. Floating-rate demand instruments provide for automatic adjustment
of interest rates whenever a specified interest rate (e.g., the prime rate) changes. These floating and variable rate
instruments are payable upon a specified period of notice which may range from one day up to one year. The terms of
the instruments provide that interest rates are adjustable at intervals ranging from daily to up to one year and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate adjustment index as provided in the
respective instruments. Variable rate instruments include participation interests in variable- or fixed-rate municipal obligations
owned by a bank, insurance company or other financial institution or affiliated organizations. Although the rate
of the underlying municipal obligations may be fixed, the terms of the participation interest may result in a fund receiving
a variable rate on its investment.
Because
of the variable rate nature of the instruments, when prevailing interest rates decline the yield on these instruments
will generally decline. On the other hand, during periods when prevailing interest rates increase, the yield on these
instruments will generally increase and the instruments will have less risk of capital depreciation than instruments bearing
a fixed rate of return.
Some
of the demand instruments purchased by a Fund may not be traded in a secondary market and derive their liquidity
solely from the ability of the holder to demand repayment from the issuer or third-party providing credit support. If
a demand instrument is not traded in a secondary market, a Fund will nonetheless treat the instrument as “readily marketable”
for the purposes of its investment restriction limiting investments in illiquid securities unless the demand feature
has a notice period of more than seven days in which case the instrument will be characterized as “not readily marketable”
and therefore illiquid. Such obligations include variable rate master demand notes, which are unsecured instruments
issued pursuant to an agreement between the issuer and the holder that permit the indebtedness thereunder
to vary and to provide for periodic adjustments in the interest rate. A Fund will limit its purchases of floating and
variable rate obligations to those of the same quality as it is otherwise allowed to purchase. abrdn Inc. (“abrdn Inc.”
or the “Adviser”) will monitor
on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on
demand. A Fund’s right to obtain payment at par on a demand instrument could be affected by events occurring between
the date the Fund elects to demand payment and the date payment is due that may affect the ability of the issuer
of the instrument or third-party providing credit support to make payment when due, except when such demand instruments
permit same day settlement. To facilitate settlement, these same day demand instruments may be held in book
entry form at a bank other than a Fund’s custodian subject to a sub-custodian agreement approved by the Fund between
that bank and the Fund’s custodian.
Asset-Backed
Securities. Asset-backed
securities, issued by trusts and special purpose corporations, are pass-through
securities, meaning that principal and interest payments, net of expenses, made by the borrower on the underlying
asset (such as credit card or automobile loan receivables) are passed to a Fund. Asset-backed securities may include
pools of loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash
flows generated by the assets backing the securities. Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the
related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities. Asset-backed securities are often
backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall
into two categories: (i) liquidity protection, and (ii) protection against losses resulting from ultimate default by an obligor
on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity
Additional
Information on Portfolio Instruments and Investment Policies 11
administering
the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection
against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, policies or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction or through a combination of such approaches. A Fund will
not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated with the underlying assets.
Delinquency
or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an
investment in such a security. The availability of asset-backed securities may be affected by legislative or regulatory developments.
It is possible that such developments may require the Fund to dispose of any then-existing holdings of such
securities. Additionally, the risk of default by borrowers is greater during periods of rising interest rates and/or unemployment
rates. In addition, instability in the markets for asset-backed securities may affect the liquidity of such securities,
which means a Fund may be unable to sell such securities at an advantageous time and price. As a result, the value
of such securities may decrease and a Fund may incur greater losses on the sale of such securities than under more
stable market conditions. Furthermore, instability and illiquidity in the market for lower-rated asset-backed securities
may affect the overall market for such securities thereby impacting the liquidity and value of higher-rated securities.
Several
types of asset-backed securities have been offered to investors, including Certificates of Automobile ReceivablesSM
(“CARSSM”).
CARSSM
represent undivided fractional interests in a trust whose assets consist of a pool of motor
vehicle retail installment sales contracts and security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM
are passed through monthly to certificate holders, and are guaranteed up to certain amounts
and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the trustee or originator
of the trust. An investor’s return on CARSSM
may be affected by early prepayment of principal on the underlying vehicle
sales contracts. If the letter of credit is exhausted, the trust may be prevented from realizing the full amount due on
a sales contract because of state law requirements and restrictions relating to foreclosure sales of vehicles and the obtaining
of deficiency judgments following such sales or because of depreciation, damage or loss of a vehicle, the application
of federal and state bankruptcy and insolvency laws, or other factors. As a result, certificate holders may experience
delays in payments or losses if the letter of credit is exhausted.
A
Fund may also invest in residual interests in asset-backed securities. In the case of asset-backed securities issued in
a pass-through structure, the cash flow generated by the underlying assets is applied to make required payments on the
securities and to pay related administrative expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the foregoing payments. The amount of residual
cash flow resulting from a particular issue of asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets. Asset-backed security residuals
not registered under the Securities Act of 1933, as amended (the “Securities Act”) may be subject to certain restrictions
on transferability. In addition, there may be no liquid market for such securities.
Asset-backed
securities present certain risks. For instance, in the case of credit card receivables, these securities may
not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers
of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were
to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The
underlying assets (e.g., loans) are also subject to prepayments, which shorten the securities’ weighted average life and
may lower their return.
Bank
Loans. Bank loans include
floating and fixed-rate debt obligations. Floating rate loans are debt obligations issued
by companies or other entities with floating interest rates that reset periodically. Bank loans may include, but are not
limited to, term loans, delayed funding loans, bridge loans and revolving credit facilities. Loan interests will primarily take
the form of assignments purchased in the primary or secondary market, but may include participations. Floating rate
loans are secured by specific collateral of the borrower and are senior to most other securities of the borrower (e.g., common
stock or debt instruments) in the event of bankruptcy. Floating rate loans are often issued in connection with recapitalizations,
acquisitions, leveraged buyouts, and refinancings. Floating rate loans are typically structured and administered
by a financial institution that acts as the agent of the lenders participating in the floating rate loan. Floating rate
loans may be acquired directly through the agent, as an assignment from another lender who holds a direct interest in
the floating rate loan, or as a participation interest in another lender’s portion of the floating rate loan.
A
Fund generally invests in floating rate loans directly through an agent, by assignment from another holder of the loan,
or as a participation interest in another holder’s portion of the loan. Assignments and participations involve credit, interest
rate, and liquidity risk. Interest rates on floating rate loans adjust periodically and are tied to a benchmark lending
12 Additional
Information on Portfolio Instruments and Investment Policies
rate
such as the Secured
Overnight Financing Rate (“SOFR”) or another rate based on the SOFR. The
lending rate could also be tied to the prime
rate offered by one or more major U.S. banks or the rate paid on large certificates of deposit traded
in the secondary markets. If the benchmark lending rate changes, the rate payable to lenders under the loan will change
at the next scheduled adjustment date specified in the loan agreement. Investing in floating rate loans with longer
interest rate reset periods may increase fluctuations in a Fund’s net asset value (“NAV”) as a result of changes
in interest rates.
When
a Fund purchases an assignment, it generally assumes all the rights and obligations under the loan agreement
and will generally become a “lender” for purposes of the particular loan agreement. The rights and obligations
acquired by a Fund under an assignment may be different, and be more limited, than those held by an assigning
lender. Subject to the terms of a loan agreement, the Fund may enforce compliance by a borrower with the terms
of the loan agreement and may have rights with respect to any funds acquired by other lenders through set-off. If a
loan is foreclosed, the Fund may become part owner of any collateral securing the loan, and may bear the costs and liabilities
associated with owning and disposing of any collateral. The Fund could be held liable as a co-lender. In addition, there
is no assurance that the liquidation of any collateral from a secured loan would satisfy a borrower’s obligations or that
any collateral could be liquidated.
If
a Fund purchases a participation interest, it typically will have a contractual relationship with the lender and not with
the borrower. The Fund may only be able to enforce its rights through the lender and may assume the credit risk of both
the borrower and the lender, or any other intermediate participant. The Fund may have the right to receive payments
of principal, interest, and any fees to which it is entitled only from the lender and only upon receipt by the lender
of the payments from the borrower. The failure by the Fund to receive scheduled interest or principal payments may
adversely affect the income of the Fund and may likely reduce the value of its assets, which would be reflected by a reduction
in the Fund’s NAV.
In
the cases of a Fund’s investments in floating rate loans through participation interests, it may be more susceptible to
the risks of the financial services industries. The Fund may also be subject to greater risks and delays than if the Fund could
assert its rights directly against the borrower. In the event of the insolvency of an intermediate participant who sells a
participation interest to a Fund, it may be subject to loss of income and/or principal. Additionally, a Fund may not have any
right to vote on whether to waive any covenants breached by a borrower and may not benefit from any collateral securing
a loan. Parties through which the Fund may have to enforce its rights may not have the same interests as the Fund.
The
borrower of a loan in which a Fund holds an assignment or participation interest may, either at its own election or
pursuant to the terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that
the Fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms
as those of the original loan participation. This may result in a Fund realizing less income on a particular investment and
replacing the loan with a less attractive security, which may provide less return to the Fund.
The
secondary market on which floating rate loans are traded may be less liquid than the market for investment grade
securities or other types of income producing securities. Therefore, a Fund may have difficulty trading assignments
and participations to third parties. There is also a potential that there is no active market to trade floating rate
loans. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary
markets. As a result, the Fund may be unable to sell assignments or participations at the desired time or only at
a price less than fair market value. The secondary market may also be subject to irregular trading activity, wide price spreads,
and extended trade settlement periods. The lack of a liquid secondary market may have an adverse impact on the
market price of the security.
Assignments
and participations of bank loans also may be less liquid at times because of potential delays in the settlement
process. Bank loans may settle on a delayed basis, resulting in the proceeds from the sale of such loans not being
readily available to make additional investments or to meet a Fund’s redemption obligations. To the extent the extended
settlement process gives rise to short-term liquidity needs, a Fund may hold additional cash, sell investments or temporarily
borrow from banks or other lenders. Settlement risk is heightened for bank loans in certain foreign markets, which
differ significantly and may be less established from those in the United States. Foreign settlement procedures and trade
regulations also may involve certain risks (such as delays in payment for or delivery of securities) not typically generated
by the settlement of U.S. loans and other debt securities. Communications between the United States and emerging
market countries may be unreliable, increasing the risk of delayed settlements. If a Fund cannot settle or there is
a delay in settling a purchase of a loan or other security, that Fund may miss attractive investment opportunities and certain
assets may be uninvested with no return earned thereon for some period. In addition, that Fund may lose money if
the value of the security then declines or, if there is a contract to sell the security to another party, the Fund could be liable
to that party for any losses incurred. Furthermore, some foreign markets in which a Fund may invest in loans may not
operate with the concept of delayed compensation, or a pricing adjustment payable by the parties to a secondary loan
trade that settles after an established time intended to assure that neither party derives an economic advantage from
the delay (established in the U.S. as T+7 and T+20 for par/near par trades and distressed trades, respectively). Where
there is no delayed compensation, one party will typically bear the risk of the other’s delaying settlement for economic
gain.
Additional
Information on Portfolio Instruments and Investment Policies 13
In
certain circumstances, loans may not be deemed to be securities, and in the event of fraud or misrepresentation by
a borrower, lenders and purchasers of interests in loans, such as a Fund, will not have the protection of the anti-fraud provisions
of the federal securities laws, as would be the case for bonds or stocks. Instead, in such cases, lenders generally rely
on the contractual provisions in the loan agreement itself, and common law fraud protections under applicable state law.
Loan
Participations and Assignments.
A participation in commercial loans may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and generally are offered by banks
or other financial institutions or lending syndicates. A Fund may participate in such syndications, or can buy part of a
loan, becoming a part lender. Participations and assignments involve credit risk, interest rate risk, liquidity risk, and the risk
of being a lender.
When
purchasing loan participations, a Fund assumes the credit risk associated with the corporate borrower and may
assume the credit risk associated with an interposed bank or other financial intermediary; however, the Fund may only
be able to enforce its rights through the lender. The participation interests in which a Fund invests may not be rated by
any nationally recognized statistical rating organization (“NRSRO”).
A
loan is often administered by an agent bank acting as agent for all holders. The agent bank administers the terms of
the loan, as specified in the loan agreement. In addition, the agent bank is normally responsible for the collection of principal
and interest payments from the corporate borrower and the apportionment of these payments to the credit of all
institutions which are parties to the loan agreement. Unless, under the terms of the loan or other indebtedness, a Fund has
direct recourse against the corporate borrower, the Fund may have to rely on the agent bank or other financial intermediary
to apply appropriate credit remedies against a corporate borrower.
A
financial institution’s employment as agent bank might be terminated in the event that it fails to observe a requisite standard
of care or becomes insolvent. A successor agent bank would generally be appointed to replace the terminated agent
bank, and assets held by the agent bank under the loan agreement should remain available to holders of such indebtedness.
However, if assets held by the agent bank for the benefit of a Fund were determined to be subject to the claims
of the agent bank’s general creditors, the Fund might incur certain costs and delays in realizing payment on a loan or
loan participation and could suffer a loss of principal and/or interest. In situations involving other interposed financial institutions
(e.g., an insurance company or governmental agency) similar risks may arise.
Purchasers
of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the corporate
borrower for payment of principal and interest. If a Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund’s share price and yield could be adversely affected. Loans that are fully secured
offer a Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s
obligation, or that the collateral can be liquidated.
A
Fund may invest in loan participations with credit quality comparable to that of issuers of its securities investments. Indebtedness
of companies whose creditworthiness is poor involves substantially greater risks and may be highly speculative.
Some companies may never pay off their indebtedness, or may pay only a small fraction of the amount owed.
Consequently, when investing in indebtedness of companies with poor credit, a Fund bears a substantial risk of losing
the entire amount invested.
For
purposes of a Fund’s concentration limits, a Fund generally will treat the corporate borrower as the “issuer” of
indebtedness held by the Fund. In the case
of loan participations where a bank or other lending institution serves as a financial
intermediary between a Fund and the corporate borrower, if the participation does not shift to the Fund the direct
debtor-creditor relationship with the corporate borrower, SEC interpretations require the Fund to treat both the lending
bank or other lending institution and the corporate borrower as “issuers.” Treating a financial intermediary as an issuer
of indebtedness may restrict a Fund’s ability to invest in indebtedness related to a single financial intermediary, or a group
of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies
and industries.
Loans
and other types of direct indebtedness may not be readily marketable and may be subject to restrictions on resale.
In some cases, negotiations involved in disposing of indebtedness may require weeks to complete. Consequently, some
indebtedness may be difficult or impossible to dispose of readily at what the Adviser believes to be a fair price. In addition,
valuation of illiquid indebtedness involves a greater degree of judgment in determining a Fund’s NAV than if that value
were based on available market quotations, and could result in significant variations in a Fund’s daily share price. At the
same time, some loan interests are traded among certain financial institutions and accordingly may be deemed liquid.
As the market for different types of indebtedness develops, the liquidity of these instruments is expected to improve.
In addition, each Fund currently intends to treat indebtedness for which there is no readily available market as illiquid
for purposes of a Fund’s limitation on illiquid investments. Investments in loan participations are considered to be debt
obligations for purposes of the Trust’s investment restriction relating to the lending of funds or assets by a Fund.
Investments
in loans through a direct assignment of the financial institution’s interests with respect to the loan may involve
additional risks to a Fund. For example, if a loan is foreclosed, a Fund could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is
14 Additional
Information on Portfolio Instruments and Investment Policies
conceivable
that under emerging legal theories of lender liability, a Fund could be held liable as co-lender. It is unclear whether
loans and other forms of direct indebtedness offer securities law protections against fraud and misrepresentation.
In the absence of definitive regulatory guidance, a Fund relies on the Adviser’s research in an attempt to
avoid situations where fraud or misrepresentation could adversely affect the Fund.
A
Fund may also enter into, or acquire participations in, delayed funding loans and revolving credit facilities. Delayed funding
loans and revolving credit facilities are borrowing arrangements in which the lender agrees to make loans up to a maximum
amount upon demand by the borrower during a specified term. A revolving credit facility differs from a delayed
funding loan in that as the borrower repays the loan, an amount equal to the repayment may be borrowed again
during the term of the revolving credit facility. Delayed funding loans and revolving credit facilities usually provide for
floating or variable rates of interest. These commitments may have the effect of requiring a Fund to increase its investment
in a company at a time when it might not otherwise decide to do so (including at a time when the company’s financial
condition makes it unlikely that such amounts will be repaid). In accordance with current federal securities laws, rules,
and staff positions, to the extent that a Fund is committed to advance additional funds, it will at all times segregate or
“earmark” assets, determined to be liquid by the Adviser in accordance with procedures established by the board of trustees
of the Trust (the “Board of Trustees”), in an amount sufficient to meet such commitments.
A
Fund may invest in delayed funding loans and revolving credit facilities with credit quality comparable to that of issuers
of its securities investments. Delayed funding loans and revolving credit facilities may be subject to restrictions on transfer,
and only limited opportunities may exist to resell such instruments. As a result, a Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market value. The Funds currently intend to treat
delayed funding loans and revolving credit facilities for which there is no readily available market as illiquid for purposes
of a Fund’s limitation on illiquid investments. Participation interests in revolving credit facilities will be subject to the
limitations discussed above. Delayed funding loans and revolving credit facilities are considered to be debt obligations
for purposes of the Trust’s investment restriction relating to the lending of funds or assets by a Fund.
Delayed
Funding Loans and Revolving Credit Facilities.
Delayed funding loans and revolving credit facilities are borrowings
in which the Fund agrees to make loans up to a maximum amount upon demand by the borrowing issuer for a
specified term. A revolving credit facility differs from a delayed funding loan in that as the borrowing issuer repays the loan,
an amount equal to the repayment is again made available to the borrowing issuer under the facility. The borrowing issuer
may at any time borrow and repay amounts so long as, in the aggregate, at any given time the amount borrowed does
not exceed the maximum amount established by the loan agreement. Delayed funding loans and revolving credit facilities
usually provide for floating or variable rates of interest.
There
are a number of risks associated with an investment in delayed funding loans and revolving credit facilities including,
credit, interest rate and liquidity risk and the risks of being a lender. There may be circumstances under which the
borrowing issuer’s credit risk may be deteriorating and yet a Fund may be obligated to make loans to the borrowing issuer
as the borrowing issuer’s credit continues to deteriorate, including at a time when the borrowing issuer’s financial condition
makes it unlikely that such amounts will be repaid.
Delayed
funding loans and revolving credit facilities may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such instruments. As a result, a Fund may be unable to sell such investments at an opportune
time or may have to resell them at less than fair market value. These risks could cause a Fund to lose money on
its investment, which in turn could affect a Fund’s returns. A Fund may treat delayed funding loans and revolving credit facilities
for which there is no readily available market as illiquid for purposes of the Fund’s limitation on illiquid investments.
Bank
Obligations. Bank obligations
are obligations issued or guaranteed by U.S. or foreign banks. Bank obligations, including
without limitation, time deposits, bankers’ acceptances and certificates of deposit, may be general obligations of
the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulations.
Banks are subject to extensive but different governmental regulations which may limit both the amount and types
of loans which may be made and interest rates which may be charged. General economic conditions as well as exposure
to credit losses arising from possible financial difficulties of borrowers play an important part in the operation of the
banking industry.
Certificates
of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees
to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate
usually can be traded in the secondary market prior to maturity. Bankers’ acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally,
an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds
to pay for specific merchandise. The draft is then “accepted” by a bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities
for acceptances can be as long as 270 days, most acceptances have maturities of six months or less.
A
Fund may also invest in certificates of deposit issued by banks and savings and loan institutions which had, at the time
of their most recent annual financial statements, total assets of less than $1 billion, provided that (i) the principal amounts
of such certificates of deposit are insured by an agency of the U.S. Government, (ii) at no time will a Fund hold
Additional
Information on Portfolio Instruments and Investment Policies 15
more
than $100,000 principal amount of certificates of deposit of any one such bank, and (iii) at the time of acquisition, no
more than 10% of a Fund’s assets (taken at current value) are invested in certificates of deposit of such banks having total
assets not in excess of $1 billion.
Bankers’
acceptances are credit instruments evidencing the obligations of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument
upon maturity.
Time
deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated
interest rate. Time deposits which may be held by a Fund will not benefit from insurance from the Bank Insurance Fund
or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation. Fixed time deposits
may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties that vary with market
conditions and the remaining maturity of the obligation. Fixed time deposits subject to withdrawal penalties maturing
in more than seven calendar days are subject to a Fund’s limitation on investments in illiquid securities.
Bonds
with Warrants Attached.
Bonds with warrants attached are bonds issued as a unit with warrants. A Fund may dispose
of the common stock received upon conversion of a convertible security or exercise of a warrant as promptly as it
can and in a manner that it believes reduces the risk to the Fund of a loss in connection with the sale. A Fund does not intend
to retain in its portfolio any warrant acquired as a unit with bonds if the warrant begins to trade separately from the related
bond.
Borrowing.
Each Fund, to the extent permitted by its fundamental investment restrictions, may borrow money from banks.
Each Fund will limit borrowings to amounts not in excess of 33⅓% of the value of the Fund’s total assets less liabilities
(other than borrowings), unless a Fund’s fundamental investment restrictions set forth a lower limit. Any borrowings
that exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary
to comply with the 33⅓% limitation or fundamental investment restriction. Each Fund may borrow money as a temporary
measure for defensive or emergency purposes in order to meet redemption requests without immediately selling
any portfolio securities. Investments in mortgage dollar roll and reverse repurchase agreements are not considered
a form of borrowing where the Fund covers its exposure by segregating or earmarking liquid assets. Rule 18f-4
under the 1940 Act (“Rule 18f-4”) permits the Funds to treat reverse repurchase transactions either as borrowings or
as “derivative transactions” subject to the risk-based limits of the rule, and does not require a Fund to maintain in a
segregated account assets to meet its asset
coverage requirements.
Certain
types of borrowings by a Fund may result in the Fund being subject to covenants in credit agreements relating
to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such
covenants would impede the Adviser from managing the Fund’s portfolio in accordance with the Fund’s investment objective(s)
and policies. However, a breach of any such covenants not cured within the specified cure period may result in
acceleration of outstanding indebtedness and require a Fund to dispose of portfolio investments at a time when it may be
disadvantageous to do so.
Bridge
Loans. Bridge loans or bridge
facilities are short-term loan arrangements (e.g., 12 to 18 months) typically made
by a borrower in anticipation of intermediate-term or long-term permanent financing. Most bridge loans are structured
as floating-rate debt with step-up provisions under which the interest rate on the bridge loan rises the longer the
loan remains outstanding. In addition, bridge loans commonly contain a conversion feature that allows the bridge loan
investor to convert its loan interest into senior exchange notes if the loan has not been prepaid in full on or prior to its maturity
date. Bridge loans may be subordinate to other debt and may be secured or unsecured. Like any loan, bridge loans
involve credit risk. Bridge loans are generally made with the expectation that the borrower will be able to obtain permanent
financing in the near future. Any delay in obtaining permanent financing subjects the bridge loan investor to increased
risk. A borrower’s use of bridge loans also involves the risk that the borrower may be unable to locate permanent
financing to replace the bridge loan, which may impair the borrower’s perceived creditworthiness. From time to
time, a Fund may make a commitment to participate in a bridge loan facility, obligating itself to participate in the facility
if it funds. In return for this commitment, a Fund receives a fee.
Business
Development Companies (“BDCs”).
BDCs are typically publicly-held, closed-end investment funds that are regulated
by the 1940 Act. BDCs primarily lend to or invest in private or thinly-traded companies. They also offer managerial
assistance to the companies in which they invest. BDCs must adhere to various substantive regulatory requirements
under the 1940 Act. For example, the 1940 Act restricts the types of assets in which a BDC may invest (i.e., at
least 70% of the BDC’s total assets must be “qualifying assets,” as defined in the 1940 Act). The 1940 Act also
regulates how BDCs employ “leverage”
(i.e., how BDCs use borrowed funds to make investments). Because the 1940 Act applies unique
“coverage ratio” tests to BDCs, BDCs may incur more debt than other regulated closed-end investment companies.
Specifically, on one hand, the total assets of a closed-end investment company (other than a BDC) must exceed
the fund’s outstanding debt by at least 300%. On the other hand, the total assets of a BDC must exceed the BDC’s outstanding
debt by only 200%, thereby allowing a BDC to employ more leverage than other regulated closed-end investment
companies. Leverage magnifies the potential for gain and loss on amounts invested and, as a result, increases the
risks associated with the securities of leveraged companies.
16 Additional
Information on Portfolio Instruments and Investment Policies
Privately-held
and thinly-traded companies are generally considered to be below investment grade, and the debt securities
of those companies, in turn, are often referred to as “high-yield” or “junk.” The revenues, income (or losses)
and valuations of these companies can, and
often do, fluctuate suddenly and dramatically, and they face considerable risk of loss.
In addition, the fair value of a BDC’s investments in privately-held or thinly-traded companies often is not readily determinable.
Although each BDC’s board of directors is responsible for determining the fair value of these securities, the uncertainty
regarding fair value may adversely affect the determination of the BDC’s NAV. This could cause a Fund’s investments
in a BDC to be inaccurately valued. BDCs often borrow funds to make investments and, as a result, are exposed
to the risks of leverage. Leverage magnifies the potential loss on amounts invested and therefore increases the risks
associated with an investment in a leveraged BDC’s securities. Leverage is generally considered a speculative investment
technique. Moreover, BDCs’ management fees, which are generally higher than the management fees charged
to other funds, are normally payable on gross assets, including those assets acquired through the use of leverage.
This may give a BDC’s investment adviser a financial incentive to incur leverage.
Catastrophe
Bond. A catastrophe bond
(“cat bond”) is a high-yield debt instrument that is usually insurance linked and
meant to raise money in case of a catastrophe such as a hurricane or earthquake. If an “issuer,” such as an insurance company
or reinsurance company (a company that insures insurance companies), wants to transfer some or all of the risk
it assumes in insuring a catastrophe, it can set up a separate legal structure—commonly known as a special purpose vehicle
(“SPV”). Foreign governments and private companies also have sponsored cat bonds as a hedge against natural disasters.
The
SPV issues cat bonds and typically invests the proceeds from the bond issuance in low-risk securities, such as in investment
grade money market or treasury funds, which are those rated Aaa by Moody’s Investors Service Inc. (“Moody’s”)
or AAA by Fitch, Inc. (“Fitch”) or a comparable rating by another NRSRO (the collateral). The earnings on these
low-risk securities, as well as insurance premiums paid to the issuer, are used to make periodic, variable rate interest
payments to investors.
As
long as the natural disaster covered by the bond does not occur during the time investors own the bond, investors will
receive their interest payments and, when the bond matures, their principal back from the collateral. Most cat bonds generally
mature in three years, although terms range from one to five years, depending on the bond.
If
the event does occur, however, the issuer’s right to the collateral is “triggered.” This means the issuer receives
the collateral, instead of investors receiving
it when the bond matures, causing investors to lose most—or all—of their principal and
unpaid interest payments. You may hear this described as a “credit cliff.” When this happens, the SPV might also have the
right to extend the maturity of the bonds to verify that the trigger did occur or to process and audit insurance claims. Depending
on the bond, the extension can last anywhere from three months to two years or more. In some cases, cat bonds
cover multiple events to reduce the chances that investors will lose all of their principal.
Each
cat bond has its own triggering event(s), which is(are) spelled out in the bond’s offering documents. These documents
typically are only available to purchasers or potential purchasers, however, because cat bonds are not subject
to the Securities and Exchange Commission’s (“SEC”) registration and disclosure requirements. A number of different
types of triggers have developed. The question of whether a triggering event occurred—or the true meaning of a
triggering event—can be complex and could wind up being litigated and require a ruling from a court. This in turn may add
additional uncertainty to the way these securities perform.
Because
cat bond holders face potentially huge losses, cat bonds are typically rated BB, or “non-investment grade” by
credit rating agencies such as Fitch, Moody’s and Standard & Poor’s Global Ratings (“Standard & Poor’s”).
Non-investment grade bonds are also known
as “high yield” or “junk” bonds. These ratings agencies, as well as sponsors and
underwriters of cat bonds, rely heavily on a handful of firms that specialize in modeling natural disasters. These “risk modeling”
firms employ meteorologists, seismologists, statisticians, and other experts who use large databases of historical
or simulated data to estimate the probabilities and potential financial damage of natural disasters.
The
potential advantages of cat bonds are that they are not closely linked with the stock market or economic conditions
and offer significant attractions to investors. For example, for the same level of risk, investors can usually obtain a
higher yield with cat bonds relative to alternative investments. Another potential benefit is that the insurance risk securitization
of cat bonds shows no correlation with equities or corporate bonds, meaning they may provide a good diversification
of risks.
As
with any financial instrument, cat bonds also present risks, which include the following:
Credit
Cliff: A cat bond can cause the investor
rapidly to lose most or all of his or her principal and any unpaid interest
if a triggering event occurs. The high yield will not make investors whole if the triggering event actually occurs.
Modeling
Risk: Prices, yields and ratings of cat
bonds rely almost exclusively on complex computer modeling techniques,
which in turn are extremely sensitive to the data used in the models. The quality and quantity of data vary depending
on the catastrophe.
Additional
Information on Portfolio Instruments and Investment Policies 17
Liquidity
Risk: Secondary trading for cat bonds
is very limited, so in a pinch an investor may not be able to sell. In addition,
the secondary transactions that do occur are privately negotiated, so pricing information is not generally available
to the public. In addition, as noted, the maturity of some cat bonds can be extended during the worst possible time—when
a trigger may have occurred, which can cause the bonds’ value to plummet, potentially making them even harder
to sell.
Unregistered
Investments: Most cat bonds are issued
in offerings pursuant to Rule 144A under the Securities Act (“Rule
144A”), which are available only to large institutional investors and are not subject to the SEC’s registration and disclosure
requirements. As a result, many of the normal investor protections that are common to most traditional registered
investments are missing. For example, issuers of cat bonds are not required to file a registration statement or periodic
reports with the SEC, unlike issuers of registered bonds. While general prohibitions against securities fraud apply to
Rule 144A offerings, the lack of public disclosure may make it difficult to obtain and evaluate the information used to price
and structure cat bonds.
Closed-end
Funds. The value of the
shares of a closed-end fund may be higher or lower than the value of the portfolio
securities held by the closed-end fund. Closed-end investment funds may trade infrequently and with small volume,
which may make it difficult for a Fund to buy and sell shares. Also, the market price of closed-end investment companies
tends to rise more in response to buying demand and fall more in response to selling pressure than is the case with
larger capitalization companies.
Common
Stock. Common stock is issued
by companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, a Fund participates in the success or failure of any company in which
it holds stock. The market value of common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perception,
general economic or financial market movements,
or the occurrence of political,
geopolitical, social or economic events affecting issuers.
Smaller companies are especially sensitive to these factors
and may even become valueless. Despite the risk of price volatility, however, common stocks also offer a greater potential
for gain on investment, compared to other classes of financial assets such as bonds or cash equivalents. A Fund may
also receive common stock as proceeds from a defaulted debt security held by the Fund or from a convertible bond converting
to common stock. In such situations, a Fund will hold the common stock at the Adviser’s discretion.
Convertible
Securities. Convertible
securities are bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can provide an opportunity for capital appreciation
and/or income through interest and dividend payments by virtue of their conversion or exchange features.
The
convertible securities in which a Fund may invest are either fixed income or zero coupon debt securities which may
be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends,
spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities
and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion
or exchange feature, the market value of convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the general market for equity securities.
A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the underlying common stock increases, the prices
of the convertible securities tend to rise as a reflection of the value of the underlying common stock, although typically
not as much as the underlying common stock. While no securities investments are without risk, investments in convertible
securities generally entail less risk than investments in common stock of the same issuer.
As
debt securities, convertible securities are investments which provide for a stream of income (or in the case of zero coupon
securities, accretion of income) with generally higher yields than common stocks. Convertible securities generally
offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features.
Like
all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible
securities may default on their obligations.
Convertible
securities generally are subordinated to other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower ratings than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay current income or as zero coupon notes
and bonds, including Liquid Yield Option Notes (“LYONs”™).
Zero
coupon convertible securities are debt securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity. Rather, interest earned on zero coupon convertible
securities accretes at a stated yield until the security reaches its face amount at maturity. Zero coupon
18 Additional
Information on Portfolio Instruments and Investment Policies
convertible
securities are convertible into a specific number of shares of the issuer’s common stock. In addition, zero coupon
convertible securities usually have put features that provide the holder with the opportunity to sell the securities back
to the issuer at a stated price before maturity. Generally, the prices of zero coupon convertible securities may be more
sensitive to market interest rate fluctuations than conventional convertible securities.
Contingent
Convertible Securities.
Certain Funds may invest in contingent convertible securities, or “CoCos”. These securities
are usually deeply subordinated instruments with long maturities that contain a conversion mechanism that is governed
by the issuer’s ability to meet certain minimum financial and accounting ratios as promulgated by statutory regulatory
authorities such as banking regulators or macro prudential regulatory authorities. If the issuer triggers the CoCo’s
conversion mechanism, the contingent convertible security’s principal may be (1) permanently written off in total,
(2) temporarily written off in total or in part with principal reinstatement contingent upon the issuer re-attaining compliance
with statutorily required financial and accounting ratios, or (3) converted into common equity or into a security
ranking junior to the contingent convertible security. In any or all of these circumstances, the CoCo’s value may be
partially or completely impaired either temporarily or permanently.
Many,
but not all, contingent convertible securities are rated as speculative or ‘High Yield’ by NRSROs. Like many other
fixed income securities, the contingent convertible security’s market value tends to decline as interest rates rise and tends
to rise as interest rates fall. Because of the CoCo’s subordinated status within the issuer’s capital structure, market
value fluctuations may be greater than for
other more senior securities issued by the issuer. Also the contingent convertible
security’s value may fluctuate more closely with the issuer’s equity than with its debt given the CoCo’s subordination
and given the embedded conversion mechanism. Because most CoCo conversion mechanisms are triggered
by the issuer failing to meet minimum financial and accounting thresholds due to financial stress, unforeseen economic
conditions, or unforeseen regulatory changes (among others), there is risk that the contingent convertible security
will lose most if not all of its value upon conversion.
In
addition, some such instruments have a set stock conversion rate that would cause an automatic write-down of capital
if the price of the stock is below the conversion price on the conversion date. In another version of a security with loss
absorption characteristics, the liquidation value of the security may be adjusted downward to below the original par value
under certain circumstances similar to those that would trigger a CoCo. The write down of the par value would occur
automatically and would not entitle the holders to seek bankruptcy of the company. In certain versions of the instruments,
the notes will write down to zero under certain circumstances and investors could lose everything, even as the
issuer remains in business.
Corporate
Obligations. Investment
in corporate debt obligations involves credit and interest rate risk. The value of fixed
income investments will fluctuate with changes in interest rates and bond market conditions, tending to rise as interest
rates decline and to decline as interest rates rise. Corporate debt obligations generally offer less current yield than
securities of lower quality, but lower-quality securities generally have less liquidity, greater credit and market risk, and
as a result, more price volatility. Longer term bonds are, however, generally more volatile than bonds with shorter maturities.
Credit
Linked Notes. Credit linked
securities are generally issued by a limited purpose trust or other vehicle that, in turn,
invests in a derivative instrument or basket of derivative instruments, such as credit default swaps, interest rate swaps
and other securities, in order to provide exposure to certain fixed income markets. For instance, credit linked securities
may be used as a cash management tool in order to gain exposure to a certain market and/or to remain fully invested
when more traditional income producing securities are not available.
Like
an investment in a bond, investments in credit linked securities generally represent the right to receive periodic income
payments (in the form of distributions) and payment of principal at the end of the term of the security. However, these
payments are conditioned on the issuer’s receipt of payments from, and the issuer’s potential obligations to, the counterparties
to the derivative instruments and other securities in which the issuer invests. For instance, the issuer may sell
one or more credit default swaps, under which the issuer would receive a stream of payments over the term of the swap
agreements provided that no event of default has occurred with respect to the referenced debt obligation upon which
the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated to pay the
counterparty the par value (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the
amount of income and principal that a Fund would receive. The Fund’s investments in these instruments are indirectly subject
to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty
risk, interest rate risk, leverage risk and management risk. It is also expected that the securities will be exempt
from registration under the Securities Act. Accordingly, there may be no established trading market for the securities
and they may constitute illiquid investments.
Currency
Transactions. A Fund may
engage in currency transactions as described in the prospectus or this SAI. Generally,
except as provided otherwise, a Fund may engage with counterparties primarily in order to hedge, or manage the
risk of the value of portfolio holdings denominated in particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency futures, exchange listed and over-the-counter (“OTC”) options
on currencies, and currency swaps. A Fund may enter into currency transactions with creditworthy counterparties
that have been approved by the Adviser’s Counterparty Credit Risk Department in accordance with its Credit
Risk Management Policy.
Additional
Information on Portfolio Instruments and Investment Policies 19
Forward
Currency Contracts. A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. These contracts are entered into in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
At
or before the maturity of a forward currency contract, a Fund may either sell a portfolio security and make delivery
of the currency, or retain the security and fully or partially offset its contractual obligation to deliver the currency by
purchasing a second contract. If a Fund retains the portfolio security and engages in an offsetting transaction, the Fund,
at the time of execution of the offsetting transaction, will incur a gain or a loss to the extent that movement has occurred
in forward currency contract prices.
The
precise matching of forward currency contract amounts and the value of the securities involved generally will not
be possible because the value of such securities, measured in the foreign currency, will change after the foreign currency
contract has been established. Thus, a Fund might need to purchase or sell foreign currencies in the spot (cash) market
to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy
is highly uncertain.
In
general, in accordance with current federal securities laws, rules, and staff positions, the Funds cover their daily obligation
requirements for outstanding forward foreign currency contracts by earmarking or segregating liquid portfolio securities.
To the extent that a Fund is not able to cover its forward currency positions with underlying portfolio securities, the
Fund segregates cash. If the value of the securities used to cover a position or the value of segregated assets declines,
a Fund will find alternative cover or segregate additional cash or other liquid assets on a daily basis so that the value
of the ear-marked or segregated assets will be equal to the amount of such Fund’s commitments with respect to such
contracts.
Transaction
hedging is entering into a currency transaction with respect to specific assets or liabilities of a Fund, which
will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to portfolio security positions denominated
or generally quoted in that currency.
Cross
Hedge. If a particular currency
is expected to decrease against another currency, a Fund may sell the currency
expected to decrease and purchase a currency which is expected to increase against the currency sold in an amount
approximately equal to the lesser of some or all of the Fund’s portfolio holdings denominated in or exposed to the
currency sold.
Proxy-Hedge.
A Fund may also enter into a position hedge transaction in a currency other than the currency being hedged
(a “proxy hedge”). A Fund may enter into a proxy hedge if the Adviser believes there is a correlation between the currency
being hedged and the currency in which the proxy hedge is denominated. Proxy hedging is often used when the
currency to which a Fund’s portfolio is exposed is difficult to hedge or to hedge against the dollar. This type of hedging entails
an additional risk beyond a direct position hedge because it is dependent on a stable relationship between two currencies
paired as proxies. Overall risk to a Fund may increase or decrease as a consequence of the use of proxy hedges.
Currency
Hedging. While the value
of forward currency contracts, currency options, currency futures and options on futures
may be expected to correlate with exchange rates, they will not reflect other factors that may affect the value of a
Fund’s investments. A currency hedge, for example, should protect a yen-denominated bond against a decline in the yen,
but will not protect a Fund against price decline if the issuer’s creditworthiness deteriorates. Because the value of a Fund’s
investments denominated in foreign currency will change in response to many factors other than exchange rates, a
currency hedge may not be entirely successful in mitigating changes in the value of the Fund’s investments denominated
in that currency over time.
A
decline in the dollar value of a foreign currency in which a Fund’s securities are denominated will reduce the dollar value
of the securities, even if their value in the foreign currency remains constant. The use of currency hedges does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a rate of exchange that can be achieved
in the future. In order to protect against such diminutions in the value of securities it holds, a Fund may purchase put
options on the foreign currency. If the value of the currency does decline, a Fund will have the right to sell the currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its securities that otherwise would
have resulted. Conversely, if a rise in the dollar value of a currency in which securities to be acquired are denominated
is projected, thereby potentially increasing the cost of the securities, a Fund may purchase call options on the
particular currency. The purchase of these options could offset, at least partially, the effects of the adverse movements
in exchange rates. Although currency hedges limit the risk of loss due to a decline in the value of a hedged currency,
at the same time, they also limit any potential gain that might result should the value of the currency increase.
A
Fund may enter into foreign currency exchange transactions to hedge its currency exposure in specific transactions
or portfolio positions. Transaction hedging is the purchase or sale of forward currency contracts with respect
to specific receivables or payables of a Fund generally accruing in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward currency contracts with respect to portfolio security positions.
20 Additional
Information on Portfolio Instruments and Investment Policies
The
currencies of certain emerging market countries have experienced devaluations relative to the U.S. Dollar, and future
devaluations may adversely affect the value of assets denominated in such currencies. In addition, currency hedging
techniques may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
Position
Hedge. A Fund may hedge
some or all of its investments denominated in a foreign currency or exposed to foreign
currency fluctuations against a decline in the value of that currency relative to the U.S. Dollar by entering into forward
foreign currency contracts to sell an amount of that currency approximating the value of some or all of its portfolio
securities denominated in or exposed to that currency and buying U.S. Dollars or by participating in options or future
contracts with respect to the currency. Such transactions do not eliminate fluctuations caused by changes in the local
currency prices of security investments, but rather, establish an exchange rate at a future date. Although such contracts
are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time
they tend to limit any potential gain which might result should the value of such currencies increase. The Adviser may
from time to time seek to reduce foreign currency risk by hedging some or all of a Fund’s foreign currency exposure back
into the U.S. Dollar.
Currency
Futures. A Fund may also
seek to enhance returns or hedge against the decline in the value of a currency through
use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts while forward foreign exchange transactions
are traded in the OTC market. Currency futures involve currency risk equivalent to currency forwards.
Currency
Options. A Fund that invests
in foreign currency-denominated securities may buy or sell put and call options
on foreign currencies either on exchanges or in the OTC market. A put option on a foreign currency gives the purchaser
of the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign
currency gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires.
A Fund may also write covered options on foreign currencies. For example, to hedge against a potential decline in the
U.S. Dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, a Fund could,
instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option
will most likely not be exercised and the decline in value of portfolio securities will be offset by the amount of the premium
received. Currency options traded on U.S. or other exchanges may be subject to position limits which may limit the
ability of a Fund to reduce foreign currency risk using such options. OTC options differ from exchange traded options in
that they are two-party contracts with price and other terms negotiated between buyer and seller, and generally do not
have as much market liquidity as exchange-traded options.
Under
definitions adopted by the Commodity
Futures Trading Commission (“CFTC”) and U.S. Securities and Exchange
Commission (“SEC”), many foreign
currency options are considered swaps for certain purposes, including determination
of whether such instruments need to be exchange-traded and centrally cleared.
Currency
hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency
transactions can result in losses to a Fund if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived correlation between various currencies may not
be present or may not be present during the particular time that a Fund is engaging in proxy hedging.
Risks
of Currency Transactions.
Currency transactions are subject to risks different from those of other portfolio transactions.
Because currency control is of great importance to the issuing governments and influences economic planning
and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange
controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses
to a Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges
it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers
and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options
is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country’s economy.
Risk
Factors in Hedging Foreign Currency Risks.
Hedging transactions involving currency instruments involve substantial
risks, including correlation risk. While an objective of a Fund’s use of currency instruments to effect hedging strategies
is intended to reduce the volatility of the NAV of the Fund’s shares, the NAV of the Fund’s shares will fluctuate. Moreover,
although currency instruments will be used with the intention of hedging against adverse currency movements,
transactions in currency instruments involve the risk that such currency movements may not occur and that the
Fund’s hedging strategies may be ineffective. To the extent that a Fund hedges against anticipated currency movements
that do not occur, the Fund may realize losses and decrease its total return as the result of its hedging transactions.
Furthermore, a Fund will only engage in hedging activities from time to time and may not be engaging in hedging
activities when movements in currency exchange rates occur.
Additional
Information on Portfolio Instruments and Investment Policies 21
In
connection with its trading in forward foreign currency contracts, a Fund will contract with a foreign or domestic bank,
or foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency.
There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to
continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused
to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price
at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit
controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, a Fund
may be subject to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect
to such contracts. Any such default would deprive the Fund of any profit potential or force the Fund to cover its commitments
for resale, if any, at the then market price and could result in a loss to the Fund. It may not be possible for a Fund
to hedge against currency exchange rate movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction
at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which currency
instruments are not available and it is not possible to engage in effective foreign currency hedging. The cost to a Fund
of engaging in foreign currency transactions varies with such factors as the currencies involved, the length of the contract
period and the market conditions then prevailing. In addition, a Fund may not always be able to enter into forward
contracts at attractive prices and may be limited in its ability to use these contracts to hedge Fund assets. Since transactions
in foreign currency exchanges usually are conducted on a principal basis, no fees or commissions are involved.
New
regulations governing certain OTC derivatives may also increase the costs of using these types of instruments or
make them less effective, as described under “Strategic Transactions, Derivatives and Synthetic Investments – Risks of Strategic
Transactions Inside the U.S.”
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Custody/Sub-Custody
Risk. To the extent that
a Fund invests in markets where custodial and/or settlement systems are
not fully developed, the Fund is subject to foreign custody/sub-custody risk. Foreign custody risk refers to the risks inherent
in the process of clearing and settling trades and to the holding of securities, cash and other assets by banks, agents
and depositories in securities markets that are less developed than those in the United States. Low trading volumes
and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade
groups may compel non-U.S. agents to hold securities in designated depositories that may not be subject to independent
evaluation. The laws of certain countries may place limitations on the ability to recover assets if a non-U.S. bank,
agent or depository becomes insolvent or enters bankruptcy. Non-U.S. agents are held only to the standards of care
of their local markets, and thus may be subject to limited or no government oversight. In general, the less developed a
country’s securities market is, or the more difficult communication is with that location, the greater the likelihood of custody
problems.
Cybersecurity
Risk. With the increased
use of technologies such as mobile devices and Web-based or “cloud” applications,
and the dependence on the Internet and computer systems to conduct business, the Funds are susceptible to
operational, information security and related risks. In general, cybersecurity incidents can result from deliberate attacks
or unintentional events (arising from external or internal sources) that may cause a Fund to lose proprietary information,
suffer data corruption, physical damage to a computer or network system or lose operational capacity. Cybersecurity
attacks include, but are not limited to, artificial
intelligence spoofing, infection by malicious
software, such as malware or computer viruses
or gaining unauthorized access to digital systems, networks or devices that are used to service
a Fund’s operations (e.g., through “hacking,” “phishing” or malicious software coding) or other means
for purposes of misappropriating assets or
sensitive information, corrupting data, or causing operational disruption. Cybersecurity attacks
may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service
attacks on a Fund’s websites (i.e., efforts to make network services unavailable to intended users). In addition,
authorized persons could inadvertently or intentionally release confidential or proprietary information stored on a
Fund’s systems.
The use of cloud-based service providers could heighten or change these risks.
Cybersecurity
incidents affecting the Funds’ Adviser, other service providers to a Fund or its shareholders (including, but
not limited to, fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) have the ability
to cause disruptions and impact business operations, potentially resulting in financial losses to both a Fund and shareholders,
interference with a Fund’s ability to calculate its NAV, impediments to trading, the inability of Fund shareholders
to transact business and of a Fund to process transactions (including fulfillment of Fund share purchases and
redemptions), violations of applicable privacy and other laws (including the release of private shareholder information)
and attendant breach notification and credit monitoring costs, regulatory fines, penalties, litigation costs, reputational
damage, reimbursement or other compensation costs, forensic investigation and remediation costs, and/ or additional
compliance costs. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities
in which a Fund invests, counterparties with which a Fund engages in transactions, governmental and other regulatory
authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and
other financial institutions (including financial intermediaries and other service providers) and other parties. In addition,
substantial costs may be incurred in order to safeguard against and reduce the risk of any cybersecurity
22 Additional
Information on Portfolio Instruments and Investment Policies
incidents
in the future. In addition to administrative, technological and procedural safeguards, the Adviser has established business
continuity plans in the event of such cybersecurity incidents. However, there are inherent limitations in such plans
and systems, including the possibility that certain risks have not been identified, as well as the rapid development of new
threats. Furthermore, a Fund cannot control the cybersecurity plans and systems put in place by its service providers or
any other third parties whose operations may affect a Fund or its shareholders. A Fund and its shareholders could be negatively
impacted as a result. In addition, work-from-home arrangements by the Funds, the Adviser or their service providers
could increase all of the above risks, create additional data and information accessibility concerns, and make the
Funds, the Adviser or their service providers susceptible to operational disruptions, any of which could adversely impact
their operations. Furthermore, the Funds may be an appealing target for cybersecurity threats such as hackers and
malware.
Debt
Securities.
Debt
Securities Generally.
The
principal risks involved with investments in debt securities include interest rate risk, credit risk and pre-payment risk.
Interest rate risk refers to the likely decline in the value of bonds as interest rates rise. Generally, longer-term securities are
more susceptible to changes in value as a result of interest-rate changes than are shorter-term securities. Changing interest
rate environments (whether downward or upward) impact the various sectors if the economy in different ways. During
periods when interest rates are low (or negative), a Fund’s yield (or total return) may also be low and fall below zero.
A Fund may be subject to heightened levels of interest rate risk because the U.S. Federal Reserve (“the Fed”) has sharply
raised interest rates from relatively low levels and has signaled an intention to continue to do so until current inflation
levels re-align with the Fed’s long-term inflation target. To the extent the Fed continues to raise interest rates, there
is a risk that rates across the financial system may rise. Credit risk refers to the risk that an issuer of a bond may default
with respect to the payment of principal and interest. The lower a bond is rated, the more it is considered to be a speculative
or risky investment. Pre-payment risk is commonly associated with pooled debt securities, such as mortgage-backed
securities and asset-backed securities, but may affect other debt securities as well. When the underlying
debt obligations are prepaid ahead of schedule, the return on the security will be lower than expected. Pre-payment
rates usually increase when interest rates are falling.
Lower-rated
securities are more likely to react to developments affecting these risks than are more highly rated securities,
which react primarily to movements in the general level of interest rates. Although the fluctuation in the price of debt
securities is normally less than that of common stocks, in the past there have been extended periods of cyclical increases
in interest rates that have caused significant declines in the price of debt securities in general and have caused the
effective maturity of securities with prepayment features to be extended, thus effectively converting short or intermediate
term securities (which tend to be less volatile in price) into long term securities (which tend to be more volatile
in price).
Ratings
as Investment Criteria.
High-quality, medium-quality and non-investment grade debt obligations are characterized
as such based on their ratings by NRSROs, such as Standard & Poor’s or Moody’s. In general, the ratings of NRSROs
represent the opinions of these agencies as to the quality of securities that they rate. Such ratings, however, are relative
and subjective, and are not absolute standards of quality and do not evaluate the market value risk of the securities.
These ratings are used by a Fund as initial criteria for the selection of portfolio securities, but a Fund also relies upon
the independent advice of the Adviser to evaluate potential investments. This is particularly important for lower-quality
securities. Among the factors that will be considered is the long-term ability of the issuer to pay principal and
interest and general economic trends, as well as an issuer’s capital structure, existing debt and earnings history. Appendix
B to this SAI contains further information about the rating categories of NRSROs and their significance.
Subsequent
to its purchase by a Fund, an issuer of securities may cease to be rated or its rating may be reduced below
the minimum required for purchase by such Fund. In addition, it is possible that an NRSRO might not change its rating
of a particular issuer to reflect subsequent events. None of these events generally will require sale of such securities,
but the Adviser will consider such events in its determination of whether the Fund should continue to hold the securities.
In addition, to the extent that the ratings change as a result of changes in an NRSRO or its rating systems, or due
to a corporate reorganization, a Fund will attempt to use comparable ratings as standards for its investments in accordance
with its investment objective and policies.
Investment
Grade Debt Securities. The
Funds may purchase “investment grade” bonds, which are those rated Aaa, Aa,
A or Baa by Moody’s or AAA, AA, A or BBB by Standard & Poor’s or Fitch or a comparable rating by another NRSRO; or,
if unrated, judged to be of equivalent quality
as determined by the Adviser. For the avoidance of doubt, bonds rated Baa3 by
Moody’s or BBB- by Standard & Poor’s or BBB- by Fitch are considered to be investment grade. In general, but not always,
investments in securities rated in the BBB category tend to have more risk than securities in the A, AA or AAA categories
due to greater exposure to, among other things: adverse economic conditions; higher levels of debt; or more volatile
industry performance. Securities within the BBB category can also experience greater market value fluctuations over
time. To the extent that a Fund invests in higher-grade securities, the Fund may not be able to avail itself of opportunities
for higher income that may be available at lower grades.
Additional
Information on Portfolio Instruments and Investment Policies 23
Lower
Quality (High-Risk) Debt Securities.
Non-investment grade debt or lower quality/rated securities, commonly known
as junk bonds or high yield securities (hereinafter referred to as “lower-quality securities”) include (i) bonds rated below
Baa3 by Moody’s or below BBB- by Standard & Poor’s or Fitch, (ii) commercial paper rated at or below C by Standard
& Poor’s, Not Prime by Moody’s or Fitch 4 by Fitch; and (iii) unrated debt securities of comparable quality as determined
by the Adviser. The lower the ratings of such lower-quality securities, the more their risks render them like equity
securities. Securities rated D may be in default with respect to payment of principal or interest. Lower-quality securities,
while generally offering higher yields than investment grade securities with similar maturities, involve greater risks,
including a higher possibility of default or bankruptcy. There is more risk associated with these investments because of
reduced creditworthiness and increased risk of default. Lower-quality securities generally involve greater volatility of price
and risk to principal and income, and may be less liquid, than securities in the higher rating categories. Under NRSRO
guidelines, lower-quality securities and comparable unrated securities will likely have some quality and protective characteristics
that are outweighed by large uncertainties or major risk exposures to adverse conditions.
Lower-quality
securities are also considered to be at risk of, among other things: failing to attain improved credit quality
and NRSRO investment grade rating status; having a current identifiable vulnerability to default or to be in default; not
having the capacity to make required interest payments and repay principal when due in the event of adverse business,
financial or economic conditions; or, being in default or not current in the payment of interest or principal. They are
regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal.
Issuers
of lower-quality securities often are highly leveraged and may not have available to them more traditional methods
of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is
the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of lower-quality securities may experience financial stress. During such periods, such issuers
may not have sufficient revenues to meet their interest payment obligations. The issuer’s ability to service its debt obligations
may also be adversely affected by specific corporate developments, or the issuer’s inability to meet specific projected
business forecasts, or the unavailability of additional financing. The risk of loss from default by the issuer is significantly
greater for the holders of high yield securities because such securities are generally unsecured and are often subordinated
to other creditors of the issuer. Prices and yields of high yield securities will fluctuate over time and, during periods
of economic uncertainty, volatility of high yield securities may adversely affect a Fund’s NAV. In addition, investments
in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes in interest rates.
A
Fund may have difficulty disposing of certain lower-quality securities because they may have a thin trading market.
Because not all dealers maintain markets in all high yield securities, a Fund anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. The lack of a liquid secondary market may have an adverse
effect on the market price and a Fund’s ability to dispose of particular issues and may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing the Fund’s assets. Market quotations generally are
available on many lower-quality issues only from a limited number of dealers and may not necessarily represent firm bids
of such dealers or prices for actual sales. Adverse publicity and investor perceptions may decrease the values and liquidity
of high-yield securities. These securities may also involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
Credit
quality (or perceived credit quality) in the lower-quality securities market can change suddenly and unexpectedly,
and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular high-yield
security. For these reasons, it is generally the policy of the Adviser not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit
quality. The achievement of a Fund’s investment objective by investment in such securities may be more dependent
on the Adviser’s credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security
be downgraded, the Adviser will determine whether it is in the best interests of a Fund to retain or dispose of such security.
Prices
for lower-quality securities may be affected by legislative and regulatory developments. Also, Congress has from
time to time considered legislation which would restrict or eliminate the corporate tax deduction for interest payments
on these securities and regulate corporate restructurings. Such legislation may significantly depress the prices of
outstanding securities of this type.
A
portion of the lower-quality securities acquired by a Fund may be purchased upon issuance, which may involve special
risks because the securities so acquired are new issues. In such instances, a Fund may be a substantial purchaser of
the issue and therefore have the opportunity to participate in structuring the terms of the offering. Although this may enable
a Fund to seek to protect itself against certain of such risks, the considerations discussed herein would nevertheless
remain applicable.
Information
Concerning Duration. Duration
is a risk measure that describes how much the price of a fixed income security
changes given a change in the level of interest rates. Duration was developed as a more precise alternative to the
concepts of “term to maturity” or “average dollar weighted maturity”, which had been used historically in
the market as rough measures of “volatility”
or “risk” associated with changes in interest rates. Duration incorporates a security’s yield, coupon
interest payments, final maturity and call features into one measure.
24 Additional
Information on Portfolio Instruments and Investment Policies
Most
debt obligations provide interest (“coupon”) payments in addition to final (“par”) payment at maturity. Some
obligations also have call provisions. Depending
on the relative magnitude of these payments and the nature of the call provisions,
the market values of debt obligations may respond differently to changes in interest rates.
Traditionally,
a debt security’s “term-to-maturity” has been used as a measure of the sensitivity of the security’s price
to changes in interest rates (which is the
“interest rate risk” or “volatility” of the security). However, “term-to-maturity” measures
only the time until a debt security provides its final payment, taking no account of the pattern of the security’s payments
prior to maturity. Average dollar weighted maturity is calculated by averaging the terms of maturity of each debt
security held with each maturity “weighted” according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects both principal and interest payments.
Duration takes the length of the time intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be received, and weights them by the present
values of the cash to be received at each future point in time. For any debt security with interest payments occurring
prior to the payment of principal, duration is ordinarily less than maturity. In general, all other factors being the same,
the lower the stated or coupon rate of interest of a debt security, the longer the duration of the security; conversely,
the higher the stated or coupon rate of interest of a debt security, the shorter the duration of the security.
There
are some situations where the standard duration calculation does not properly reflect the interest rate exposure
of a security. For example, floating and variable rate securities often have final maturities of ten or more years; however,
their interest rate exposure corresponds to the frequency of the coupon reset. Another example where the interest
rate exposure is not properly captured by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates are more critical in determining the securities’
interest rate exposure. In these and other similar situations, the Funds’ will use more sophisticated analytical techniques
to project the economic life of a security and estimate its interest rate exposure. Since the computation of duration
is based on predictions of future events rather than known factors, there can be no assurance that a Fund will at all
times achieve its targeted portfolio duration.
The
change in market value of U.S. Government fixed income securities is largely a function of changes in the prevailing
level of interest rates. When interest rates are falling, a portfolio with a shorter duration generally will not generate
as high a level of total return as a portfolio with a longer duration. When interest rates are stable, shorter duration
portfolios generally will not generate as high a level of total return as longer duration portfolios (assuming that long-term
interest rates are higher than short-term rates, which is commonly the case). When interest rates are rising, a portfolio
with a shorter duration will generally outperform longer duration portfolios. With respect to the composition of a fixed
income portfolio, the longer the duration of the portfolio, generally, the greater the anticipated potential for total return,
with, however, greater attendant interest rate risk and price volatility than for a portfolio with a shorter duration.
Newly
Issued Debt Securities.
New issues of certain debt instruments are often offered on a when-issued or firm-commitment
basis; that is, the payment obligation and the interest rate are fixed at the time the buyer enters into the
commitment, but delivery and payment for the securities normally take place after the customary settlement time. The
value of when-issued securities or securities purchased on a firm-commitment basis may vary prior to and after delivery
depending on market conditions and changes in interest rate levels. However, a Fund will not accrue any income on
these securities prior to delivery. Rule 18f-4 under the 1940 Act provides that funds may invest in securities on a when-issued
or forward-settling basis, or with a non-standard settlement cycle. These transactions will not be deemed to
involve a senior security, and thus generally will not require the Fund to maintain a “segregated account” when engaging
in these types of transactions, subject to certain conditions and any other restrictions that the Fund has adopted.
Depositary
Receipts. Depositary receipts
include American Depositary Receipts (“ADRs”), European Depositary Receipts
(“EDRs”) and Global Depositary Receipts (“GDRs”) or other securities convertible into securities of issuers
based in foreign countries. These securities
may not necessarily be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, in registered form, are denominated in U.S. Dollars and are designed for use
in the U.S. securities markets, GDRs, in bearer form, are issued and designed for use outside the United States and EDRs
(also referred to as Continental Depositary Receipts (“CDRs”)), in bearer form, may be denominated in other currencies
and are designed for use in European securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement.
GDRs are receipts typically issued by non-U.S. banks and trust companies that evidence ownership of either
foreign or domestic securities. For purposes of a Fund’s investment policies, ADRs, GDRs and EDRs are deemed to have
the same classification as the underlying securities they represent. Thus, an ADR, GDR or EDR representing ownership
of common stock will be treated as common stock.
A
Fund may invest in depositary receipts through “sponsored” or “unsponsored” facilities. While ADRs issued
under these two types of facilities are in
some respects similar, there are distinctions between them relating to the rights and obligations
of ADR holders and the practices of market participants.
A
depositary may establish an unsponsored facility without participation by (or even necessarily the acquiescence of)
the issuer of the deposited securities, although typically the depositary requests a letter of non-objection from such issuer
prior to the establishment of the facility. Holders of unsponsored ADRs generally bear all the costs of such facilities.
Additional
Information on Portfolio Instruments and Investment Policies 25
The
depositary usually charges fees upon the deposit and withdrawal of the deposited securities, the conversion of dividends
into U.S. Dollars, the disposition of non-cash distributions, and the performance of other services. The depositary
of an unsponsored facility frequently is under no obligation to pass through voting rights to ADR holders in respect
of the deposited securities. In addition, an unsponsored facility is generally not obligated to distribute communications
received from the issuer of the deposited securities or to disclose material information about such issuer
in the U.S. and thus there may not be a correlation between such information and the market value of the depositary
receipts. Unsponsored ADRs tend to be less liquid than sponsored ADRs.
Sponsored
ADR facilities are created in generally the same manner as unsponsored facilities, except that the issuer of
the deposited securities enters into a deposit agreement with the depositary. The deposit agreement sets out the rights
and responsibilities of the issuer, the depositary, and the ADR holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the facility (such as dividend payment fees of the depositary),
although ADR holders continue to bear certain other costs (such as deposit and withdrawal fees). Under the terms
of most sponsored arrangements, depositaries agree to distribute notices of shareholder meetings and voting instructions,
and to provide shareholder communications and other information to the ADR holders at the request of the issuer
of the deposited securities.
In
addition, the issuers of depositary receipts may discontinue issuing new depositary receipts and withdraw existing depositary
receipts at any time, which may result in costs and delays in the distribution of the underlying assets to the Fund
and may negatively impact a Fund’s performance.
Derivatives.
Derivatives are financial instruments whose values are derived from another security, a commodity (such
as gold or oil), an index, a currency (a measure of value or rates, such as the Standard & Poor’s 500 Index or the prime
lending rate) or other reference asset. A Fund typically uses derivatives as a substitute for taking a position or reducing
exposure to underlying assets. A Fund may invest in derivative instruments including the purchase or sale of futures
contracts, swaps (including credit default swaps), options (including options on futures and options on swaps), forward
contracts, structured notes, and other equity-linked derivatives. A Fund may use derivative instruments for hedging
(offset risks associated with an investment) purposes. A Fund may also use derivatives for non-hedging purposes
to seek to enhance returns. When a Fund invests in a derivative for non-hedging purposes, the Fund will be fully exposed
to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. No Fund may use
any derivative to gain exposure to an asset or class of assets that it would be prohibited by its investment restrictions from
purchasing directly. Investments in derivatives in general are subject to market risks that may cause their prices to fluctuate
over time. Fixed income derivatives are subject to interest rate risk. Investments in derivatives may not correctly correlate
with the price movements of the underlying instrument. As a result, the use of derivatives may expose a Fund to additional
risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives
may result in larger losses or smaller gains than otherwise would be the case. A Fund may also take a short position
through a derivative. A Fund may increase its use of derivatives in response to unusual market conditions.
Derivatives
can be volatile and may involve significant risks, including:
Accounting
risk – the accounting treatment
of derivative instruments, including their initial recording, income recognition,
and valuation, may require detailed analysis of relevant accounting guidance as it applies to the specific instrument
structure.
Correlation
risk – if the value of a derivative
does not correlate well with the particular market or other asset class the
derivative is intended to provide exposure to, the derivative may not have the anticipated effect.
Counterparty
risk – the risk that the counterparty
(the party on the other side of the transaction) on a derivative transaction
will be unable to honor its financial obligation to the Fund.
Currency
risk – the risk that changes in
the exchange rate between currencies will adversely affect the value (in U.S. Dollar
terms) of an investment.
Index
risk – if the derivative is linked
to the performance of an index, it will be subject to the risks associated with changes
in that index. If the index changes, the Fund could receive lower interest payments or experience a reduction in the
value of the derivative to below what the Fund paid. Certain indexed securities may create leverage, to the extent that
they increase or decrease in value at a rate that is a multiple of the changes in the applicable index.
Leverage
risk – the risk associated with
certain types of leveraged investments or trading strategies pursuant to which
relatively small market movements may result in large changes in the value of an investment. Certain investments or
trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.
Liquidity
risk – the risk that certain derivative
instruments may be difficult or impossible to sell at the time that the seller
would like or at the price that the seller believes the instrument is currently worth. In addition, a Fund may need to sell
portfolio securities at an inopportune time to satisfy margin or payment obligations under derivatives transactions.
Operational
risk – derivatives may require
customized, manual processing and documentation of transactions and may
not fit within existing automated systems for confirmations, reconciliations and other operational processes used for (traditional)
securities.
26 Additional
Information on Portfolio Instruments and Investment Policies
Short
position risk – a Fund will incur
a loss from a short position if the value of the reference asset increases after the Fund
has entered into the short position. Short positions generally involve a form of leverage, which can exaggerate a Fund’s
losses. If a Fund engages in a short derivatives position, it may lose more money than the actual cost of the short position
and its potential losses may be unlimited. Any gain from a short position will be offset in whole or in part by the transaction
costs associated with the short position.
Tax
risk – derivatives raise issues
under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”
or the “Internal Revenue Code”) requirements for qualifications as a regulated investment company.
Valuation
risk – depending on their structure,
some categories of derivatives may present special valuation challenges.
For example, valuation of derivatives may be affected by considerations such as volatility, leverage, default risk
and lack of trading on a recognized market, among other things.
The
use of derivatives is a highly specialized activity that can involve investment techniques and risks different from, and
in some respects greater than, those associated with investing in more traditional investments such as stocks and bonds.
Derivatives may have a return that is tied to a formula based upon an interest rate, index or other measurement which
may differ from the return of a simple security of the same maturity. A formula may have a cap or other limitation on
the rate of interest to be paid. Derivatives may have varying degrees of volatility at different times, or under different market
conditions, and may perform in unanticipated ways, each of which may affect valuation.
OTC
risk – Derivatives may generally
be traded OTC, through a swap execution facility (“SEF”), or on an exchange. Derivatives
traded through a SEF or exchange generally must be centrally cleared through a regulated clearing agency, and
derivatives traded OTC may be centrally cleared, but typically are not. OTC derivatives are agreements that are individually
negotiated between parties and can be tailored to meet a purchaser’s needs. OTC derivatives are not guaranteed
by a clearing agency and may be subject to increased credit risk. Funds entering in cleared or non-cleared OTC
derivatives must post variation margin. Starting in September 2021, rules requiring counterparties to OTC derivatives, such
as the Funds, to post initial margin have started to go into effect and will be phased in through 2022. The Funds currently
may agree to post initial margin to counterparties even though not required as a regulatory matter. The Funds are
subject to counterparty risk when trading OTC derivatives. In order to mitigate the risk that the Funds will not be able to
collect amounts due to the Funds upon bankruptcy of the counterparty, the Funds continuously evaluate the creditworthiness
of counterparties and enter into master netting agreements in respect to OTC derivatives that allow the Funds
to close out the contracts upon the bankruptcy of the counterparty and net exposures. As a result of Title II of the Dodd-Frank
Act (as defined below) and regulations imposed by the U.S. prudential regulators, when transacting with counterparties
subject to regulation by the bank regulators, the Funds must enter into contractual provisions that suspend
or stay the Funds’ rights to close out in cases when the counterparty is subject a resolution bankruptcy proceeding
and are restricted in exercising cross-default rights and certain other default rights.
Risk
of Government Regulation of Derivatives
– It is possible that additional government regulation of various types of
derivatives instruments and regulation of certain market participants’ use of such instruments may impact or prevent a
Fund’s use of such instruments and/or adversely affect the value of derivatives or Fund performance. In addition, capital
requirements imposed on Fund counterparties to increase the cost of entering into certain derivatives transactions,
and margin requirements may require more assets of a Fund to be used for collateral in support of those derivatives.
Regulations are now in effect that require dealers in derivatives subject to regulation by the CFTC (such as interest
rate swaps, swaps on broad-based securities indices and swaps on broad-based indices of credit-default swaps)
to post and collect variation margin (comprised of specified liquid instruments and subject to a required haircut) in
connection with trading of OTC swaps with a Fund, to trade report the transactions, to clear the derivatives through a clearing
agency and to comply with a number of business conduct and other requirements. With respect to transactions in
swaps and security-based swaps with dealers in derivatives that are regulated by the U.S. prudential regulators, the Funds
are subject to margin posting and collection. However, security-based swap dealers subject to regulation by the SEC
are not yet subject to margining, trade reporting, central clearing and trading and other requirements but are expected
to be in the near future. In addition, as noted above, regulations adopted by prudential regulators that are now in
effect require certain bank-regulated counterparties and certain of their affiliates to include in certain financial contracts,
including many derivatives contracts, terms that delay or restrict the rights of counterparties, such as a Fund, to
terminate such contracts, foreclose upon collateral, exercise other default rights or restrict transfers of credit support in the
event that the counterparty and/or its affiliates are subject to certain types of resolution or insolvency proceedings.
In
October 2020, the SEC adopted new regulations, that became effective in August of 2022, applicable to the Funds’
use of derivatives, short sales, reverse repurchase agreements, and certain other transactions that, among other things,
require a Fund to adopt a derivatives risk management program and appoint a derivatives risk manager that will manage
the program and communicate to the board of directors of the Fund. However, subject to certain conditions, Funds
that do not invest heavily in derivatives may qualify as limited derivatives users and are not be subject to the full requirements
of the new rule. The SEC also eliminated the asset segregation and coverage framework arising from prior SEC
guidance for covering derivatives and certain financial instruments. The new rule could impact the effectiveness or raise
the costs of a Fund’s derivatives transactions, impede the employment of the Fund’s derivatives strategies, or adversely
affect Fund performance and cause the Fund to lose value.
Additional
Information on Portfolio Instruments and Investment Policies 27
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Direct
Debt Instruments. Direct
debt instruments are interests in amounts owed by a corporate, governmental or other
borrower to lenders (direct loans), to suppliers of goods or services (trade claims or other receivables) or to other parties.
When
a Fund participates in a direct loan it will be lending money directly to an issuer. Direct loans generally do not have
an underwriter or agent bank, but instead, are negotiated between a company’s management team and a lender or
group of lenders. Direct loans typically offer better security and structural terms than other types of high yield securities.
Direct debt obligations are often the most senior-obligations in an issuer’s capital structure or are well-collateralized
so that overall risk is lessened.
Trade
claims are unsecured rights of payment arising from obligations other than borrowed funds. Trade claims include
vendor claims and other receivables that are adequately documented and available for purchase from high yield broker-dealers.
Trade claims typically may sell at a discount. In addition to the risks otherwise associated with low-quality obligations,
trade claims have other risks, including the possibility that the amount of the claim may be disputed by the obligor.
Trade claims normally would be considered illiquid and pricing can be volatile.
Direct
debt instruments involve a risk of loss in case of default or insolvency of the borrower. A Fund will rely primarily upon
the creditworthiness of the borrower and/or the collateral for payment of interest and repayment of principal. The value
of a Fund’s investments may be adversely affected if scheduled interest or principal payments are not made. Because
most direct loans will be secured, there will be a smaller risk of loss with direct loans than with an investment in unsecured
high yield bonds or trade claims. Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay
off their indebtedness or may pay only a small fraction of the amount owed. Investments in direct debt instruments also
involve interest rate risk and liquidity risk. However, interest rate risk is lessened by the generally short-term nature of direct
debt instruments and their interest rate structure, which typically floats. To the extent the direct debt instruments in which
a Fund invests are considered illiquid, the lack of a liquid secondary market (1) will have an adverse impact on the value
of such instruments, (2) will have an adverse impact on the Fund’s ability to dispose of them when necessary to meet
the Fund’s liquidity needs or in response to a specific economic event, such as a decline in creditworthiness of the issuer,
and (3) may make it more difficult for the Fund to assign a value of these instruments for purposes of valuing the Fund’s
portfolio and calculating its NAV. In order to lessen liquidity risk, a Fund anticipates investing primarily in direct debt instruments
that are quoted and traded in the high yield market and will not invest in these instruments if it would cause more
than 15% of the Fund’s net assets to be illiquid. Trade claims may also present a tax risk to the Fund.
A
Fund will not invest in trade claims if it affects the Fund’s qualification as a regulated investment company under Subchapter
M of the Internal Revenue Code.
Distressed
Securities. Distressed securities
generally trade significantly below “par” or full value because investments in
such securities and debt of distressed issuers or issuers in default are considered speculative and involve substantial risks
in addition to the risks of investing in junk bonds. A Fund will generally not receive interest payments on the distressed securities
and may incur costs to protect its investment. In addition, distressed securities involve the substantial risk that principal
will not be repaid. These securities may present a substantial risk of default or may be in default at the time of investment.
A Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment
of principal of or interest on its portfolio holdings. In any reorganization or liquidation proceeding relating to a portfolio
company, a Fund may lose its entire investment or may be required to accept cash or securities with a value less than
its original investment. Distressed securities and any securities received in an exchange for such securities may be subject
to restrictions on resale.
Dividend
Strategy Risk. There is
no guarantee that the issuers of the securities held by the Fund will declare dividends in
the future or that, if dividends are declared, they will remain at their current levels or increase over time. The Fund’s emphasis
on dividend-paying stocks could cause the Fund to underperform similar funds that invest without consideration
of a company’s track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks
may not participate in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates
or an economic downturn could cause a company to unexpectedly reduce or eliminate its dividend.
A
Fund may hold securities for short periods of time related to the dividend payment periods for those securities and may
experience loss during these periods. There is the possibility that the anticipated acceleration of dividend could not occur.
Dollar
Roll Transactions. Dollar
roll transactions consist of the sale by a Fund to a bank or broker/dealer (the “counterparty”)
of GNMA certificates or other mortgage-backed securities together with a commitment to purchase from
the counterparty similar, but not identical, securities at a future date, at the same price. The counterparty receives all
principal and interest payments, including prepayments, made on the security while it is the holder. A Fund receives a fee
from the counterparty as consideration for entering into the commitment to purchase. Dollar rolls may be renewed over
a period of several months with a different purchase and repurchase price fixed and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction may be preceded by a firm commitment
28 Additional
Information on Portfolio Instruments and Investment Policies
agreement
pursuant to which a Fund agrees to buy a security on a future date. In accordance with current federal securities
laws, rules, and staff positions, a Fund will segregate cash or other liquid assets in an amount sufficient to meet its
purchase obligations under the transactions. Depending on whether the segregated assets are cash equivalent or some
other type of security, entering into dollar rolls may subject a Fund to additional interest rate sensitivity. If the segregated
assets are cash equivalents that mature prior to the dollar roll settlement, there is little likelihood that the sensitivity
will increase; however, if the segregated assets are subject to interest rate risk because they settle later, then the
Fund’s interest rate sensitivity could increase.
Dollar
rolls may be treated for purposes of the 1940 Act as borrowings of a Fund (see “Borrowing”) because they involve
the sale of a security coupled with an agreement to repurchase. Like all borrowings, a dollar roll involves costs to a Fund.
For example, while a Fund receives a fee as consideration for agreeing to repurchase the security, the Fund forgoes the
right to receive all principal and interest payments while the counterparty holds the security. These payments to the counterparty
may exceed the fee received by a Fund, thereby effectively charging the Fund interest on its borrowing. Further,
although a Fund can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation
in the actual amount of prepayment could increase or decrease the cost of the Fund’s borrowing.
Dollar
rolls may be used as arbitrage transactions in which a Fund will maintain an offsetting position in investment grade
debt obligations or repurchase agreements that mature on or before the settlement date on the related dollar roll or
reverse repurchase agreements. Since a Fund will receive interest on the securities or repurchase agreements in which
it invests the transaction proceeds, such transactions may involve leverage.
The
entry into dollar rolls involves potential risks of loss that are different from those related to the securities underlying
the transactions. For example, if the counterparty becomes insolvent, a Fund’s right to purchase from the counterparty
might be restricted. Additionally, the value of such securities may change adversely before a Fund is able to purchase
them. Similarly, a Fund may be required to purchase securities in connection with a dollar roll at a higher price than
may otherwise be available on the open market. Since, as noted above, the counterparty is required to deliver a similar,
but not identical security to a Fund, the security that the Fund is required to buy under the dollar roll may be worth less
than an identical security. Finally, there can be no assurance that a Fund’s use of the cash that it receives from a dollar
roll will provide a return that exceeds borrowing costs.
Emerging
Markets Securities. Although
there is no universally accepted definition, an emerging or developing country is
generally considered to be a country which is in the initial stages of industrialization. Investing in emerging markets can involve
unique risks in addition to and greater than those generally associated with investing in developed markets. Shareholders
should be aware that investing in the equity and fixed income markets of developing countries involves exposure
to unstable governments, economies based on only a few industries, and securities markets which trade a small
number of securities. Securities markets of developing countries tend to be more volatile than the markets of developed
countries; however, such markets have in the past provided the opportunity for higher rates of return to investors.
The
value and liquidity of investments in developing countries may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in the particular countries or neighboring regions. The extent of economic
development, political stability and market depth of different countries varies widely. Such investments typically
involve greater potential for gain or loss than investments in securities of issuers in developed countries.
The
securities markets in developing countries are substantially smaller, less liquid and more volatile than the major securities
markets in the United States. A high proportion of the shares of issuers in developing countries may be held by a limited
number of persons and financial institutions, which may limit the number of shares available for investment by a Fund.
The small size, limited trading volume and relative inexperience of the securities markets in these countries may make
investments in securities traded in emerging markets less liquid and more volatile than investments in securities traded
in more developed countries. For example, limited market size may cause prices to be unduly influenced by traders
who control large positions. A limited number of issuers in developing countries’ securities markets may represent a
disproportionately large percentage of market capitalization and trading volume. The limited liquidity of securities markets
in developing countries may also affect a Fund’s ability to acquire or dispose of securities at the price and time it wishes
to do so. Accordingly, during periods of rising securities prices in the more illiquid securities markets, a Fund’s ability
to participate fully in such price increases may be limited by its investment policy of investing not more than 15% of its
total net assets in illiquid investments. Conversely, a Fund’s inability to dispose fully and promptly of positions in declining
markets could cause the Fund’s NAV to decline as the value of the unsold positions is marked to lower prices. In addition,
a Fund may be required to establish special custodial or other arrangements before making investments in securities
traded in emerging markets. There may be little financial or accounting information available with respect to issuers
of emerging market securities, and it may be difficult as a result to assess the value of prospects of an investment in
such securities.
Investments
in the securities of issuers located in emerging markets could also be affected by risks associated with pervasiveness
of corruption and crime, armed conflict (e.g., the ongoing Russian-Ukraine conflict), the impact on the economy
of civil war, religious or ethnic unrest and the withdrawal or non-renewal of any license enabling the Fund to trade
in securities of a particular country, confiscatory taxation, restrictions on transfers of assets, less publicly available financial
and other information. International trade barriers or economic sanctions against foreign countries,
Additional
Information on Portfolio Instruments and Investment Policies 29
organizations,
entities and/or individuals in response to geopolitical tensions or conflicts may adversely affect the value of the
Fund’s foreign holdings. The type and severity of sanctions and other similar measures are difficult to measure or predict.
Emerging
market countries typically have less established legal, accounting and financial reporting systems than those
in more developed markets, which may reduce the scope or quality of financial information available to investors. Governments
in emerging market countries are often less stable and more likely to take extra-legal action with respect to
companies, industries, assets, or foreign ownership than those in more developed markets. Moreover, it can be more difficult
for investors to bring litigation or enforce judgments against issuers in emerging markets or for U.S. regulators to bring
enforcement actions against such issuers. Funds may also be subject to Emerging Markets Risk if they invest in derivatives
or other securities or instruments whose value or return are related to the value or returns of emerging markets
securities.
The
currencies of certain emerging market countries have experienced devaluations relative to the U.S. Dollar, and future
devaluations may adversely affect the value of assets denominated in such currencies. In addition, currency hedging
techniques may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
Political
and economic structures in many such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability characteristics of the United States. In
addition, unanticipated political or social developments may affect the value of investments in emerging markets and the
availability of additional investments in these markets. Any change in the leadership or politics of emerging market countries,
or the countries that exercise a significant influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities. Certain
countries have in the past failed to recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened.
Economies
of developing countries may differ favorably or unfavorably from the United States’ economy in such respects
as rate of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. The economy of some emerging markets may be particularly exposed to or affected by a certain
industry or sector, and therefore issuers and/or securities of such emerging markets may be more affected by the
performance of such industries or sectors. Certain developing countries do not have comprehensive systems of laws, although
substantial changes have occurred in many such countries in this regard in recent years. Laws regarding fiduciary
duties of officers and directors and the protection of shareholders may not be well developed. Even where adequate
law exists in such developing countries, it may be impossible to obtain swift and equitable enforcement of such law,
or to obtain enforcement of the judgment by a court of another jurisdiction.
The
risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading
of securities may cease or may be substantially curtailed and prices for a Fund’s securities in such markets may not
be readily available. A Fund may suspend redemption of its shares for any period during which an emergency exists, as
determined by the SEC. Accordingly if a Fund believes that appropriate circumstances exist, it will promptly apply to the
SEC for a determination that an emergency is present. During the period commencing from a Fund’s identification of such
condition until the date of the SEC action, a Fund’s securities in the affected markets will be valued at fair value determined
in good faith by or under the direction of the Fund’s Board.
Governments
of many emerging market countries have become overly reliant on the international capital markets and
other forms of foreign credit to finance large public spending programs that cause huge budget deficits. As a result of
either an inability to pay or submission to political pressure, the governments have sought to restructure their loan and/or
bond obligations, have declared a temporary suspension of interest payments, or have defaulted (in part or full) on their
outstanding debt obligations. These events have adversely affected the values of securities issued by the governments
and corporations domiciled in these emerging market countries and have negatively affected not only their
cost of borrowing but also their ability to borrow in the future. The economic and political environment has presented
significant challenges to the economies of emerging markets, including, among others, rising inflation, food insecurity,
subdued employment growth, and economic setback caused by supply chain disruption and the reduction in exports.
Certain
of the foregoing risks may also apply to some extent to securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities of U.S. issuers having significant foreign operations.
Trading
in futures contracts on foreign commodity exchanges may be subject to the same or similar risks as trading in
foreign securities.
Asian
Risk. Certain Funds may
invest their assets in Asian securities, and those Funds may be subject to general economic
and political conditions in Asia. Certain Funds may invest a significant portion of their assets in Asian securities, and
those Funds may be more volatile than a fund which is broadly diversified geographically. Additional factors relating to
Asia that an investor should consider include the following:
30 Additional
Information on Portfolio Instruments and Investment Policies
Political,
Social and Economic Factors. Some parts
of the Asian region may be subject to a greater degree of economic,
political and social instability than is the case in the United States and Europe. Such instability may result from, among
other things, the following: (i) authoritarian governments or military involvement in political and economic decision-making,
including changes in government through extra-constitutional means; (ii) popular unrest associated with
demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection. Such social, political and economic instability could significantly
disrupt the principal financial markets in which the Funds invest and adversely affect the value of the Funds’ assets.
Some
Asian economies are reliant on exports in varying degrees as a major contribution to economic growth and as such
may be affected by developments in the economies of their principal trading partners. These economies may be accordingly
affected by protective trade barriers and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. The enactment by the United States or other principal trading partners
of protectionist trade legislation, reduction of foreign investment in local economies and general declines in the international
securities markets could have a significant adverse effect upon the securities markets of Asia.
Some
Asian economies have limited natural resources, resulting in dependence on foreign sources for certain raw materials
and economic vulnerability to global fluctuations of price and supply. Other economies such as Indonesia and Malaysia,
for example, are commodity exporters susceptible to world prices for their commodity exports, including crude oil.
Some
governments in the Asian region are authoritarian in nature and influenced by security forces. For example, during
the course of the last twenty-five years, certain governments in the region have been installed or removed as a result
of military coups while others have periodically demonstrated their repressive police state nature. Disparities of wealth,
among other factors, have also led to social unrest in some Asian countries accompanied, in certain cases, by violence
and labor unrest. Ethnic, religious and racial disaffection, as evidenced in India, Myanmar, Pakistan and Sri Lanka, have
created social, economic and political problems.
Several
Asian countries have or in the past have had hostile relationships with neighboring nations or have experienced
internal insurgency. For example, Thailand experienced border battles with Laos and India is engaged in border
disputes with several of its neighbors, including China and Pakistan. An uneasy truce exists between North Korea and
South Korea and the two countries technically remain in a state of war. In addition, North Korea’s nuclear weapons program
has caused an increased level of risk of military conflict in the area.
There
may be the possibility of expropriations, confiscatory taxation, political, economic or social instability or diplomatic
developments which would adversely affect assets of the Funds held in foreign countries. Governments in certain
Asian countries participate to a significant degree, through ownership interests or regulation, in their respective economies.
Action by these governments could have a significant adverse effect on market prices of a Fund’s securities and
its share price.
Market
Characteristics. Most of the securities
markets of Asia have substantially less volume than the NYSE, and equity
securities of most companies in Asia are less liquid and more volatile than equity securities of U.S. companies of comparable
size. Some of the stock exchanges in Asia, such as those in China, are in the early stages of their development.
Many companies traded on securities markets in Asia are smaller, newer and less seasoned than companies
whose securities are traded on securities markets in the United States. In some Asian countries, there is no established
secondary market for securities. Therefore, liquidity in these countries is generally low and transaction costs high.
Reduced liquidity often creates higher volatility, as well as difficulties in obtaining accurate market quotations for financial
reporting purposes and for calculating NAVs, and sometimes also an inability to buy and sell securities. Market quotations
on many securities may only be available from a limited number of dealers and may not necessarily represent
firm bids from those dealers or prices for actual sales. Additionally, market making and arbitrage activities are generally
less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets.
Investments in smaller companies involve greater risk than is customarily associated with investing in larger companies.
Smaller companies may have limited product lines, markets or financial or managerial resources and may be
more susceptible to losses and risks of bankruptcy. Accordingly, each of these markets may be subject to greater influence
by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than
is usual in the U.S. To the extent that any of the Asian countries experiences rapid increases in its money supply and investment
in equity securities for speculative purposes, the equity securities traded in any such country may trade at price-earning
multiples higher than those of comparable companies trading on securities markets in the United States, which
may not be sustainable.
Brokerage
commissions and other transaction costs on securities exchanges in Asia are generally higher than in the U.S.
Settlement procedures in certain Asian countries are less developed and reliable than those in the U.S. and in other developed
markets, and a Fund may experience settlement delays or other material difficulties. Securities trading in certain
Asian securities markets may be subject to risks due to a lack of experience of securities brokers, a lack of modern
technology and a possible lack of sufficient capital to expand market operations. The foregoing factors could impede
the ability of a Fund to effect portfolio transactions on a timely basis and could have an adverse effect on the NAV
of shares of the Fund.
Additional
Information on Portfolio Instruments and Investment Policies 31
There
is also less government supervision and regulation of foreign securities exchanges, brokers, and listed companies
in the Asian countries than exists in the United States. In addition, existing laws and regulations are often inconsistently
applied. As legal systems in Asian countries develop, foreign investors may be adversely affected by new laws
and regulations, changes to existing laws and regulations and preemption of local laws and regulations by national laws.
In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the
law. Less information will, therefore, be available to a Fund than in respect of investments in the U.S. Further, in certain Asian
countries, less information may be available to a Fund than to local market participants. Brokers in Asian countries may
not be as well capitalized as those in the U.S., so that they are more susceptible to financial failure in times of market, political,
or economic stress.
In
addition, accounting and auditing standards applied in certain Asian countries frequently do not conform with the generally
accepted accounting principles (“GAAP”) used in the United States. The use of some accounting policies, such as
the constant purchasing power method, can cause distortion in some cases. Also, substantially less financial information
is generally publicly available about issuers in Asian countries and, where available, may not be independently
verifiable.
Energy.
Asia has historically depended on oil for most of its energy requirements. Certain Asian countries are highly dependent
on imported oil. In the past, oil prices have had a major impact on Asian economies. Oil prices are generally subject
to extreme volatility. Continuing increases in levels of worldwide oil and gas reserves and production may further depress
the value of investments related to the natural resources industry. This trend is causing producers to curtail production
or reduce capital spending for exploration activities. This could increase the time period a Fund would need to see
a realization of its investments in the energy industry.
Natural
Disasters. The Asian region has in the past experienced earthquakes, mud slides and tidal waves of varying degrees
of severity (e.g., tsunamis), and the risks of such phenomena, and the damage resulting from natural disasters, continue
to exist. The long-term economic effects of such geological factors on the Asian economy as a whole, and on a Fund’s
investments and share price, cannot be predicted.
Investing
in China. In addition to
the risks listed above under “Foreign Securities,” “Emerging Markets Securities” and “Asian
Risk,” investing in China presents additional risks. Investing in China involves a high degree of risk and special considerations
not typically associated with investing in other more established economies or securities markets. Such risks
may include: (a) the risk of nationalization or expropriation of assets or confiscatory taxation; (b) greater social, economic
and political uncertainty (including the risk of war and social unrest); (c) dependency on exports and the corresponding
importance of international trade; (d) the increasing competition from Asia’s other low-cost emerging market
economies; (e) greater price volatility and significantly smaller market capitalization of securities markets; (f) substantially
less liquidity, particularly of certain share classes of Chinese securities; (g) currency exchange rate fluctuations
and the lack of available currency hedging instruments; (h) higher rates of inflation; (i) controls on foreign investment
and limitations on repatriation of invested capital and on a Fund’s ability to exchange local currencies for U.S. Dollars;
(j) greater governmental involvement in and control over the economy, including over securities exchanges; (k) the
risk that the Chinese government may decide not to continue to support the economic reform programs implemented
since 1978 and could return to the prior, completely centrally planned, economy; (l) the fact that China companies,
particularly those located in China, may be smaller, less seasoned and newly-organized; (m) the difference in,
or lack of, auditing and financial reporting standards which may result in unavailability of material information about issuers,
particularly in China; (n) the fact that statistical information regarding the economy of China may be inaccurate or
not comparable to statistical information regarding the U.S. or other economies; (o) the less extensive, and still developing,
regulation of the securities markets, business entities and commercial transactions; (p) the fact that the settlement
period of securities transactions in foreign markets may be longer; (q) the willingness and ability of the Chinese
government to support the Chinese and Hong Kong economies and markets is uncertain; (r) the risk that it may be
more difficult, or impossible, to obtain and/or enforce a judgment than in other countries; and (s) the rapidity and erratic
nature of growth, particularly in China, resulting in efficiencies and dislocations. In addition, any spread of an infectious
illness, public health threat or similar issue could reduce consumer demand or economic output, result in market
closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which
in turn could adversely affect the Fund’s investments.
Investments in China may subject a Fund’s investments to a number
of tax rules, and the application of many of those rules may be uncertain. Moreover, China has implemented a number
of tax reforms in recent years, and may amend or revise its existing tax laws and/or procedures in the future, possibly
with retroactive effect. Changes in applicable Chinese tax law could reduce the after-tax profits of the Funds, directly
or indirectly, including by reducing the after-tax profits of companies in China in which a Fund invests. Chinese taxes
that may apply to a Fund’s investments include income tax or withholding tax on dividends, interest or gains earned by
the Fund, business tax and stamp duty. Uncertainties in Chinese tax rules could result in unexpected tax liabilities for the
Funds.
In
December 2020, the U.S. Congress passed the Holding Foreign Companies Accountable Act (“HFCAA”). The HFCAA
provides that after three consecutive years of determinations by the U.S. Public Company Accounting Oversight Board
(“PCAOB”) that positions taken by authorities in China obstructed the PCAOB’s ability to inspect and investigate
registered public accounting firms in mainland
China and Hong Kong completely, the companies audited by those firms would
be subject to a trading prohibition on U.S. markets. On August 26, 2022, the PCAOB signed a Statement of Protocol
32 Additional
Information on Portfolio Instruments and Investment Policies
with
the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China to grant the
PCAOB access to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely,
consistent with U.S. law. To the extent the PCAOB remains unable to inspect audit work papers and practices of
PCAOB-registered accounting firms in China with respect to their audit work of U.S. reporting companies, such inability may
impose significant additional risks associated with investments in China. Further, to the extent a Fund invests in the securities
of a company whose securities become subject to a trading prohibition, the Fund’s ability to transact in such securities,
and the liquidity of the securities, as well as their market price, would likely be adversely affected.
Investment
in China is subject to certain political risks. Following the establishment of the People’s Republic of China (“PRC”)
by the Communist Party in 1949, the Chinese government renounced various debt obligations incurred by China’s
predecessor governments, which obligations remain in default, and expropriated assets without compensation. There
can be no assurance that the Chinese government will not take similar action in the future. The political reunification
of China and Taiwan is a highly problematic issue and is unlikely to be settled in the near future. This situation poses
a threat to Taiwan’s economy and could negatively affect its stock market.
Hong
Kong reverted to Chinese sovereignty on July 1, 1997 as a Special Administrative Region of the People’s Republic
of China under the principle of “one country, two systems.” Although China is obligated to maintain the current capitalist
economic and social system of Hong Kong through June 30, 2047, the continuation of economic and social freedoms
enjoyed in Hong Kong is dependent on the government of China. Any attempt by China to tighten its control over
Hong Kong’s political, economic, legal or social policies may result in an adverse effect on Hong Kong’s markets. Uncertainty
over Hong Kong’s political future arising from interactions with China has resulted in social unrest, which could in
turn cause uncertainty in the markets. In addition, the Hong Kong dollar trades at a fixed exchange rate in relation to (or,
is “pegged” to) the U.S. dollar, which has contributed to the growth and stability of the Hong Kong economy. However, it
is uncertain how long the currency peg will continue or what effect the establishment of an alternative exchange rate system
would have on the Hong Kong economy. Because the Funds’ NAV is denominated in U.S. dollars, the establishment
of an alternative exchange rate system could result in a decline in a Fund’s NAV.
The
Chinese economy has grown rapidly in the past but there is no assurance that this growth rate will be maintained.
In fact, the Chinese economy may experience a significant slowdown as a result of, among other things, a deterioration
in global demand for Chinese exports, as well as contraction in spending on domestic goods by Chinese consumers.
An economic downturn
in China or geopolitical tensions involving China could adversely impact investments in
Chinese or Chinese-related issuers because, among other possibilities, certain Chinese issuers may be sanctioned by the
U.S. government in the event of a geopolitical tension. In
addition, China may experience substantial rates of inflation or
economic recessions, which would have a negative effect on the economy and securities market. Delays in enterprise restructuring,
slow development of well-functioning financial markets and widespread corruption have also hindered performance
of the Chinese economy. China continues to receive substantial pressure from trading partners to liberalize official
currency exchange rates. Chinese authorities may intervene in the China Securities market and halt or suspend trading
of securities for short or even longer periods of time. Recently, the China Securities market has experienced considerable
volatility and been subject to relatively frequent and extensive trading halts and suspensions. These trading halts
and suspensions have, among other things, contributed to uncertainty in the markets and reduced the liquidity of the
securities subject to such trading halts and suspensions, which could include securities held by a Fund.
The
current political climate has intensified concerns about a potential trade war between China and the United States,
as each country has imposed, and may in the future impose additional, tariffs on the other country’s products. These
actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on a Fund’s performance. Certain securities are, or may in the future
become, restricted, and a Fund may be forced to sell such restricted securities and incur a loss as a result. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly
vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the
potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs
may be imposed or other escalating actions may be taken in the future.
Historically,
investments in stocks, bonds, and warrants listed and traded on a Mainland China stock exchange, investment
companies, and other financial instruments (collectively referred to as “China Securities”) approved by the China
Securities Regulatory Commission (“CSRC”) were not eligible for investment by non-Chinese investors. However, the
CSRC may grant qualified foreign institutional investor (“QFII”) licenses and renminbi qualified foreign institutional investor
(“RQFII”) licenses that allow non-Chinese institutional investors to invest in China securities. Each QFII and RQFII license
holder is authorized to invest in China Securities only up to a specified quota established by the Chinese State Administration
of Foreign Exchange (“SAFE”). The provisions regarding such quotas may be subject to change with little or
notice given by SAFE. abrdn Asia Limited (“aAL”),
a Subadviser to some of the Funds, has received a QFII license and an RQFII
license and specified quotas to be invested in China Securities, the QFII quota specifically referring to a nominee quota
in this instance (the “QFII Quota” and “RQFII Quota” respectively).
Additional
Information on Portfolio Instruments and Investment Policies 33
Although
China law permits the use of nominee accounts for clients of investment managers who are QFII or RQFII license
holders, the Chinese regulators require the securities trading and settlement accounts to be maintained in the name
of the QFII or RQFII license holder. As a result, there is a risk that creditors of aAL
may assert that aAL,
and not the individual fund, is the legal
owner of the securities and other assets in the accounts. aAL
has obtained a legal opinion from Chinese
counsel confirming that, as a matter of Chinese law, aAL
as QFII license holder has no ownership interest in the assets
in a Fund account held as a nominee account and the relevant Fund will be ultimately and exclusively entitled to ownership
of the assets in such nominee accounts. Nonetheless, if a court upholds a creditor’s assertion that the assets held
under the QFII Quota belong to aAL
as license holder, then creditors of aAL
could seek payment from the China Securities
held under the QFII Quota.
Variable
Interest Entities. A Fund may obtain exposure
to companies based or operated in China by investing through
legal structures known as variable interest entities (VIEs). Because of Chinese governmental restrictions on non- Chinese
ownership of companies in certain industries in China, certain Chinese companies have used VIEs to facilitate foreign
investment without distributing direct ownership of companies based or operated in China. In such cases, the Chinese
operating company establishes an offshore company, and the offshore company enters into contractual arrangements
with the Chinese company. These contractual arrangements are intended to give the offshore company the
ability to exercise power over and obtain economic rights from the Chinese company. Shares of the offshore company,
in turn, are listed and traded on exchanges outside of China and are available to non-Chinese investors, such as
a Fund. This arrangement allows non-Chinese investors in the offshore company to obtain economic exposure to the Chinese
company without direct equity ownership in the Chinese company.
Although
VIEs are a longstanding industry practice and well known to officials and regulators in China, VIEs are not formally
recognized under Chinese law. There is a risk that China may cease to tolerate VIEs at any time or impose new restrictions
on the structure, in each case either generally or with respect to specific industries, sectors or companies. Investments
involving a VIE may also pose additional risks because such investments are made through a company whose
interests in the underlying Chinese company are established through contract rather than through equity ownership.
For example, in the event of a dispute, the offshore company’s contractual claims with respect to the Chinese company
may be deemed unenforceable in China, thus limiting (or eliminating) the remedies and rights available to the offshore
company and its investors. Such legal uncertainty may also be exploited against the interests of the offshore company
and its investors. Further, the interests of the equity owners of the Chinese company may conflict with the interests
of the investors of the offshore company, and the fiduciary duties of the officers and directors of the Chinese company
may differ from, or conflict with, the fiduciary duties of the officers and directors of the offshore company. The VIE
structure generally restricts a Fund’s ability to influence the Chinese company through proxy voting and other means and
may restrict the ability of an issuer to pay dividends to shareholders from the Chinese company’s earnings. VIE structures
also could face delisting or other ramifications for failure to meet the requirements of the SEC, the Public Company
Accounting Oversight Board (PCAOB) or other United States regulators. If these risks materialize, the value of investments
in VIEs could be adversely affected and a fund could incur significant losses with no recourse available.
QFII
Regulations. The QFII Quota for investment
in China Securities is measured by aAL’s
investments across all accounts that it manages
that are invested in China Securities using the QFII Quota. Net realized profits for any financial year
may not currently be repatriated until the completion of an audit by a registered accountant in China and payment of
all applicable taxes. SAFE retains its power to exercise macro prudential supervision over the repatriation of capital by QFIIs,
based on China’s financial situation, foreign exchange market supply and demand and international balance of payment
position. The application and interpretation of the QFII regulations are subject to uncertainty as to how they will be
applied and the regulations can be changed at any time.
RQFII
Regulations. Where a Fund is invested
through aAL’s
RQFII Quota, repatriation is subject to the RQFII regulations in
effect from time to time (“RQFII Regulations”). Currently, there is no regulatory prior approval requirement for repatriation
of funds from aAL’s
RQFII Quota. Net realized profits for any financial year may not currently be repatriated until
the completion of an audit by a registered accountant in China and payment of all applicable taxes. However, there is
no certainty that regulatory restrictions will not be imposed on the repatriation of funds in the future. The RQFII license and
the RQFII Regulations may be changed by the CSRC with little or no notice. The application and interpretation of the RQFII
Regulations by the CSRC and SAFE are subject to uncertainty.
RQFII
Regulations apply to aAL’s
RQFII Quota as a whole. Thus, violations of the RQFII Regulations related to any additional
RQFII quota obtained by aAL
that is not allocated to a Fund could result in the revocation of or other regulatory action
in respect of the RQFII quota held by aAL
as a whole. Likewise, the ability of a Fund to make investments and/ or repatriate
monies from aAL’s
RQFII quota may be affected adversely by the activities of other investors utilizing any additional
RQFII quota obtained by aAL.
RQFII
Systems Risk. The prevailing rules and
regulations governing RQFIIs under the RQFII Regulations impose restrictions
on investments and other operational aspects of investments which will restrict or affect a Fund’s investments.
RQFII Eligible Securities are generally subject to the following restrictions:
i. |
each
RQFII’s investment in one listed company should not exceed 10% of the total outstanding shares of that company;
and |
34 Additional
Information on Portfolio Instruments and Investment Policies
ii. |
the
total shares held by all RQFIIs in the RQFII Eligible Securities of one listed company should not exceed 30 per cent of
the total outstanding shares of that company. |
However,
strategic investments in listed companies listed on the Chinese Stock Exchanges in accordance with the “Measures
for the Administration of Strategic Investment of Foreign Investors in Listed Companies” are not subject to the above
limits. Such rules and restrictions imposed by the Chinese government on RQFIIs may have an adverse effect on a Fund’s
liquidity and performance. aAL may select up to three PRC brokers (each a “PRC Broker”) to act on its behalf in each
of the Shanghai Stock Exchange and Shenzhen Stock Exchange. In the event of any default of either the relevant PRC
Broker or the custodian appointed in respect of a Fund (the “PRC Custodian”) (directly or through its delegate) in the execution
or settlement of any transaction or in the transfer of any funds or securities in the PRC, a Fund may encounter delays
in recovering its assets, which may in turn adversely impact the NAV of such Fund.
China
Interbank Bond Market. Certain Funds may
transact in the China Interbank Bond Market (“CIBM”) when buying
or selling portfolio securities for the Funds. The China bond market is made up of the CIBM and the exchange listed
bond market. The CIBM was established in 1997. Currently, approximately 90% of PRC bond trading activity takes place
in the CIBM, and the main products traded in this market include government bonds, central bank papers, policy bank
bonds and non-financial firms’ medium-term notes. The China bond market is made up of the CIBM and the exchange
listed bond market.
The
CIBM was established in 1997 and was limited to domestic participants, but access to the market has since been
expanded to foreign institutional investors. To the extent permissible by the relevant regulations or authorities, the Fund
may invest in the CIBM through CIBM Direct or Bond Connect. Under the CIBM Direct regime, foreign institutional investors
have direct access to bonds traded on the CIBM, subject to the relevant rules established by the People’s Bank of
China (“PBOC”) (“CIBM Direct Rules”). An onshore trading and settlement agent shall be engaged to make the
filing on behalf of the relevant Fund and
conduct trading and settlement agency services for the Fund. PBOC will exercise on-going
supervision on the onshore settlement agent and the Fund’s trading under the CIBM Direct Rules and may take relevant
administrative actions such as suspension of trading and mandatory exit against the Fund and/or aAL
in the event of any incompliance with the
CIBM Direct Rules. The CIBM Direct Rules are relatively new and are still subject to continuous
evolvement, which may adversely affect the Fund’s capability to invest in the CIBM.
Market
volatility and potential lack of liquidity due to low trading volume of certain debt securities may result in prices of
debt securities traded on such market fluctuating significantly. The bid and offer spreads of the prices of the PRC bonds
may be large, and Funds transacting in the CIBM may therefore incur significant trading and realization costs and may
even suffer losses when selling such investments.
Stock
Connect. In recent years, non-Chinese
investors, including certain of the Funds, have been permitted to make investments
usually only available to foreign investors through a quota license or by purchasing from specified brokers in locations
that have stock connect programs. China Stock Exchange-listed securities are available via brokers in Hong Kong
through the Shanghai-Hong Kong Stock Connect program, through the Shenzhen-Hong Kong Stock Connect Program,
and may be available in the future through additional stock connect programs as they are developed in different
locations (collectively, “Stock Connect Programs”). The Shenzhen and Shanghai Stock Connect Programs are securities
trading and clearing programs developed between the Stock Exchange of Hong Kong, the China Securities Depository
and Clearing Corporation Limited and either the Shanghai Stock Exchange or the Shenzhen Stock Exchange. They
facilitate foreign investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong. Investors through
Stock Connect Programs are subject to PRC
regulations and Shanghai or Shenzhen Stock Exchange listing rules, among others.
These could include limitations on trading or suspension of trading. The regulations governing Stock Connect Programs
are relatively new, untested and subject to changes which could adversely impact a Fund’s rights with respect to
the securities. As Stock Connect Programs are relatively new there are no assurances that the necessary systems to run
the programs will function properly.
Stock
Connect Programs are subject to aggregate and daily quota limitations on purchases and a Fund may experience
delays in transacting via Stock Connect Programs. Once the daily quota is reached, the remaining orders for that
day are rejected, however, the Fund would still be permitted to sell A-shares regardless of the daily quota. A-shares obtained
on Stock Connect Programs may only be sold, purchased or otherwise transferred through Stock Connect Programs.
Stock Connect Programs only operate when both PRC and Hong Kong markets are open for trading and when
banking services are available in both markets for the corresponding settlement dates. If one or both of the Chinese
and Hong Kong markets are closed on a U.S. trading day, the Fund may not be able to acquire or dispose of A-shares
through Stock Connect in a timely manner, which could adversely affect the Fund’s performance. Additionally, investments
through Stock Connect Programs are subject to various risks, including liquidity risk, currency risk, legal and regulatory
uncertainty risk, execution risk, operational risk, tax risk and credit risk.
Hong
Kong. Investment in Hong
Kong issuers may subject a Fund to legal, regulatory, and political risks, specific to Hong
Kong. Hong Kong is closely tied to China, economically and politically, following the UK’s 1997 handover of the former
colony to China to be governed as a Special Administrative Region. Changes to Hong Kong’s legal, financial, and monetary
system could negatively impact its economic prospects. Hong Kong’s evolving relationship with the central government
in Beijing has been a source of political unrest and may result in economic disruption. By treaty, China has committed
to preserve Hong Kong’s high degree of autonomy in certain matters until 2047. However, as demonstrated
Additional
Information on Portfolio Instruments and Investment Policies 35
by
Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response
to them, there continues to exist political uncertainty within Hong Kong. For example, in June 2020 China adopted
a new security law that severely limits freedom of speech in Hong Kong and expands police powers to seize electronic
devices and intercept communications of suspects. Widespread protests were held in Hong Kong in response to
the new law, and the United States imposed sanctions on certain Hong Kong officials for cracking down on pro-democracy
protests. There is no guarantee that additional protests will not arise in the future or whether the United States
will respond to such protests with additional sanctions. Further, any changes in the Chinese economy, trade regulations,
or control over Hong Kong may have an adverse impact on Hong Kong’s economy and thereby impact a Fund.
Latin
America. The economies in
Latin America are considered emerging market economies. As a result, investing in Latin
America imposes risks greater than, or in addition to, the risks of investing in more developed foreign markets. Most economies
in Latin America have historically been characterized by high levels of inflation, including, in some cases, hyperinflation
and currency devaluations. In the past, these conditions have led to high interest rates, extreme measures by
governments to limit inflation, and limited economic growth. Although inflation in many countries has lessened, the economies
of the Latin American region continue to be volatile and characterized by high interest rates and unemployment.
In addition, the economies of many Latin American countries are sensitive to fluctuations in commodities prices
because exports of agricultural products, minerals and metals represent a significant percentage of Latin American
exports.
The
economies of many Latin American countries are heavily dependent on international trade and can be adversely
affected by trade barriers, exchange controls and other measures imposed or negotiated by the countries with
which they trade. Since the early 1990s most governments in the Latin American region have transitioned from protectionist
policies to policies that promote regional and global exposure. Many countries in the Latin American region have
reduced trade barriers and are parties to trade agreements, although there is no guarantee that this trend will continue.
Many countries in the Latin American region are dependent on the United States economy, and any declines in the
United States economy are likely to affect the economies throughout the Latin American region. Mexico is particularly vulnerable
to fluctuations in the United States economy because the majority of its exports are directed to the United States.
In addition, China is a major buyer of Latin America’s commodities and a key investor in South America, and therefore,
conditions in China may significantly impact the economy of the Latin American region.
Many
Latin American countries are dependent on foreign loans from developed countries and several Latin American
countries are among the largest debtors among emerging market economies. To the extent that there are rising
interest rates, some countries may be forced to restructure loans or risk default on their obligations, which may adversely
affect securities markets. Some central banks have recently eased their monetary policies in response to liquidity
shortages, but Latin American countries continue to face significant economic difficulties as a result of their high level
of indebtedness and dependence on foreign credit.
The
economies of certain Latin American countries have experienced high interest and inflation rates, economic volatility,
currency devaluations, government defaults and high unemployment rates. In addition, commodities (such as oil,
gas and minerals) represent a significant percentage of the region’s exports, and many economies in this region are particularly
sensitive to fluctuations in commodity prices. The economies of Latin American countries are heavily dependent
on trading relationships with key trading partners, including the U.S., Europe, Asia and other Latin American countries.
Adverse economic events in one country may have a significant adverse effect on other countries of this region.
In addition, in the past, certain Latin American economies have been influenced by changing supply and demand for
a particular currency, monetary policies of governments (including exchange control programs, restrictions on local exchanges
or markets and limitations on foreign investment in a country or on investment by residents of a country in other
countries), and currency devaluations and revaluations. For example, the government of Brazil imposes a tax on foreign
investment in Brazilian stocks and bonds, which may affect the value of the Fund’s investments in the securities of Brazilian
issuers.
Structural
Risk. Certain Latin American
countries are subject to a considerable degree of economic, political and social
instability, which could adversely affect investments in the Fund.
Economic
Risk. Certain Latin American
countries have experienced economic instability resulting from periods of high
inflation and currency devaluations.
Political
and Social Risk. Certain
Latin American countries have experienced periods of instability and social unrest in the
past. For example, Mexico has been destabilized by local insurrections, social upheavals and drug related violence. Disparities
of wealth, the pace and success of democratization and capital market development and ethnic, religious and
racial disaffection may exacerbate social unrest, violence and labor unrest in a number of Latin American countries. Certain
Latin American countries experience significant unemployment in certain regions, as well as widespread underemployment.
Russia.
Investing in Russian securities is highly speculative and involves significant risks and special considerations not typically
associated with investing in the securities markets of the United States and most other developed countries.
36 Additional
Information on Portfolio Instruments and Investment Policies
In
particular, investments in Russia are subject to the risk that the United States and/or other countries may impose economic
sanctions. Such sanctions – which may impact companies in many sectors, including energy, financial services
and defense, among others – may negatively impact a Fund’s performance and/or ability to achieve its investment
objective. For example, certain investments in Russian companies or instruments tied to Russian companies may
be prohibited and/or existing investments may become illiquid (e.g., in the event that a Fund is prohibited from transacting
in certain existing investments tied to Russia), which could cause a Fund to sell other portfolio holdings at a disadvantageous
time or price in order to meet shareholder redemptions. It is also possible that such sanctions may prevent
U.S.-based entities that provide services to a Fund from transacting with Russian entities. Under such circumstances,
a Fund may not receive payments due with respect to certain investments, such as the payments due in connection
with the Fund’s holding of a fixed income security. The sanctions imposed on Russia by the United States and the
European Union, as well as the threat of additional sanctions, could have further adverse consequences for the Russian
economy, including continued weakening of the ruble, additional downgrades in the country’s credit rating, and a significant
decline in the value and liquidity of securities issued by Russian companies or the Russian government.
Over
the past century, Russia has experienced political and economic turbulence and has endured decades of communist
rule under which tens of millions of its citizens were collectivized into state agricultural and industrial enterprises.
Since the collapse of the Soviet Union, Russia’s government has been faced with the daunting task of stabilizing
its domestic economy, while transforming it into a modern and efficient structure able to compete in international
markets and respond to the needs of its citizens. However, to date, many of the country’s economic reform initiatives
have floundered or been retrenched. In this environment, political and economic policies could shift suddenly in ways
detrimental to the interest of foreign and private investors.
Russia
has attempted, and may attempt in the future, to assert its influence in the region through economic or military
measures. In February 2022, the Russian military invaded Ukraine, which amplified existing geopolitical tensions among
Russia, Ukraine, Europe, and many other countries including the U.S. and other members of the North Atlantic Treaty
Organization (“NATO”). Russia’s invasion of Ukraine has led to, and additional Russian military actions may lead
to further or additional sanctions being levied
by the United States, the United Kingdom, and members of the EU against Russia.
In particular, U.S. sanctions prohibit any “new investment” in Russia which is defined to include any new purchases of
Russian securities. U.S. persons also are required to freeze securities issued by certain Russian entities identified on the List
of Specially Designated Nationals, which includes several large publicly traded Russian banks and other companies. Russia
has issued various countermeasures that affect the ability of non-Russian persons to trade in Russian securities. In addition,
a number of large corporations and U.S. and foreign entities have divested interests or otherwise curtailed business
dealings in Russia or with certain Russian business or announced plans to do so. Russia’s military incursion and the
resulting sanctions have and could further adversely affect global energy and financial markets and thus could affect the
value of a Fund’s investments, even beyond any direct exposure the Fund may have to issuers in Russia or the adjoining
geographic regions.
An
increasingly assertive Russia poses its own set of risks for the EU, as evidenced by the ongoing Russian-Ukraine conflict.
Opposition to EU expansion to members of the former Soviet bloc may prompt more intervention by Russia in the affairs
of its neighbors. This interventionist stance may carry various negative consequences, including direct effects, such
as export restrictions on Russia’s natural resources, Russian support for separatist groups or pro-Russian parties located
in EU countries, Russian interference in the internal political affairs of current or potential EU members or of the EU itself,
externalities of ongoing conflict, such as an influx of refugees from Ukraine and Syria, or collateral damage to foreign
assets in conflict zones, all of which could negatively impact EU economic activities. Russia’s war against Ukraine remains
ongoing as of the date of this SAI, and the extent and duration of this war and the resulting sanctions’ impact on markets
remains impossible to predict but could be substantial.
Poor
accounting standards, inept management, pervasive corruption, insider trading and crime, and inadequate regulatory
protection for the rights of investors all pose a significant risk, particularly to foreign investors. In addition, enforcement
of the Russian tax system is prone to inconsistent, arbitrary, retroactive, confiscatory, and/or exorbitant taxation.
Investments in Russia may be subject to the risk of nationalization or expropriation of assets. Regional armed conflict
and its collateral economic and market effects may also pose risks for investments in Russia.
Compared
to most national stock markets, the Russian securities market suffers from a variety of problems not encountered
in more developed markets. There is little long-term historical data on the Russian securities market because
it is relatively new and a substantial proportion of securities transactions in Russia are privately negotiated outside
of stock exchanges. The inexperience of the Russian securities market and the limited volume of trading in securities
in the market may make obtaining accurate prices on portfolio securities from independent sources more difficult
than in more developed markets. Additionally, there is little solid corporate information available to investors because
of less stringent auditing and financial reporting standards that apply to companies operating in Russia. As a result,
it may be difficult to assess the value or prospects of an investment in Russian companies. Securities of Russian companies
also may experience greater price volatility than securities of U.S. companies.
Because
of the recent formation of the Russian securities market as well as the underdeveloped state of the banking and
telecommunications systems, settlement, clearing and registration of securities transactions are subject to significant
risks. Prior to the implementation of the National Settlement Depository (“NSD”), a recognized central securities
depository, there was no central registration system for equity share registration in Russia and registration was
Additional
Information on Portfolio Instruments and Investment Policies 37
carried
out by either the issuers themselves or by registrars located throughout Russia. Title to Russian equities held through
the NSD is now based on the records of the NSD and not the registrars. Although the implementation of the NSD has
enhanced the efficiency and transparency of the Russian securities market, issues resulting in loss still can occur. Ownership
of securities issued by Russian companies that are not held through depositories such as the NSD may be defined
according to entries in the company’s share register and normally evidenced by extracts from the register or by formal
share certificates. In such cases, the risk is increased that a Fund could lose ownership rights through fraud, negligence,
or even mere oversight. While a Fund will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent by inspecting the share register and by obtaining extracts of share
registers through regular confirmations, these extracts have no legal enforceability and it is possible that subsequent
illegal amendment or other fraudulent act may deprive the Fund of its ownership rights or improperly dilute its
interests. In addition, while applicable Russian regulations impose liability on registrars for losses resulting from their errors,
it may be difficult for a Fund to enforce any rights it may have against the registrar or issuer of the securities in the event
of loss of share registration. Furthermore, significant delays or problems may occur in registering the transfer of securities,
which could cause a Fund to incur losses due to a counterparty’s failure to pay for securities the Fund has delivered
or the Fund’s inability to complete its contractual obligations because of theft or other reasons.
In
addition, issuers and registrars are still prominent in the validation and approval of documentation requirements for
corporate action processing in Russia. Because the documentation requirements and approval criteria vary between registrars
and issuers, there remain unclear and inconsistent market standards in the Russian market with respect to the completion
and submission of corporate action elections. To the extent that a Fund suffers a loss relating to title or corporate
actions relating to its portfolio securities, it may be difficult for the Fund to enforce its rights or otherwise remedy
the loss. Russian securities laws may not recognize foreign nominee accounts held with a custodian bank, and therefore
the custodian may be considered the ultimate owner of securities they hold for their clients. A Fund also may experience
difficulty in obtaining and/or enforcing judgments in Russia.
The
Russian economy is heavily dependent upon the export of a range of commodities including industrial metals, forestry
products, oil, and gas. Accordingly, it is strongly affected by international commodity prices and is particularly vulnerable
to any weakening in global demand for these products. Furthermore, the sale and use of certain strategically important
commodities, such as gas, may be dictated by political, rather than economic, considerations.
Foreign
investors also face a high degree of currency risk when investing in Russian securities and a lack of available currency
hedging instruments. Any investment denominated in rubles may be subject to significant devaluation in the future.
Although official sovereign debt to GDP figures are low for a developed economy, sovereign default remains a risk. Even
absent a sovereign default, foreign investors could face the possibility of further devaluations. There is the risk that the
government may impose capital controls on foreign portfolio investments in the event of extreme financial or political crisis.
Such capital controls could prevent the sale of a portfolio of foreign assets and the repatriation of investment income
and capital.
Equity-Linked
Securities. A Fund may invest
in equity-linked securities, including, but not limited to, participation notes, and
certificates of participation. Equity-linked securities are privately issued securities whose investment results are designed
to correspond generally to the performance of a specified stock index or “basket” of stocks, or a single stock. To the
extent that a Fund invests in equity-linked securities whose return corresponds to the performance of a foreign security
index or one or more foreign stocks, investing in equity-linked securities will involve risks similar to the risks of investing
in foreign securities and subject to a Fund’s restrictions on investments in foreign securities. In addition, a Fund bears
the risk that the counterparty of an equity-linked security may default on its obligations under the security. If the underlying
security is determined to be illiquid, the equity-linked security would also be considered illiquid and thus subject
to a Fund’s restrictions on investments in illiquid securities.
Participation
notes, also known as participation certificates, are issued by banks or broker-dealers and are designed to
replicate the performance of foreign companies or foreign securities markets and can be used by a Fund as an alternative
means to access the securities market of a country. The performance results of participation notes will not replicate
exactly the performance of the foreign companies or foreign securities markets that they seek to replicate due to
transaction and other expenses. Investments in participation notes involve the same risks associated with a direct investment
in the underlying foreign companies or foreign securities markets that they seek to replicate. There can be no assurance
that the trading price of participation notes will equal the underlying value of the foreign companies or foreign securities
markets that they seek to replicate. Participation notes are generally traded over-the-counter. Participation notes
are subject to counterparty risk, which is the risk that the broker-dealer or bank that issues them will not fulfill its contractual
obligation to complete the transaction with a Fund. Participation notes constitute general unsecured contractual
obligations of the banks or broker-dealers that issue them, the counterparty, and a Fund is relying on the creditworthiness
of such counterparty and has no rights under a participation note against the issuer of the underlying security.
Participation notes involve transaction costs. If the underlying security is determined to be illiquid, participation notes
may be illiquid and therefore subject to a Fund’s percentage limitation for investments in illiquid securities. Participation
notes offer a return linked to a particular underlying equity, debt or currency.
Eurodollar
Instruments. Eurodollar
instruments are U.S. Dollar-denominated futures contracts or options thereon,
although foreign currency-denominated instruments
are available from time to time. Eurodollar futures contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund may
38 Additional
Information on Portfolio Instruments and Investment Policies
invest
in Eurodollar instruments for hedging purposes or to enhance potential gain. Additionally,
Eurodollar instruments are subject to certain
sovereign risks and other risks associated with foreign investments. One such risk is the possibility that
a sovereign country might prevent capital, in the form of dollars, from flowing across its borders. Other risks include: adverse
political and economic developments; the extent and quality of government regulation of financial markets and institutions;
the imposition of foreign withholding taxes; and the expropriation or nationalization of foreign issues.
Eurodollar
and Yankee Obligations.
Eurodollar bank obligations are dollar-denominated certificates of deposit and time
deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Yankee bank obligations
are dollar-denominated obligations issued in the U.S. capital markets by foreign banks.
Eurodollar
and Yankee bank obligations are subject to the same risks that pertain to domestic issues, notably credit risk,
market risk and liquidity risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank obligations are subject to certain
sovereign risks and other risks associated with foreign investments. One such risk is the possibility that a sovereign country
might prevent capital, in the form of dollars, from flowing across its borders. Other risks include: adverse political and
economic developments; the extent and quality of government regulation of financial markets and institutions; the imposition
of foreign withholding taxes, and the expropriation or nationalization of foreign issues. However, Eurodollar and Yankee
bank obligations held in a Fund will undergo the same credit analysis as domestic issuers in which the Fund invests,
and will have at least the same financial strength as the domestic issuers approved for the Fund.
European
Sovereign Debt Risk. European
banks have historically held significant investments in the sovereign debt of European
countries. Since late 2009, concern has been rising about the escalating government debt levels in certain European
countries. More recently, the ratings agencies initiated a series of downgrades of the sovereign debt of various European
countries. Troubled economies in Europe coupled with the European debt downgrades have increased concerns
about the possibility of default. A government’s default on its debt could cause the value of securities held by a Fund
to decline significantly. See
“Market Events Risk,” below, for additional discussion of factors that may affect he economies
of Europe.”
Event
Risk. Event risk is the
risk that a corporate event such as a restructuring, merger, leveraged buyout, takeover, or similar
action may cause a decline in market value or credit quality of the issuer’s stocks or bonds due to factors including an
unfavorable market response or a resulting increase in the issuer’s debt. Added debt may significantly reduce the credit
quality and market value of an issuer’s bonds.
Exchange-Traded
Funds (“ETFs”).
ETFs are ownership interests in investment companies, unit investment trusts, depositary
receipts and other pooled investment vehicles that are traded on an exchange and that hold a portfolio of securities
or other financial instruments (the “Underlying Assets”). The Underlying Assets are typically selected to correspond
to the securities that comprise a particular broad-based sector or international index, or to provide exposure to
a particular industry sector or asset class, including precious metals or other commodities. “Short ETFs” seek a return
similar to the inverse, or a multiple of the
inverse, of a reference index. Short ETFs carry additional risks because their Underlying
Assets may include a variety of financial instruments, including futures and options on futures, options on securities
and securities indexes, swap agreements and forward contracts, and a short ETF may engage in short sales. An
ETF’s losses on short sales are potentially unlimited; however, a Fund’s risk would be limited to the amount it invested
in the ETF. Certain ETFs are actively managed
by a portfolio manager or management team that makes investment decisions
on Underlying Assets without seeking to replicate the performance of a reference index or industry sector or asset
class.
Unlike
shares of typical open-end management investment companies or unit investment trusts, shares of ETFs are designed
to be traded throughout the trading day and bought and sold based on market price rather than NAV.
Shares can trade at either a premium or discount
to NAV.
The portfolios held by ETFs are typically publicly disclosed on each trading
day and an approximation of actual NAV
is disseminated throughout the trading day. Because of this transparency,
the trading prices of ETFs tend to closely track the actual NAV
of the Underlying Assets and the ETF will generally
gain or lose value depending on the performance of the Underlying Assets. In the future, as new products become
available, a Fund may invest in ETFs that do not have this same level of transparency and, therefore, may be more
likely to trade at a larger discount or premium to actual NAVs.
Gains
or losses on a Fund’s investment in ETFs will ultimately depend on the purchase and sale price of the ETF. An active
trading market for an ETF’s shares may not develop or be maintained and trading of an ETF’s shares may be halted
if the listing exchange’s officials deem such action appropriate, the shares are delisted from the exchange or the activation
of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
The performance of an ETF will be reduced by transaction and other expenses, including fees paid by the ETF to
service providers. Investors in ETFs are eligible to receive their portion of income, if any, accumulated on the securities held
in the portfolio, less fees and expenses of the ETF.
An
investment in an ETF involves risks similar to investing directly in the Underlying Assets, including the risk that the value
of the Underlying Assets may fluctuate in accordance with changes in the financial condition of their issuers, the value
of securities and other financial instruments generally, and other market factors.
Additional
Information on Portfolio Instruments and Investment Policies 39
If
an ETF is a registered investment company (as defined in the 1940 Act), the limitations applicable to a Fund’s ability to
purchase securities issued by other investment companies apply absent exemptive relief. Rule 12d1-4 under the 1940 Act
exempts certain ETFs that permit investments in those ETFs by other investment companies (such as the Funds) in excess
of these limits, subject to certain conditions. Some ETFs are not structured as investment companies and thus are not
regulated under the 1940 Act.
Focus
Risk. To the extent that
a Fund invests a greater proportion of its assets in the securities of a smaller number of issuers,
the Fund may be subject to greater volatility with respect to its investments than a fund that invests in a larger number
of securities.
Foreign
Commercial Paper. Commercial
paper is indexed to certain specific foreign currency exchange rates. The terms
of such commercial paper provide that its principal amount is adjusted upwards or downwards (but not below zero)
at maturity to reflect changes in the exchange rate between two currencies while the obligation is outstanding. A Fund
will purchase such commercial paper with the currency in which it is denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount or principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial paper entails the risk of loss of principal,
the potential for realizing gains as a result of changes in foreign currency exchange rate enables a Fund to hedge
or cross-hedge against a decline in the U.S. Dollar value of investments denominated in foreign currencies while providing
an attractive money market rate of return. A Fund will purchase such commercial paper for hedging purposes only,
not for speculation. A Fund believes that such investments do not involve the creation of a senior security, but, in accordance
with current federal securities laws, rules, and staff positions, nevertheless will establish a segregated account
with respect to its investments in this type of commercial paper and maintain in such account cash not available for
investment or other liquid assets having a value equal to the aggregate principal amount of outstanding commercial paper
of this type.
Foreign
Currencies
Risk. Because investments in foreign
securities usually will involve currencies of foreign countries, and
because a Fund may hold foreign currencies and forward contracts, futures contracts and options on foreign currencies
and foreign currency futures contracts, the value of the assets of the Fund as measured in U.S. Dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the
Fund may incur costs and experience conversion difficulties and uncertainties in connection with conversions between
various currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security.
The
strength or weakness of the U.S. Dollar against these currencies is responsible for part of a Fund’s investment performance.
If the U.S. Dollar falls in value relative to the Japanese yen, for example, the U.S. Dollar value of a Japanese stock
held by a Fund will rise even though the price of the stock remains unchanged. Conversely, if the U.S. Dollar rises in value
relative to the Japanese yen, the U.S. Dollar value of the Japanese stock will fall. Many foreign currencies have experienced
significant devaluation relative to the U.S. Dollar.
Although
a Fund values its assets daily in terms of U.S. Dollars, it does not intend to convert its holdings of foreign currencies
into U.S. Dollars on a daily basis. It will do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers typically do not charge a fee for conversion, they do realize a profit
based on the difference (the “spread”) between the prices at which they are buying and selling various currencies. Thus,
a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. A Fund will conduct its foreign currency exchange transactions (“FX transactions”)
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through
entering into options or forward or futures contracts to purchase or sell foreign currencies.
In
general, the FX transactions executed for the Funds are divided into two main categories: (1) FX transactions in restricted
markets (“Restricted Market FX”) and (2) FX transactions in unrestricted markets (“Unrestricted Market FX”).
Restricted Market FX are required to be executed
by a local bank in the applicable market. Unrestricted Market FX are not required
to be executed by a local bank. The Adviser or a third-party agent executes Unrestricted Market FX relating to trading
decisions. The Funds’ custodian executes all Restricted Market FX because it has local banks or relationships with local
banks in each of the restricted markets where custodial client accounts hold securities. Unrestricted Market FX relating
to the repatriation of dividends and/or income/expense items not directly relating to trading may be executed by
the Adviser or by the Funds’ custodian due to the small currency amount and lower volume of such transactions. The Funds
and the Adviser have limited ability to negotiate prices at which certain FX transactions are customarily executed by
the Funds’ custodian, i.e., transactions in Restricted Market FX and repatriation transactions.
Foreign
Fixed Income Securities.
Most foreign fixed income securities are rated, however, some are not. Therefore, if a Fund
invests in unrated foreign fixed income securities, it will do so based on the Adviser’s analysis. To the extent that a Fund
includes significant unrated securities, achievement of the Fund’s goals may depend more upon the abilities of the Adviser
than would otherwise be the case.
The
value of the foreign fixed income securities held by a Fund, and thus the NAV of the Fund’s shares, generally will fluctuate
with (a) changes in the perceived creditworthiness of the issuers of those securities, (b) movements in interest rates,
and (c) changes in the relative values of the currencies in which a Fund’s investments in fixed income securities are
40 Additional
Information on Portfolio Instruments and Investment Policies
denominated
with respect to the U.S. Dollar. The extent of the fluctuation will depend on various factors, such as the average
maturity of a Fund’s investments in foreign fixed income securities, and the extent to which the Fund hedges its interest
rate, credit and currency exchange rate risks. A longer average maturity generally is associated with a higher level
of volatility in the market value of such securities in response to changes in market conditions.
Privatized
Enterprises. Investments
in foreign securities may include securities issued by enterprises that have undergone
or are currently undergoing privatization. The governments of certain foreign countries have, to varying degrees,
embarked on privatization programs contemplating the sale of all or part of their interests in state enterprises. A Fund’s
investments in the securities of privatized enterprises may include privately negotiated investments in a government
or state-owned or controlled company or enterprise that has not yet conducted an initial equity offering, investments
in the initial offering of equity securities of a state enterprise or former state enterprise and investments in the securities
of a state enterprise following its initial equity offering.
In
certain jurisdictions, the ability of foreign entities, such as the Funds, to participate in privatizations may be limited by
local law, or the price or terms on which a Fund may be able to participate may be less advantageous than for local investors.
Moreover, there can be no assurance that governments that have embarked on privatization programs will continue
to divest their ownership of state enterprises, that proposed privatizations will be successful or that governments
will not re-nationalize enterprises that have been privatized.
In
the case of the enterprises in which a Fund may invest, large blocks of the stock of those enterprises may be held by
a small group of stockholders, even after the initial equity offerings by those enterprises. The sale of some portion or all of
those blocks could have an adverse effect on the price of the stock of any such enterprise.
Prior
to making an initial equity offering, most state enterprises or former state enterprises go through an internal reorganization
or management. Such reorganizations are made in an attempt to better enable these enterprises to compete
in the private sector. However, certain reorganizations could result in a management team that does not function
as well as an enterprise’s prior management and may have a negative effect on such enterprise. In addition, the privatization
of an enterprise by its government may occur over a number of years, with the government continuing to hold
a controlling position in the enterprise even after the initial equity offering for the enterprise.
Prior
to privatization, most of the state enterprises in which a Fund may invest enjoy the protection of and receive preferential
treatment from the respective sovereigns that own or control them. After making an initial equity offering, these
enterprises may no longer have such protection or receive such preferential treatment and may become subject to
market competition from which they were previously protected. Some of these enterprises may not be able to operate effectively
in a competitive market and may suffer losses or experience bankruptcy due to such competition.
Foreign
Government Securities. Investment
in debt issued by foreign governments can involve a high degree of risk. Debt
securities issued by a foreign government are often supported by the full faith and credit of that foreign government.
These foreign governments may permit their subdivisions, agencies or instrumentalities to have the full faith and
credit of the foreign governments. The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental
entity’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on
the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity’s
policy toward the International Monetary Fund (“IMF”), and the political constraints to which a governmental entity may
be subject. Periods of economic uncertainty may result in the illiquidity and increased price volatility of a foreign government’s
debt securities. A foreign government’s default on its debt securities may cause the value of securities held by
a Fund to decline significantly. A Fund may have limited recourse to compel payment in the event of a default.
Governmental
entities may also be dependent on expected disbursements from foreign governments, multilateral agencies
and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned on a governmental entity’s implementation
of economic reforms and/or economic performance and the timely service of such debtor’s obligations. Failure
to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties’ commitments to lend funds to the governmental entity, which may further
impair such debtor’s ability or willingness to service its debts in a timely manner. Consequently, governmental entities
may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling
of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in whole or in part.
To
the extent that a Fund invests in obligations issued by emerging market governments, the risks associated with such
sovereign debt investments are greater than those issued by developed countries. Sovereign obligors in emerging market
countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations
and other financial institutions. These obligors have in the past experienced substantial difficulties in servicing
their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements, and obtaining new credit for finance interest payments.
Holders of certain foreign sovereign debt securities may be requested to participate in the restructuring of
Additional
Information on Portfolio Instruments and Investment Policies 41
such
obligations and to extend further loans to their issuers. There can be no assurance that the foreign sovereign debt securities
in which a Fund may invest will not be subject to similar restructuring arrangements or to requests for new credit
which may adversely affect a Fund’s holdings.
Foreign
Securities. Investing in
foreign securities (including through the use of depositary receipts) involves certain special
considerations which typically are not associated with investing in U.S. securities. Since investments in foreign companies
will frequently be denominated in the currencies of foreign countries (these securities are translated into U.S. Dollars
on a daily basis in order to value a Fund’s shares), and since a Fund may hold securities and funds in foreign currencies,
a Fund may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations,
if any, and may incur costs in connection with conversions between various currencies. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to accounting,
auditing and financial reporting standards and practices comparable to those in the U.S. Most foreign stock markets,
while growing in volume of trading activity, have less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of comparable domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than in the United States and, at times, volatility of price
can be greater than in the United States. Additionally, a foreign jurisdiction may halt trading of securities for an extended
period of time, which poses liquidity, valuation and other risks. Additionally, a foreign jurisdiction may halt trading
of securities for an extended period of time, which poses liquidity, valuation and other risks. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on United States exchanges, although each
Fund endeavors to achieve the most favorable net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed companies in foreign countries than in the
United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of a Fund’s assets held abroad) and expenses not present in the settlement
of investments in U.S. markets. Payment for securities without delivery may be required in certain foreign markets.
In
addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the value of a Fund’s investments in certain foreign countries.
Governments of many countries have exercised and continue to exercise substantial influence over many aspects
of the private sector through the ownership or control of many companies, including some of the largest in these countries.
As a result, government actions in the future could have a significant effect on economic conditions which may adversely
affect prices of certain portfolio securities. Foreign securities may be subject to foreign government taxes, higher
custodian fees, higher brokerage costs and dividend collection fees which could reduce the yield on such securities.
Foreign
economies may differ favorably or unfavorably from the U.S. economy in various respects, including growth of
gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments positions. Many foreign securities are less liquid and their prices more volatile than comparable U.S. securities.
From time to time, foreign securities may be difficult to liquidate rapidly without adverse price effects.
Legal
remedies available to investors in certain foreign countries may be more limited than those available with respect
to investments in the U.S. or in other foreign countries. The laws of some foreign countries may limit a Fund’s ability
to invest in securities of certain issuers organized under the laws of those foreign countries.
Of
particular importance, many foreign countries are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by protectionist trade policies, trade barriers,
managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the
United States and other countries with which they trade. These economies also have been and may continue to be negatively
impacted by economic conditions in the United States and other trading partners, which can lower the demand
for goods produced in those countries.
All
the risks above can be heightened under adverse economic, market, geopolitical and other conditions.
Frontier
Market Securities. The risks
associated with investments in frontier market countries include all the risks described
above for investments in “Foreign Securities” and “Emerging Markets Securities,” although the risks are magnified
for frontier market countries. Because frontier markets are among the smallest, least mature and least liquid of
the emerging markets, investments in frontier markets generally are subject to a greater risk of loss than are investments
in developed markets or traditional emerging markets. Frontier market countries have smaller economies, less
developed capital markets, greater market volatility, lower trading volume, more political and economic instability, greater
risk of a market shutdown and more governmental limitations on foreign investments than are typically found in more
developed markets.
Futures.
Futures are generally bought and sold on the commodities exchanges where they are listed with payment of
initial and variation margin as described below. A Fund may enter into futures contracts or purchase or sell put and call options
on such futures as a hedge against anticipated interest rate, currency or equity market changes, and for duration management,
risk management and return enhancement purposes.
42 Additional
Information on Portfolio Instruments and Investment Policies
The
sale of a futures contract creates a firm obligation by a Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts are similar to options on securities except
that an option on a futures contract gives the purchaser the right in return for the premium paid to assume a position
in a futures contract and obligates the seller to deliver such position.
Futures
and options on futures may be entered into for bona fide hedging, risk management (including duration management)
or other portfolio and return enhancement management purposes to the extent consistent with the exclusion
from commodity pool operator registration with respect to a Fund.
Typically, maintaining a futures contract or selling
an option thereon requires a Fund to deposit with a financial intermediary as security for its obligations an amount of
cash or other specified assets (initial margin) which initially is typically 1% to 10% of the face amount of the contract (but
may be higher in some circumstances). Additional cash or assets (variation margin) may be required to be paid thereafter
on a daily basis as the marked to market value of the contract fluctuates. The purchase of an option on financial
futures involves payment of a premium for the option without any further obligation on the part of a Fund. If a Fund
exercises an option on a futures contract it will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction but there can be no assurance that the position can be offset
prior to settlement at an advantageous price, or that delivery will occur.
There
are several risks associated with the use of futures contracts and futures options as hedging techniques, including
market price, interest rate, leverage, liquidity, counterparty, operational and legal risks. Under certain circumstances,
futures exchanges may establish daily limits on the amount that the price of a future or option on a futures
contract can vary from the previous day’s settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit
for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.
If
a Fund were unable to liquidate a futures or option on a futures contract position due to the absence of a liquid secondary
market or the imposition of price limits, it could incur substantial losses, because it would continue to be subject
to market risk with respect to the position. In addition, except in the case of purchased options, a Fund would continue
to be required to make daily variation margin payments and might be required to maintain the position being hedged
by the future or, in accordance with current federal securities laws, rules, and staff positions, option or to maintain cash
or securities in a segregated account.
Certain
characteristics of the futures market might increase the risk that movements in the prices of futures contracts
or options on futures contracts might not correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and options on futures contracts markets are subject to daily variation
margin calls and might be compelled to liquidate futures or options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments
and distort the normal price relationship between the futures or options and the investments being hedged. Also,
because initial margin deposit requirements in the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future markets. This participation also might
cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving
arbitrage, “program trading” and other investment strategies might result in temporary price distortions.
The
U.S. Commodity Futures Trading Commission (the “CFTC”) and various exchanges have rules limiting the maximum
net long or short positions which any person or group may own, hold or control in any given futures contract or option
on such futures contract. The Adviser will need to consider whether the exposure created under these contracts might
exceed the applicable limits in managing a Fund, and the limits may constrain the ability of a Fund to use such contracts.
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Illiquid
Investments Risk. Pursuant
to Rule 22e-4 under the 1940 Act, each Fund may not invest more than 15% of its net
assets in illiquid investments. An illiquid investment is any investment that a Fund reasonably expects cannot be sold or
disposed of in the current market conditions in seven calendar days or less without the sale or disposition significantly changing
the market value of the investment. Illiquid investments include repurchase agreements which have a maturity of
longer than seven days, time deposits maturing in more than seven days, and securities with a contractual restriction on
resale (“restricted securities”) or other factors limiting the marketability of the security. Repurchase agreements subject
to demand are deemed to have a maturity equal to the notice period. If a change in NAV or other external events cause
a Fund’s investments in illiquid investments to exceed the limit set forth above for a Fund’s investment in illiquid investments,
the Fund will act to cause the aggregate amount of such investments to come within such limit as soon as reasonably
practicable. In such event, however, a Fund would not be required to liquidate any portfolio securities where the
Fund would suffer a loss on the sale of such investments.
A
Fund may purchase investments that are not subject to legal or contractual restrictions on resale, but that are deemed
illiquid. Such investments may be illiquid, for example, because there is a limited trading market for them. A Fund may
be unable to sell a restricted or illiquid investment. In addition, it may be more difficult to determine a market value
Additional
Information on Portfolio Instruments and Investment Policies 43
for
restricted or illiquid investments. Moreover, if adverse market conditions were to develop during the period between a Fund’s
decision to sell a restricted or illiquid investment and the point at which the Fund is permitted or able to sell such investment,
the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This investment
practice, therefore, could have the effect of decreasing the level of liquidity of such Fund.
The
Adviser employs procedures and tests using third-party and internal data inputs that seek to assess and manage
the liquidity of a Fund’s portfolio holdings. These procedures and tests take into account a Fund’s investment strategy
and liquidity of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections
during both normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors,
and monitor whether liquidity should be adjusted based on changed market conditions. These procedures and tests
are designed to assist a Fund in determining its ability to meet redemption requests in various market conditions. In light
of the dynamic nature of markets, there can be no assurance that these procedures and tests will enable a Fund to ensure
that it has sufficient liquidity to meet redemption requests.
Rule
22e-4 under the 1940 Act (the “Liquidity Rule”) requires the Funds to establish a liquidity risk management program.
As required by the Liquidity Rule, the Funds have implemented a liquidity risk management program, including classifying
each investment as a “highly liquid investment,” “moderately liquid investment,” “less liquid investment”
or “illiquid investment” (the
“Liquidity Program”), and the Board of Trustees, including a majority of the independent trustees, appointed
the Adviser as the Liquidity Risk Program administrator. If the limitation on illiquid investments is exceeded, other
than by a change in market values, the condition will be reported to the Board and, when required by the Liquidity Rule,
to the SEC.
Impact
of Large Redemptions and Purchases of Fund Shares.
From time to time, shareholders of a Fund (which may include
affiliated and/or non-affiliated registered investment companies that invest in a Fund) may make relatively large redemptions
or purchases of Fund shares. These transactions may cause a Fund to have to sell securities or invest additional
cash, as the case may be. While it is impossible to predict the overall impact of these transactions over time, there
could be adverse effects on a Fund’s performance to the extent that the Fund may be required to sell securities or invest
cash at times, or in odd-lot amounts, when it would not otherwise do so. These transactions could also accelerate the
realization of taxable income if sales of securities resulted in capital gains or other income and could also increase transaction
costs, which may impact a Fund’s expense ratio. In addition, large redemption requests may exceed the cash balance
of a Fund and result in credit line borrowing fees or overdraft charges to the Fund until the sales of portfolio securities
necessary to cover the redemption request settle, which is typically a few days.
Income
Deposit Securities (“IDS”).
IDS consist of two securities, common shares and subordinated notes of the issuer, which
are “clipped” together. Holders of IDS receive dividends on the common shares and interest at a fixed rate on the subordinated
notes to produce a blended yield. The distribution policies of IDS issuers are similar to those of real estate investment
trusts (“REITs”), master limited partnerships and income trusts, which distribute a significant portion of their free
cash flow. IDS are listed on a stock exchange, but initially the underlying securities are not. However, in time (typically in
the range of 45 to 90 days after the closing of the offering), holders may unclip the components of the IDS and trade the
common shares and subordinated notes separately.
Indexed
Securities. Indexed securities
differ from other types of debt securities in which a Fund may invest in several respects.
First, the interest rate or, unlike other debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments (defined below), such as an interest rate
compared with a fixed interest rate or the currency exchange rates between two currencies (neither of which need be
the currency in which the instrument is denominated). The reference instrument need not be related to the terms of the
indexed security. For example, the principal amount of a U.S. Dollar denominated indexed security may vary based on
the exchange rate of two foreign currencies. The value of indexed securities is linked to currencies, interest rates, commodities,
indices or other financial indicators (“reference instruments”). An indexed security may be positively or negatively
indexed; that is, its value may increase or decrease if the value of the reference instrument increases. Further, the
change in the principal amount payable or the interest rate of an indexed security may be a multiple of the percentage
change (positive or negative) in the value of the underlying reference instrument(s).
Investment
in indexed securities involves certain risks. In addition to the credit risk of the security’s issuer and the normal
risks of price changes in response to changes in interest rates, the principal amount of indexed securities may decrease
as a result of changes in the value of reference instruments. Further, in the case of certain indexed securities in which
the interest rate is linked to a reference instrument, the interest rate may be reduced to zero, and any further declines
in the value of the security may then reduce the principal amount payable on maturity. Finally, indexed securities
may be more volatile than the reference instruments underlying the indexed securities.
Inflation/Deflation
Risk. A Fund’s investments
may be subject to inflation risk, which is the risk that the real value (i.e., nominal
price of the asset adjusted for inflation) of assets or income from investments will be less in the future because inflation
decreases the purchasing power and value of money (i.e., as inflation increases, the real value of a Fund’s assets can
decline). Inflation rates may change frequently and significantly as a result of various factors, including unexpected shifts
in the domestic or global economy and changes in monetary or economic policies (or expectations that these
44 Additional
Information on Portfolio Instruments and Investment Policies
policies
may change). A Fund’s investments may not keep pace with inflation, which would adversely affect the real value
of Fund shareholders’ investment in the Fund. This risk is greater for fixed-income instruments with longer maturities.
Deflation
risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effort on
the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of a Fund’s
assets.
Initial
Public Offerings (“IPOs”).
An IPO is a type of public offering where shares of stock in a company are sold to the general
public, on a securities exchange, for the first time. Through this process, a private company transforms into a public
company. IPOs are used by companies to raise expansion capital, to possibly monetize the investments of early private
investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital
to its public investors. The availability of IPOs may be limited and a Fund may not be able to buy any shares at the offering
price, or may not be able to buy as many shares at the offering price as it would like. Further, IPO prices often are subject
to greater and more unpredictable price changes than more established stocks.
Interests
in Publicly Traded Limited Partnerships.
Publicly traded limited partnerships represent equity interests in the assets
and earnings of the partnership’s trade or business. Unlike common stock in a corporation, limited partnership interests
or units have limited or no voting rights. However, many of the risks of investing in common stocks are still applicable
to investments in limited partnership interests. In addition, limited partnership interests are subject to risks not present
in common stock. For example, non-investment income generated from limited partnerships deemed not to be “publicly
traded” will not be considered “qualifying income” under the Internal Revenue Code and may trigger adverse tax consequences.
Also, since publicly traded limited partnerships are a less common form of organizational structure than corporations,
the limited partnership units may be less liquid than publicly traded common stock. Also, because of the difference
in organizational structure, the fair value of limited partnership units in a Fund’s portfolio may be based either upon
the current market price of such units, or if there is no current market price, upon the pro rata value of the underlying
assets of the partnership. Limited partnership units also have the risk that the limited partnership might, under certain
circumstances, be treated as a general partnership, giving rise to broader liability exposure to the limited partners for
activities of the partnership. Further, the general partners of a limited partnership may be able to significantly change the
business or asset structure of a limited partnership without the limited partners having any ability to disapprove any such
changes. In certain limited partnerships, limited partners may also be required to return distributions previously made
in the event that excess distributions have been made by the partnership, or in the event that the general partners, or
their affiliates, are entitled to indemnification.
Inverse
Floating Rate Instruments (“Inverse Floaters”).
An Inverse Floater is a type of bond or other type of debt instrument
used in finance whose coupon rate has an inverse relationship to short-term interest rates (or its reference rate).
The interest rate on an Inverse Floater resets in the opposite direction from the market rate of interest to which the Inverse
Floater is indexed. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of
similar credit quality.
A
floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the
magnitude of the change in the index rate of interest. The higher degree of leverage inherent in some floaters is associated
with greater volatility in their market values.
With
respect to purchasable variable and floating rate instruments, the Adviser will consider the earning power, cash flows
and liquidity ratios of the issuers and guarantors of such instruments and, if the instruments are subject to a demand
feature, will monitor their financial status to meet payment on demand. Such instruments may include variable amount
master demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments
in the interest rate. The absence of an active secondary market with respect to particular variable and floating
rate instruments could make it difficult for a Fund to dispose of a variable or floating rate note if the issuer defaulted
on its payment obligation or during periods that the Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss with respect to such instruments. In determining average-weighted portfolio
maturity, an instrument will be deemed to have a maturity equal to either the period remaining until the next interest
rate adjustment or the time the Fund involved can recover payment of principal as specified in the instrument, depending
on the type of instrument involved.
LIBOR
and Replacement Rates Risk.
LIBOR, the London Interbank Offered Rate, was a leading floating rate benchmark
used in loans, notes, derivatives and other instruments or investments. As a result of benchmark reforms, publication
of most LIBOR settings has ceased. Some LIBOR settings continue to be published but only on a temporary, synthetic
and non-representative basis. Regulated entities have generally ceased entering into new LIBOR contracts in connection
with regulatory guidance or prohibitions. Public and private sector actors have worked to establish new or alternative
reference rates (e.g., the Secured Overnight Financing Rate (“SOFR”), which measures the cost of overnight borrowings
through repurchase agreement transactions collateralized with U.S. Treasury securities and is intended to replace
U.S. dollar LIBOR with certain adjustments).
The
elimination of LIBOR, changes to other reference rates or any other changes or reforms to the determination or supervision
of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked
to those reference rates, which may adversely affect the Funds’ performance and/or net asset value.
Additional
Information on Portfolio Instruments and Investment Policies 45
Replacement
rates that have been identified include SOFR and the Sterling Overnight Index Average Rate (SONIA, which
is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions
in the sterling market), although other replacement rates could be adopted by market participants. If no widely
accepted conventions develop, it is uncertain what effect broadly divergent interest rate calculation methodologies
in the markets will have on the price and liquidity of certain equity and debt securities in which the Funds may
invest.
Alteration
of the terms of a debt instrument or a modification of the terms of other types of contracts to replace LIBOR or another
interbank offered rate (“IBOR”) with a new reference rate could also result in a taxable exchange and the realization
of income and gain/loss for U.S. federal income tax purposes.
Loans.
Loans include floating or adjustable rate loans (“Loans”) made to U.S. and foreign borrowers that are corporations,
partnerships, or other business entities (“Borrowers”). These Borrowers operate in a variety of industries and geographic
regions. A Fund acquires Loans from lenders such as banks (see “Bank Loans” above), insurance companies, finance
companies, other investment companies, and private investment funds. The Loans are loans that are typically made
to business borrowers to finance leveraged buy-outs, recapitalizations, mergers, stock repurchases, or internal growth.
The Loans generally are negotiated between a Borrower and several financial institution lenders (“Lenders”) represented
by one or more Lenders acting as agent of all the Lenders (“Agent”). The Agent is responsible for negotiating the
loan agreement (the “Loan Agreement”) that establishes the terms and conditions of the Loan and the rights of the Borrower
and the Lenders. A Fund may act as one of the group of original Lenders originating a Loan, may purchase assignments
of portions of Loans from third parties and may invest in participations in Loans.
The
Loans have the most senior position in a Borrower’s capital structure or share the senior position with other senior
debt securities of the Borrower. This capital structure position generally gives holders of the Loans a priority claim on
some or all of the Borrower’s assets in the event of default and therefore the Lenders will be paid before certain other creditors
of the Borrower. The Loans also have contractual terms designed to protect Lenders. These covenants may include
mandatory prepayment out of excess cash flows, restrictions on dividend payments, the maintenance of minimum
financial ratios, limits on indebtedness and other financial tests. Breach of these covenants generally is an event of
default and, if not waived by the Lenders, may give Lenders the right to accelerate principal and interest payments. The
Funds generally acquire Loans of Borrowers that, among other things, in the Adviser’s judgment, can make timely payments
on their Loans and that satisfy other credit standards established by the Adviser. The Adviser performs its own independent
credit analysis of the Borrower and the collateral securing each loan in addition to utilizing information prepared
and supplied by the Agent or other Lenders. The Loans are generally credit rated less than investment grade and
may be subject to restrictions on resale. Below investment grade fixed income securities are securities rated BB/Ba or
lower by Standard & Poor’s, Fitch, or Moody’s or similarly rated by another NRSRO.
Loans
involve the risk that a Fund will not receive payment of principal, interest, and other amounts due in connection
with these investments and will depend primarily on the financial condition of the borrower. Loans that are fully
secured offer a Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal,
although there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s
obligation, or that the collateral can be liquidated. Some loans or claims may be in default at the time of purchase.
As a Fund may be required to rely upon another lending institution to collect and pass onto the Fund amounts payable
with respect to the Loan and to enforce the Fund’s rights under the Loan, an insolvency, bankruptcy, or reorganization
of the lending institution may delay or prevent the Fund from receiving such amounts. The highly leveraged
nature of many such Loans may make such loans especially vulnerable to adverse changes in economic or market
conditions.
Market
Events Risk. The market
values of securities or other assets will fluctuate, sometimes sharply and unpredictably,
due to changes in general market conditions, overall economic trends or events, governmental actions or intervention,
actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes
or other factors, political developments, investor sentiment and other factors that may or may not be related to the
issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected.
Economic, financial, public health, labor and other global market developments and disruptions, including
those arising out of political and geopolitical events, public health emergencies (such as the spread of infectious
diseases, pandemics and epidemics), natural/environmental or
man-made disasters, war, terrorism, social
unrest, recessions, inflation, rapid interest
rate changes, supply chain disruptions, governmental or quasi-governmental actions
(including sanctions and other similar measures) and other circumstances in one country or region could have profound
impacts on global economies or markets. As a result, whether or not the fund invests in securities of issuers located
in or with significant exposure to the countries directly affected, the value and liquidity of the fund’s investments may
be negatively affected.
U.S.
and global markets have experienced increased volatility, including as a result of the recent failures of certain U.S.
and non-U.S. banks, which could be harmful to the Fund and issuers in which it invests. Even if banks used by issuers in which
a Fund invests remain solvent, continued volatility in the banking sector could cause or intensify an economic recession,
increase the costs of capital and banking services or result in the issuers being unable to obtain or refinance indebtedness
at all or on as favorable terms as could otherwise have been obtained. Conditions in the banking sector are evolving,
and the scope of any potential impacts to the Fund and issuers, both from market conditions and also potential
46 Additional
Information on Portfolio Instruments and Investment Policies
legislative
or regulatory responses, are uncertain. Such conditions and responses, as well as a changing interest rate environment,
can contribute to decreased market liquidity and decrease the value of certain holdings. Continued market volatility
and uncertainty and/or a downturn in market and economic and financial conditions, as a result of developments
in the banking industry or otherwise, could have an adverse impact on the Fund and issuers in which it invests.
Europe
– Recent Events.
A number of countries in Europe have experienced severe economic and financial difficulties.
Many non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure,
their debts; many other issuers have faced difficulties obtaining credit or refinancing existing obligations; financial
institutions have in many cases required government or central bank support, have needed to raise capital, and/or
have been impaired in their ability to extend credit; and financial markets in Europe and elsewhere have experienced extreme
volatility and declines in asset values and liquidity. These difficulties may continue, worsen or spread within and outside
Europe. Responses to the financial problems by European governments, central banks and others, including austerity
measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery
or have other unintended consequences. Further defaults or restructurings by governments and others of their debt
could have additional adverse effects on economies, financial markets and asset valuations around the world.
For
example, the uncertainties and potentially adverse
events related to the
United Kingdom’s exit from the European
Union (“Brexit”) could increase
taxes and costs of business and cause volatility in currency exchange rates and interest
rates. Brexit could adversely affect the performance of contracts in existence at the date of Brexit and European, UK
or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions,
regulatory agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national
laws and regulations as a new relationship between the UK and EU is defined and the UK determines which EU laws
to replace or replicate. Any of these effects of Brexit, and others that cannot be anticipated, could adversely affect the
price of the Shares. The impact of Brexit on the Trust, the Trust’s service providers, and markets generally may not be fully
known for some time.
Economies
and financial markets throughout the world are becoming increasingly interconnected. As a result, whether
or not a Fund invests in securities of issuers located in or with significant exposure to countries experiencing economic
and financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected by such events.
In addition, any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the world economy, which in turn could adversely affect the Fund’s investments.
Medium
Company, Small Company and Emerging Growth Securities.
Investing in securities of medium-sized companies,
small-sized, including micro-capitalization companies and emerging growth companies, may involve greater
risks than investing in the securities of larger, more established companies, including possible risk of loss. Also, because
these securities may have limited marketability, their prices may be more volatile than securities of larger, more established
companies or the market averages in general. Because medium-sized, small-sized and emerging growth companies
normally have fewer shares outstanding than larger companies, it may be more difficult for a Fund to buy or sell
significant numbers of such shares without an unfavorable impact on prevailing prices. Medium-sized, small-sized and
emerging growth companies may have limited product lines, markets or financial resources and may lack management
depth. In addition, medium-sized, small-sized and emerging growth companies are typically subject to wider
variations in earnings and business prospects than are larger, more established companies. There is typically less publicly
available information concerning medium sized, small-sized and emerging growth companies than for larger, more
established ones.
Money
Market Instruments and Associated Regulatory Risk.
Each Fund
may
invest up to 20% of its net assets in short term
investment grade money market obligations at the time of purchase. Money
market instruments may include the following
types of instruments:
● |
obligations
issued or guaranteed as to interest and principal by the U.S. Government, its agencies, or instrumentalities, or
any federally chartered corporation, with remaining maturities of 397 days or less; |
● |
obligations
of sovereign foreign governments, their agencies, instrumentalities and political subdivisions, with remaining
maturities of 397 days or less; |
● |
obligations
of municipalities and states, their agencies and political subdivisions with remaining maturities of 397 days or
less; |
● |
asset-backed
commercial paper whose own rating or the rating of any guarantor is in one of the two highest categories
of any NRSRO; |
● |
bank
or savings and loan obligations; |
● |
certificates
of deposit maturing in one year or less; |
● |
commercial
paper (including asset-backed commercial paper), which are short-term unsecured promissory notes issued
by corporations in order to finance their current operations. It may also be issued by foreign governments, and states
and municipalities. Generally the commercial paper or its guarantor will be rated within the top two rating |
Additional
Information on Portfolio Instruments and Investment Policies 47
|
categories
by a NRSRO, or if not rated, is issued and guaranteed as to payment of principal and interest by companies which
at the date of investment have a high quality outstanding debt issue; |
● |
bank
loan participation agreements representing obligations of corporations having a high quality short-term rating, at
the date of investment, and under which a Fund will look to the credit worthiness of the lender bank, which is obligated
to make payments of principal and interest on the loan, as well as to credit worthiness of the borrower; |
● |
high
quality short-term (maturity in 397 days or less) corporate obligations, rated within the top two rating categories by
a NRSRO or, if not rated, deemed to be of comparable quality by the Adviser; |
● |
extendable
commercial notes, which differ from traditional commercial paper because the issuer can extend the maturity
of the note up to 397 days with the option to call the note any time during the extension period; and |
● |
unrated
short-term (maturing in 397 days or less) debt obligations that are determined by the Adviser to be of comparable
quality to the securities described above. |
The
SEC adopted changes to the rules that govern SEC registered money market funds in July 2023. These changes include,
among other things: (1) substantially increasing the required minimum levels of liquid assets a fund must hold; (2) allowing
a money market fund’s board or its delegate to charge liquidity fees when it determines such fee would be in the best
interests of the fund; (3) removing a fund’s ability to impose a temporary suspension of redemptions (except under extraordinary
circumstances as part of a liquidation); (4) substantially increasing the required minimum levels of liquid assets
a fund must hold; (5) allowing certain money market funds to engage in certain practices in order to maintain a stable
NAV in a negative interest rate environment; and (6) enhancing reporting requirements for all money market funds. These
changes may affect the performance, yield, and operating expenses of the Fund.
Mortgage-Related
Securities. Mortgage-related
securities are interests in pools of residential or commercial mortgage
loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related
and private organizations. The pools underlying mortgage pass-through securities consist of mortgage
loans secured by mortgages or deeds of trust creating a first lien on commercial, residential, residential multi-family
and mixed residential/commercial properties. Underlying mortgages may be of a variety of types, including adjustable
rate, conventional 30-year, graduated payment and 15-year. Most mortgage-related securities are pass-through
securities, which means that investors receive payments consisting of a pro rata share of both principal and
interest (less servicing and other fees). Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be incurred. Compared to other
fixed income investments with similar maturity and credit, mortgage-related securities generally increase in value to
a lesser extent when interest rates decline and generally decline in value to a similar or greater extent when interest rates
rise.
Adjustable
rate mortgage securities (“ARMs”) are a form of pass-through security representing interests in pools of mortgage
loans, the interest rates of which are adjusted from time to time. The adjustments usually are determined in accordance
with a predetermined interest rate index and may be subject to certain limits. The adjustment feature of ARMs
tends to make their values less sensitive to interest rate changes. As the interest rates on the mortgages underlying ARMs
are reset periodically, yields of such securities will gradually align themselves to reflect changes in market rates. Unlike
fixed-rate mortgages, which generally decline in value during periods of rising interest rates, ARMs allow a Fund to participate
in increases in interest rates through periodic adjustments in the coupons of the underlying mortgages, resulting
in both higher current yields and low price fluctuations. A Fund will not benefit from increases in interest rates to the
extent that interest rates rise to the point where they cause the current coupon of the underlying adjustable rate mortgages
to exceed any maximum allowable annual or lifetime reset limits (or “cap rates”) for a particular mortgage. In this
event, the value of the adjustable rate mortgage-backed securities in a Fund would likely decrease. Furthermore, if prepayments
of principal are made on the underlying mortgages during periods of rising interest rates, the Fund may be able
to reinvest such amounts in securities with a higher current rate of return. During periods of declining interest rates, of course,
the coupon rates may readjust downward, resulting in lower yields to the Fund. Further, because of this feature, the
values of ARMs are unlikely to rise during periods of declining interest rates to the same extent as fixed rate instruments.
Commercial
banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may
be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related
securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect government or agency guarantees
of payments in the former pools. However, timely payment of interest and principal of these pools may be supported
by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters
of credit, which may be issued by governmental entities or private insurers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets minimum
investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements.
48 Additional
Information on Portfolio Instruments and Investment Policies
Due
to the possibility of prepayments of the underlying mortgage instruments, mortgage-backed securities generally
do not have a known maturity. In the absence of a known maturity, market participants generally refer to an estimated
average life. An average life estimate is a function of an assumption regarding anticipated prepayment patterns,
based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption
is necessarily subjective, and thus different market participants can produce different average life estimates with
regard to the same security. There can be no assurance that estimated average life will be a security’s actual average
life. Like fixed income securities in general, mortgage-related securities will generally decline in price when interest
rates rise. Rising interest rates also tend to discourage refinancing of home mortgages, with the result that the average
life of mortgage-related securities held by a fund may be lengthened. As average life extends, price volatility generally
increases. For that reason, extension of average life causes the market price of the mortgage-related securities to
decrease further when interest rates rise than if the average lives were fixed. Conversely, when interest rates fall, mortgages
may not enjoy as large a gain in market value due to prepayment risk. Prepayments in mortgages tend to increase,
average life tends to decline and increases in value are correspondingly moderated.
To
the extent that such mortgage-backed securities are held by a Fund, the prepayment right will tend to limit to some
degree the increase in NAV of the Fund because the value of the mortgage-backed securities held by the Fund may
not appreciate as rapidly as the price of non-callable debt securities. Mortgage-backed securities are subject to the risk
of prepayment and the risk that the underlying loans will not be repaid. Because principal may be prepaid at any time,
mortgage-backed securities may involve significantly greater price and yield volatility than traditional debt securities.
Private
lenders or government-related entities may also create mortgage loan pools offering pass-through investments
where the mortgages underlying these securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to maturity may be shorter than was
previously customary. As new types of mortgage-related securities are developed and offered to investors, a Fund, consistent
with its investment objective and policies, may consider making investments in such new types of securities.
Impact
of Sub-Prime Mortgage Market.
Mortgage-backed, asset-backed and other fixed income securities’ value and
liquidity may be adversely affected by the critical downturn in the sub-prime mortgage lending market in the U.S. sub-prime
loans, which have higher interest rates, are made to borrowers with low credit ratings or other factors that increase
the risk of default. Concerns about widespread defaults on sub-prime loans have also created heightened volatility
and turmoil in the general credit markets. As a result, a Fund’s investments in certain fixed income securities may decline
in value, its market value may be more difficult to determine, and the Fund may have more difficulty disposing of them.
Agency-Mortgage-Related
Securities. The dominant
issuers or guarantors of mortgage-related securities today are Ginnie
Mae, Fannie Mae and Freddie Mac. GNMA creates pass-through securities from pools of U.S. Government guaranteed
or insured (such as by the Federal Housing Authority or Veterans Administration) mortgages originated by mortgage
bankers, commercial banks and savings associations. FNMA and FHLMC issue pass-through securities from pools
of conventional and federally insured and/or guaranteed residential mortgages obtained from various entities, including
savings associations, savings banks, commercial banks, credit unions and mortgage bankers.
Mortgage-backed
securities either issued or guaranteed by GNMA, the FHLMC or FNMA (“Certificates”) are called pass-through
Certificates because a pro rata share of both regular interest and principal payments (less GNMA’s, FHLMC’s
or FNMA’s fees and any applicable loan servicing fees), as well as unscheduled early prepayments on the underlying
mortgage pool, are passed through monthly to the holder of the Certificate (i.e., a Fund). The yields provided by
these mortgage-backed securities have historically exceeded the yields on other types of U.S. Government Securities with
comparable maturities in large measure due to the prepayment risk discussed below.
In
September 2008, the Federal Housing Finance Agency placed FNMA and FHLMC into conservatorship. FNMA and FHLMC
are continuing to operate as going concerns while in conservatorship and each remain liable for all of its obligations,
including its guaranty obligations, associated with its mortgage-backed securities. Although the U.S. Government
has provided financial support to Fannie Mae and Freddie Mac, there can be no assurance that it will support
these or other government-sponsored enterprises in the future.
Fannie
Mae Securities. FNMA is
a federally chartered and privately owned corporation established under the Federal
National Mortgage Association Charter Act. FNMA provides funds to the mortgage market primarily by purchasing
home mortgage loans from local lenders, thereby providing them with funds for additional lending. FNMA uses
its funds to purchase loans from investors that may not ordinarily invest in mortgage loans directly, thereby expanding
the total amount of funds available for housing.
Each
FNMA pass-through security represents a proportionate interest in one or more pools of loans, including conventional
mortgage loans (that is, mortgage loans that are not insured or guaranteed by any U.S. Government agency).
The pools consist of one or more of the following types of loans: (1) fixed-rate level payment mortgage loans; (2)
fixed-rate growing equity mortgage loans; (3) fixed-rate graduated payment mortgage loans; (4) variable rate mortgage
loans; (5) other adjustable rate mortgage loans; and (6) fixed-rate mortgage loans secured by multifamily projects.
Additional
Information on Portfolio Instruments and Investment Policies 49
Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are
not backed by the full faith and credit of the U.S. Government.
Federal
Home Loan Mortgage Corporation Securities (FHLMC).
FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential
housing. Its stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates (“PCs”)
which represent interests in conventional mortgages from FHLMC’s national portfolio. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
The
operations of FHLMC currently consist primarily of the purchase of first lien, conventional, residential mortgage loans
and participation interests in mortgage loans and the resale of the mortgage loans in the form of mortgage-backed
securities.
The
mortgage loans underlying FHLMC securities typically consist of fixed-rate or adjustable rate mortgage loans with
original terms to maturity of between 10 to 30 years, substantially all of which are secured by first liens on one-to-four-family
residential properties or multifamily projects. Each mortgage loan must be whole loans, participation interests
in whole loans and undivided interests in whole loans or participation in another FHLMC security.
Government
National Mortgage Association Securities.
GNMA is a wholly-owned corporate instrumentality of the U.S.
Government within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools
of FHA-insured or VA-guaranteed mortgages. In order to meet its obligations under a guarantee, GNMA is authorized
to borrow from the U.S. Treasury with no limitations as to amount. These guarantees, however, do not apply to the
market value or yield of mortgage-backed securities or to the value of Fund shares. Also, GNMA securities often are purchased
at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs.
GNMA
pass-through securities may represent a proportionate interest in one or more pools of the following types of mortgage
loans: (1) fixed-rate level payment mortgage loans; (2) fixed-rate graduated payment mortgage loans; (3) fixed-rate
growing equity mortgage loans; (4) fixed-rate mortgage loans secured by manufactured (mobile) homes; (5) mortgage
loans on multifamily residential properties under construction; (6) mortgage loans on completed multifamily projects;
(7) fixed-rate mortgage loans as to which escrowed funds are used to reduce the borrower’s monthly payments
during the early years of the mortgage loans (“buydown” mortgage loans); (8) mortgage loans that provide for
adjustments on payments based on periodic changes in interest rates or in other payment terms of the mortgage loans;
and (9) mortgage-backed serial notes.
The
principal and interest on GNMA pass-through securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and timely payment of all interest and principal, while FHLMC guarantees
timely payment of interest and ultimate collection of principal, of its pass-through securities. FNMA and FHLMC
securities are not backed by the full faith and credit of the United States; however, they are generally considered to
present minimal credit risks. The yields provided by these mortgage-related securities historically have exceeded the yields
on other types of U.S. Government securities with comparable maturities in large measure due to the risks associated
with prepayment.
Municipal
Securities. Municipal securities
include debt obligations issued by governmental entities to obtain funds for various
public purposes, such as the construction of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other public institutions and facilities.
Private activity bonds that are issued by or on behalf of public authorities to finance various privately-operated facilities
are deemed to be municipal securities, only if the interest paid thereon is exempt from federal taxes.
Other
types of municipal securities include short-term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and
other forms of short-term tax-exempt loans. Such instruments are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements or other revenues. In addition, the Intermediate Municipal Income
Fund and Short Duration High Yield Municipal Fund may invest in other types of tax-exempt instruments, such as municipal
bonds, private activity bonds, and pollution control bonds.
Project
Notes are issued by a state or local housing agency and are sold by the Department of Housing and Urban Development.
While the issuing agency has the primary obligation with respect to its Project Notes, they are also secured by
the full faith and credit of the United States through agreements with the issuing authority which provide that, if required,
the federal government will lend the issuer an amount equal to the principal of and interest on the Project Notes.
The
two principal classifications of municipal securities consist of “general obligation” and “revenue” issues.
Each Fund may also acquire “moral obligation”
issues, which are normally issued by special purpose authorities. There are, of course,
variations in the quality of municipal securities, both within a particular classification and between classifications, and
the yields on municipal securities depend upon a variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation and the
50 Additional
Information on Portfolio Instruments and Investment Policies
rating
of the issue. Ratings represent the opinions of an NRSRO as to the quality of municipal securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and municipal securities with the
same maturity, interest rate and rating may have different yields, while municipal securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to purchase, an issue of municipal securities may cease
to be rated or its rating may be reduced below the minimum rating required for purchase. The Adviser will consider such
an event in determining whether the Fund should continue to hold the obligation.
Municipal
securities are subject to interest rate risk. Interest rate risk is the chance that security prices overall will decline
over short or even long periods because of rising interest rates. Interest rate risk is higher or long-term bonds, whose
prices are more sensitive to interest rates changes than are the prices of short-term bonds. Generally, prices of longer
maturity issues tend to fluctuate more than prices of shorter maturity issues. Prices and yields on municipal bonds are
dependent on a variety of factors, including general credit conditions, the financial condition of the issuer, general conditions
of the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the
issue. In markets environments where interest rates are rising, issuers may be less willing or able to make principal and/or
interest payments on securities when due. A number of these factors, including the ratings of particular issues, are subject
to change from time to time. Information about the financial condition of an issuer of municipal bonds may not be as
extensive as that which is made available by corporations whose securities are publicly traded. The secondary market for
municipal bonds typically has been less liquid than that for taxable debt/fixed income securities, and this may affect the
Fund’s ability to sell particular municipal bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.
Issuers
of municipal bonds in a state, territory, commonwealth or possession or instrumentality in which the Fund invests
may experience significant financial difficulties for various reasons, including as the result of events that cannot be reasonably
anticipated or controlled such as economic downturns or similar periods of economic stress, social conflicts or
unrest, labor disruption, natural disasters, or public health conditions. Such financial conditions may lead to credit rating downgrades
or defaults of such issuers which, in turn, could affect the market values and marketability of many or all municipal
bonds of such issuers. An issuer’s obligations under its municipal securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such as the federal bankruptcy code,
and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal
or interest, or both, or imposing other constraints upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal
of its municipal securities may be materially adversely affected by litigation or other conditions. Federal tax laws limit
the types and amounts of tax-exempt municipal bonds issuable for certain purposes, especially industrial development
bonds and private activity bonds. Such limits may affect the future supply and yields of these types of tax-exempt
municipal securities. Further proposals limiting the issuance of tax-exempt municipal securities may well be introduced
in the future. Shareholders should consult their tax advisers for the current law on tax-exempt bonds and securities.
A
Fund may invest in certain tax-exempt municipal bonds. The Fund will rely on the opinion of issuers’ bond counsel and,
in the case of derivative securities, sponsors’ counsel, on the tax-exempt status of interest on municipal bonds and payments
under tax-exempt derivative securities. The Fund will not independently review the bases for those tax opinions.
If the Internal Revenue Service or state tax authorities determine that an issuer of a tax-exempt municipal bond has
not complied with applicable tax requirements, interest from the security could become taxable at the federal, state and/or
local level and the security could decline significantly in value. Issuers or other parties generally enter into covenants
requiring continuing compliance with federal tax requirements to preserve the tax-free status of interest payments
over the life of the security. If at any time the covenants are not complied with, or if the Internal Revenue Service
otherwise determines that the issuer did not comply with relevant tax requirements, interest payments from a security
could become taxable, possibly retroactively to the date the security was issued.
Private
Activity Bonds. Private
activity bonds are issued by or on behalf of public authorities to provide funds, usually through
a loan or lease arrangement, to a private entity for the purpose of financing construction of privately operated industrial
facilities, such as warehouse, office, plant and storage facilities and environmental and pollution control facilities. Such
bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity, which
may or may not be guaranteed by a parent company or otherwise secured. Private activity bonds generally are not
secured by a pledge of the taxing power of the issuer of such bonds. Therefore, repayment of such bonds generally depends
on the revenue of a private entity. The continued ability of an entity to generate sufficient revenues for the payment
of principal and interest on such bonds will be affected by many factors, including the size of the entity, its capital
structure, demand for its products or services, competition, general economic conditions, government regulation and
the entity’s dependence on revenues for the operation of the particular facility being financed.
Under
current federal income tax law, interest on municipal bonds issued after August 7, 1986 which are specified private
activity bonds and the proportionate share of any exempt-interest dividend paid by a regulated investment company
that receives interest from such private activity bonds, will be treated as an item of tax preference for purposes of
the alternative minimum tax (“AMT”) that is imposed on individuals by the Code, though for regular federal income tax purposes
such interest will remain fully tax-exempt. Bonds issued in 2009 and 2010 generally will not be treated as private activity
bonds, and interest earned on such bonds generally will not be treated as a tax preference item.
Additional
Information on Portfolio Instruments and Investment Policies 51
Industrial
Development Bonds. Industrial
development bonds (“IDBs”) are issued by public authorities to obtain funds to
provide financing for privately-operated facilities for business and manufacturing, housing, sports, convention or trade show
facilities, airport, mass transit, port and parking facilities, air or water pollution control facilities, and certain facilities for
water supply, gas, electricity or sewerage or solid waste disposal. Although IDBs are issued by municipal authorities, the
payment of principal and interest on IDBs is dependent solely on the ability of the user of the facilities financed by the bonds
to meet its financial obligations and the pledge, if any, of the real and personal property being financed as security for
such payments. IDBs are considered municipal securities if the interest paid is exempt from regular federal income tax.
Interest earned on IDBs may be subject to the AMT.
Hospital
and Health Care Facility Bonds.
The ability of hospitals and other health care facilities to meet their obligations
with respect to revenue bonds issued on their behalf is dependent on various factors. Some such factors are the
level of payments received from private third-party payors and government programs and the cost of providing health
care services. There can be no assurance that payments under governmental programs will be sufficient to cover the
costs associated with their bonds. It may also be necessary for a hospital or other health care facility to incur substantial
capital expenditures or increased operating expenses to effect changes in its facilities, equipment, personnel and
services. Hospitals and other health care facilities are additionally subject to claims and legal actions by patients and others
in the ordinary course of business. There can be no assurance that a claim will not exceed the insurance coverage of
a health care facility or that insurance coverage will be available to a facility.
Single
Family and Multi-Family Housing Bonds.
Multi-family housing revenue bonds and single family mortgage revenue
bonds are state and local housing issues that have been issued to provide financing for various housing projects.
Multi-family
housing revenue bonds are payable primarily from mortgage loans to housing projects for low to moderate
income families. Single-family mortgage revenue bonds are issued for the purpose of acquiring notes secured by
mortgages on residences. The ability of housing issuers to make debt service payments on their obligations may be affected
by various economic and non-economic factors. Such factors include: occupancy levels, adequate rental income
in multi-family projects, the rate of default on mortgage loans underlying single family issues and the ability of mortgage
insurers to pay claims. All single-family mortgage revenue bonds and certain multi-family housing revenue bonds
are prepayable over the life of the underlying mortgage or mortgage pool. Therefore, the average life of housing obligations
cannot be determined. However, the average life of these obligations will ordinarily be less than their stated maturities.
Mortgage loans are frequently partially or completely prepaid prior to their final stated maturities.
Power
Facility Bonds. The ability
of utilities to meet their obligations with respect to bonds they issue is dependent on various
factors. These factors include the rates that they may charge their customers, the demand for a utility’s services and
the cost of providing those services. Utilities are also subject to extensive regulations relating to the rates which they may
charge customers. Utilities can experience regulatory, political and consumer resistance to rate increases. Utilities engaged
in long-term capital projects are especially sensitive to regulatory lags in granting rate increases. Utilities are additionally
subject to increased costs due to governmental environmental regulation and decreased profits due to increasing
competition. Any difficulty in obtaining timely and adequate rate increases could adversely affect a utility’s results
of operations. The Adviser cannot predict the effect of such factors on the ability of issuers to meet their obligations
with respect to bonds.
Water
and Sewer Revenue Bonds.
Water and sewer bonds are generally payable from user fees. The ability of state and
local water and sewer authorities to meet their obligations may be affected by a number of factors. Some such factors
are the failure of municipalities to utilize fully the facilities constructed by these authorities, declines in revenue from
user charges, rising construction and maintenance costs, impact of environmental requirements, the difficulty of obtaining
or discovering new supplies of fresh water, the effect of conservation programs, the impact of “no growth” zoning
ordinances and the continued availability of federal and state financial assistance and of municipal bond insurance
for future bond issues.
University
and College Bonds. The ability
of universities and colleges to meet their obligations is dependent upon various
factors. Some of these factors of which an investor should be aware are the size and diversity of their sources of revenues,
enrollment, reputation, management expertise, the availability and restrictions on the use of endowments and other
funds and the quality and maintenance costs of campus facilities. Also, in the case of public institutions, the financial
condition of the relevant state or other governmental entity and its policies with respect to education may affect an
institution’s ability to make payments on its own.
Auction
Rate Securities. Auction
rate municipal securities are tax-exempt debt securities with coupons based on a rate
set via a “Dutch” auction. The auction is held at regularly scheduled intervals as set forth in the indenture for a security.
The auction sets the coupon rate, and investors may submit bids to buy, sell or hold securities in the auction. Provided
that the auction mechanism is successful, auction rate securities permit the holder to sell the securities in an auction
at par value. The coupon is reset via an auction in which bids are made by broker-dealers and other institutions on
behalf of their investors for a certain amount of securities at a specified minimum yield. The rate set by the auction is the
lowest interest rate that covers all securities available for sale. While this process is designed to permit auction rate securities
to be traded at par value, there is a risk that an auction will fail due to insufficient demand for the securities. In the
event an auction fails, the interest rate is set by a formula set forth in the indenture for a security. In certain recent market
environments, auction failures have been more prevalent and the auctions have continued to fail for an extended
52 Additional
Information on Portfolio Instruments and Investment Policies
period
of time. Failed auctions may adversely affect the liquidity and price of auction rate securities. Although some issuers
have redeemed such securities, the issuers are not obligated to do so and, therefore, there is no guarantee that a liquid
market will exist for the Funds’ investments in auction rate securities at a time when the Funds wish to dispose of such
securities. Moreover, between auctions, there may be no active secondary market for these securities, and sales conducted
on a secondary market may not be on terms favorable to the seller. The Funds may purchase auction rate securities
at par in situations where the auction mechanism is functioning normally, but generally will purchase them at a discount
where the auctions have failed. In the latter case, the Funds could realize a gain if successful auctions resume at a
later date or the issuer calls the security or tenders for the security rather than pay the rate required due to the failed auction.
The Funds may treat an auction rate security as illiquid if it is or becomes subject to prices established as a result of
a failed auction if reliable prices are not available. The Funds will use the time remaining until the next scheduled auction
date for the purpose of determining the auction rate securities’ duration. In addition to liquidity and interest rate risk,
the Funds’ investments in auction rate securities are subject to credit and market risk, as described in the Funds’ Prospectus.
See “Additional Information about Investments, Investment Techniques and Risks.”
Advance
Refunded Bonds (or pre-refunded bonds).
Advance refunded bonds are municipal securities that are subsequently
refunded by the issuance and delivery of a new issue of bonds prior to the date on which the outstanding issue
of bonds can be redeemed or paid. The proceeds from the new issue of bonds are typically placed in an escrow fund
consisting of U.S. Government obligations that are used to pay the interest, principal and call premium on the issue being
refunded. A Fund may also purchase municipal securities that have been refunded prior to purchase by the Fund.
Tender
Option Bonds. Tender option
bonds are created by coupling an intermediate- or long-term, fixed-rate, tax-exempt
bond (generally held pursuant to a custodial arrangement) with a tender agreement that gives the holder the
option to tender the bond at its face value. As consideration for providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees equal to the difference between the bond’s fixed coupon
rate and the rate (determined by a remarketing or similar agent) that would cause the bond, coupled with the tender
option, to trade at par on the date of such determination. After a payment of the tender option fee, a Fund effectively
holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. In selecting tender option
bonds for a Fund, the Adviser will consider the creditworthiness of the issuer of the underlying bond, the custodian and
the third-party provider of the tender option. In certain instances, a sponsor may terminate a tender option if, for example,
the issuer of the underlying bond defaults on an interest payment.
Municipal
Leases. Municipal leases
or installment purchase contracts are issued by a state or local government to acquire
equipment or facilities. Municipal leases frequently have special risks not normally associated with general obligation
bonds or revenue bonds. Many leases include “non-appropriation” clauses that provide that the governmental issuer
has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose
by the appropriate legislative body on a yearly or other periodic basis. Although the obligations are typically secured
by the leased equipment or facilities, the disposition of the property in the event of non- appropriation or foreclosure
might, in some cases, prove difficult or, if sold, may not fully cover a fund’s exposure.
Municipal
Notes. There are four major
varieties of state and municipal notes: Tax and Revenue Anticipation Notes (“TRANs”);
Tax Anticipation Notes (“TANs”); Revenue Anticipation Notes (“RANs”); and Bond Anticipation Notes (“BANs”).
TRANs, TANs and RANs are issued by states,
municipalities and other tax-exempt issuers to finance short-term cash needs
or, occasionally, to finance construction. Many TRANs, TANs and RANs are general obligations of the issuing entity payable
from taxes or designated revenues, respectively, expected to be received within the related fiscal period. BANs are
issued with the expectation that their principal and interest will be paid out of proceeds from renewal notes or bonds to
be issued prior to the maturity of the BANs. BANs are issued most frequently by both general obligation and revenue bond
issuers usually to finance such items as land acquisition, facility acquisition and/or construction and capital improvement
projects.
Tax-Exempt
Commercial Paper. Tax-exempt
commercial paper is a short-term obligation with a stated maturity of 270
days or less. It is issued by state and local governments or their agencies to finance seasonal working capital needs or
as short-term financing in anticipation of longer term financing. While tax-exempt commercial paper is intended to be repaid
from general revenues or refinanced, it frequently is backed by a letter of credit, lending arrangement, note repurchase
agreement or other credit facility agreement offered by a bank or financial institution.
Tax
Risk. The Code imposes certain
continuing requirements on issuers of tax-exempt bonds regarding the use, expenditure
and investment of bond proceeds and the payment of rebates to the U.S. government. Failure by the issuer to
comply after the issuance of tax-exempt bonds with certain of these requirements could cause interest on the bonds to
become includable in gross income retroactive to the date of issuance.
From
time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal
income tax exemption for interest on municipal obligations, and similar proposals may be introduced in the future. In
addition, the federal income tax exemption has been, and may in the future be, the subject of litigation. If one of these proposals
were enacted, the availability of tax-exempt obligations for investment by a fund and the value of the fund’s investments
would be affected.
Additional
Information on Portfolio Instruments and Investment Policies 53
Opinions
relating to the validity of municipal obligations and to the exclusion of interest thereon from gross income for
regular federal and/or state income tax purposes are rendered by bond counsel to the respective issuers at the time of
issuance. A fund and its service providers will rely on such opinions and will not review the proceedings relating to the issuance
of municipal obligations or the bases for such opinions.
Information
Risk. Information about
the financial condition of issuers of municipal obligations may be less available than
about corporations whose securities are publicly traded.
State
and Federal Law Risk. Municipal
obligations are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, that may be enacted
by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of any one or more issuers to pay, when due, the
principal of and interest on its or their municipal obligations may be materially affected.
Market
and Ratings Risk. The yields
on municipal obligations are dependent on a variety of factors, including economic
and monetary conditions, general market conditions, supply and demand, general conditions of the municipal market,
size of a particular offering, the maturity of the obligation and the rating of the issue. Adverse economic, business, legal
or political developments might affect all or substantial portions of a fund’s municipal obligations in the same manner.
Unfavorable
developments in any economic sector may have far-reaching ramifications for the overall or any state’s
municipal market.
Although
the ratings of tax-exempt securities by ratings agencies are relative and subjective, and are not absolute standards
of quality, such ratings reflect the assessment of the ratings agency, at the time of issuance of the rating, of the economic
viability of the issuer of a general obligation bond or, with respect to a revenue bond, the special revenue source,
with respect to the timely payment of interest and the repayment of principal in accordance with the terms of the obligation,
but do not reflect an assessment of the market value of the obligation. See Appendix B for additional information
regarding ratings. Consequently, municipal obligations with the same maturity, coupon and rating may have different
yields when purchased in the open market, while municipal obligations of the same maturity and coupon with different
ratings may have the same yield.
Liquidity
Risk. In general, the secondary
market for tax-exempt securities may be less liquid than that for taxable fixed-income
securities.
Additional
Risk Considerations. The
U.S. federal bankruptcy statutes relating to the adjustments of debts of political subdivisions
and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities
may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings
could result in material adverse changes in the rights of holders of obligations issued by such subdivisions or authorities.
Litigation
challenging the validity under the state constitutions of present systems of financing public education has been
initiated or adjudicated in a number of states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation challenging the issuance of pollution control revenue
bonds or the validity of their issuance under state or federal law which ultimately could affect the validity of those
municipal securities or the tax-free nature of the interest thereon.
Proposals
to restrict or eliminate the federal income tax exemption for interest on municipal obligations are introduced
before the Congress from time to time. Proposals also may be introduced before state legislatures that would affect
the state tax treatment of a Fund’s distributions. If such proposals were enacted, the availability of municipal obligations
and the value of a Fund’s holdings would be affected and the Board of Trustees would reevaluate the Fund’s investment
objective and policies.
State-Specific
Risk. A Fund may from time
to time invest a substantial amount of its total assets in municipal securities
of issuers in one or more states and, therefore, is subject to the risk that the economies of the states in which it invests,
and the revenues supporting the municipal securities, may decline. Investing a substantial amount of its total assets
in one or more states means that a Fund is more susceptible to the economic, market, political, regulatory or other occurrences
that affect the issuers in those states. The particular states in which a Fund may focus its investments may change
over time and the Fund may alter its focus at inopportune times. The current economic environment, including prolonged
inflation and rising interest rates, also may also negatively affect the economy of states in which the Funds invest.
Pennsylvania
State-Specific Risk. To
the extent the Fund invests a substantial amount of its assets in Pennsylvania municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of Pennsylvania
issuers to pay interest or repay principal. Pennsylvania’s economy and finances are especially vulnerable to changes
in the performance of the service, agriculture, mining, and manufacturing sectors.
54 Additional
Information on Portfolio Instruments and Investment Policies
New
York State-Specific Risk. To
the extent the Fund invests a substantial amount of its assets in New York municipal securities,
the Fund may be affected by economic, regulatory or political developments affecting the ability of New York issuers
to pay interest or repay principal. New York’s economy and finances are especially vulnerable to changes in the performance
of the financial services industry.
Mississippi
State-Specific Risk. To
the extent the Fund invests a substantial amount of its assets in Mississippi municipal
securities, the Fund may be affected by economic, regulatory or political developments affecting the ability of Mississippi
issuers to pay interest or repay principal. Mississippi’s economy and finances are especially vulnerable to changes
in the performance of the agriculture, manufacturing, gaming, and service industries.
Texas
State-Specific Risk. To
the extent the Fund invests a substantial amount of its assets in Texas municipal securities,
the Fund may be affected by economic, regulatory or political developments affecting the ability of Texas issuers
to pay interest or repay principal. Texas’ economy in especially vulnerable to changes in the economy of the oil and
gas industry, chemicals production, technology and telecommunications equipment manufacturing and international
trade.
Puerto
Rico. Certain Funds may
invest in the municipal securities of U.S. territories, including Puerto Rican municipal securities.
To the extent that a Fund invests in Puerto Rican municipal securities, events in Puerto Rico are likely to affect such
a Fund’s investments and its performance. These events may include economic or political policy changes, natural disasters,
environmental and weather events, public health emergencies, political instability, tax base erosion, territory constitutional
limits on tax increases, budget deficits and other financial difficulties, growing pension obligations, and changes
in the credit ratings assigned to Puerto Rico’s municipal issuers. As with Puerto Rican municipal securities, events in
any of the other territories where a Fund is invested may affect a Fund’s investments and its performance.
In
the past several years, securities issued by Puerto Rico and its agencies and instrumentalities have been subject to multiple
credit downgrades as a result of Puerto Rico’s ongoing fiscal challenges, growing debt obligations and uncertainty
about its ability to make full repayment on these obligations. Puerto Rico has been in bankruptcy proceedings
for approximately five years. However, in quarter one of 2022, the central government executed a debt exchange
and exited bankruptcy. A debt adjustment plan was approved by Puerto Rico’s bankruptcy court in January 2022,
and a debt exchange went effective in March 2022. As a result, Puerto Rico’s direct debt obligations were significantly
reduced. However, the outcome of the debt restructuring and any future debt restructuring, both within and outside
bankruptcy-type proceedings, is uncertain, and could adversely affect the Fund. Puerto Rican financial difficulties
could potentially lead to worsening liquidity for its bonds and wider spreads and consequently may affect a Fund’s
investments and its performance. The current economic environment, including prolonged inflation and rising interest
rates, also may also negatively affect the economy of Puerto Rico. There can be no assurances that Puerto Rico will
be able to negotiate settlements with respect to the balance of its outstanding debt. In addition, the composition of the
Oversight Board has changed significantly in recent years, and there is no assurance that the board members will approve
future restructuring agreements with other creditors.
Non-Deliverable
Forwards. A non-deliverable
forward (“NDF”) is a cash-settled forward contract in which counterparties
settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed
notional amount. NDFs are used in various markets such as foreign exchange and commodities. NDFs are primarily
used to trade emerging market currencies where physically-settled forward contracts may be restricted by regulation.
Non-Hedging
Foreign Currency Trading Risk.
Certain Funds may engage in forward foreign currency transactions for speculative
purposes. In pursuing this strategy, the Adviser seeks to profit from anticipated movements in currency rates by
establishing “long” and/or “short” portions in forward contracts on various foreign currencies. Foreign exchange
rates can be extremely volatile and a variance
in the degree of volatility of the market or in the direction of the market from the Adviser’s
expectations may produce significant losses to a Fund.
Operational
Risk. Your ability to transact
with a Fund or the valuation of your investment may be negatively impacted because
of the operational risks arising from factors such as processing errors and human errors, inadequate or failed internal
or external processes, failures in systems and technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. Although a Fund attempts to minimize such failures through controls and oversight,
it is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls
that completely eliminate or mitigate the occurrence of such failures. A Fund and its shareholders could be negatively
impacted as a result.
Options.
Put options and call options typically have similar structural characteristics and operational mechanics regardless
of the underlying instrument on which they are purchased or sold. Thus, the following general discussion relates
to each of the particular types of options discussed in greater detail below.
A
put option gives the purchaser of the option, upon payment of a premium, the right to sell, and the writer the obligation
to buy, the underlying security, commodity, index, currency or other instrument at the exercise price or the right
to a cash settlement payment. For instance, a Fund’s purchase of a put option on a security might be designed to protect
its holdings in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the
market value by giving the Fund the right to sell such instrument at the option exercise price or the right to a cash
Additional
Information on Portfolio Instruments and Investment Policies 55
settlement
payment. A call option, upon payment of a premium, gives the purchaser of the option the right to buy, and the
seller the obligation to sell, the underlying instrument at the exercise price. A Fund’s purchase of a call option on a security,
financial future, index, currency or other instrument might be intended to protect the Fund against an increase in the
price of the underlying instrument that it intends to purchase in the future by fixing the price at which it may purchase such
instrument. 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 thereto. A Fund is authorized
to purchase and sell exchange listed options and OTC options. Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation (“OCC”), which guarantees the performance of the obligations
of the parties to such options. The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With
certain exceptions, OCC-issued and exchange listed options generally settle by physical delivery of the underlying
security or currency, although in the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is “in-the-money” (i.e., 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. Frequently, rather than taking or making delivery of the underlying
instrument through the process of exercising the option, listed options are closed by entering into offsetting purchase
or sale transactions that do not result in ownership of the new option.
A
Fund’s ability to close out its position as a purchaser or seller of an OCC or exchange listed put or call option is dependent,
in part, upon the liquidity of the option market. Among the possible reasons for the absence of a liquid option market
on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options
or underlying securities including reaching daily price limits; (iv) interruption of the normal operations of the OCC or
an exchange; (v) inadequacy of the facilities of an exchange or OCC to handle current trading volume; or (vi) a decision
by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which
event the relevant market for that option on that exchange would cease to exist, although outstanding options on that
exchange would generally continue to be exercisable in accordance with their terms.
The
hours of trading for listed options may not coincide with the hours during which the underlying financial instruments
are traded. To the extent that the option markets close before the markets for the underlying financial instruments,
significant price and rate movements can take place in the underlying markets that cannot be reflected in the
option markets.
OTC
options are purchased from or sold to securities dealers, financial institutions or other parties (“Counterparties”) through
direct bilateral agreement with the Counterparty. In contrast to exchange listed options, which generally have standardized
terms and performance mechanics, all the terms of an OTC option, including such terms as method of settlement,
term, exercise price, premium, guarantees and security, are set by negotiation of the parties. A Fund expects generally
to enter into OTC options that have cash settlement provisions, although it is not required to do so.
Unless
the parties provide for it, there is no central clearing or guaranty function in an OTC option. As a result, if the Counterparty
fails to make or take delivery of the security, currency or other instrument underlying an OTC option it has entered
into with a Fund or fails to make a cash settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit of the transaction. Accordingly, the Adviser
must assess the creditworthiness of each such Counterparty or any guarantor or credit enhancement of the Counterparty’s
credit to determine the likelihood that the terms of the OTC option will be satisfied.
If
a Fund sells a call option, the premium that it receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in its portfolio or will increase the Fund’s
income. The sale of put options can also provide income.
A
Fund may purchase and sell call options on securities including U.S. Treasury and agency securities, mortgage-backed
securities, foreign sovereign debt, corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments that are traded on U.S. and foreign securities exchanges and in the OTC markets, and
on securities indices, currencies and futures contracts. In accordance with current federal securities laws, rules, and staff
positions, all calls sold by a Fund must be “covered” (i.e., the Fund must own the securities or futures contract subject
to the call). Even though a Fund will receive
the option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of
the underlying security or instrument and may require the Fund to hold a security or instrument which it might otherwise
have sold.
A
Fund may purchase and sell put options on securities including U.S. Treasury and agency securities, mortgage-backed
securities, foreign sovereign debt, corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts other than futures on individual corporate debt and individual equity securities. A
Fund will not sell put options if, as a result, more than 50% of the Fund’s total assets would be required to be segregated
56 Additional
Information on Portfolio Instruments and Investment Policies
in
accordance with current federal securities laws, rules, and staff positions to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling put options, there is a risk that a Fund may
be required to buy the underlying security at a disadvantageous price above the market price.
Options
Transactions.
A Fund may write (sell) options to generate current income or as a hedge to reduce investment
risk. A Fund will not write any call option or put option unless the option is covered and immediately thereafter the
aggregate market value of all portfolio securities or currencies required to cover such options written by a Fund in accordance
with current federal securities laws, rules, and staff positions would not exceed 25% of its net assets at the time
of purchase. A Fund realizes fees (referred to as “premiums”) for granting the rights evidenced by the call options it has
written. A Fund may write straddles (combinations of put and call options on the same underlying security), which are
generally a non-hedging technique used for purposes such as seeking to enhance return. Because combined options
positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and unwind
than individual options contracts. The straddle rules of the Internal Revenue Code require deferral of certain losses
realized on positions of a straddle to the extent that a Fund has unrealized gains in offsetting positions at year end. The
holding period of the securities comprising the straddle will be suspended until the straddle is terminated.
Options
on Swaps (“Swaptions”).
The purchase and sale of put and call options on swap agreements are commonly referred
to as swaptions. Swaptions are highly specialized investments and are not traded on or regulated by any securities
exchange or regulated by the SEC or the CFTC. A Fund may enter into different types of swaptions, such as swaptions
on credit derivatives or on credit indices for hedging purposes or to seek to increase total return.
The
buyer of a swaption pays a non-refundable premium for the option and obtains the right, but not the obligation, to
enter into an underlying swap on agreed-upon terms. The seller of a swaption, in exchange for the premium, becomes obligated
(if the option is exercised) to enter into an underlying swap on agreed-upon terms.
As
with other options on securities, indices, or futures contracts, the price of any swaption will reflect both an intrinsic value
component, which may be zero, and a time premium component. The intrinsic value component represents what the
value of the swaption would be if it were immediately exercisable into the underlying interest rate swap. The intrinsic value
component measures the degree to which an option is in-the-money, if at all. The time premium represents the difference
between the actual price of the swaption and the intrinsic value.
The
pricing and valuation terms of swaptions are not standardized and there is no clearinghouse whereby a party to the
agreement can enter into an offsetting position to close out a contract. Swaptions must thus be regarded as inherently
illiquid.
The
use of swaptions, as the foregoing discussion suggests, is subject to risks and complexities beyond what might be
encountered with investing directly in the securities and other traditional investments that are the referenced asset for the
swap or other standardized, exchange traded options and futures contracts. Such risks include operational risks, valuation
risks, credit risks, and/or counterparty risk (i.e., the risk that the counterparty cannot or will not perform its obligations
under the agreement). In addition, at the time the swaption reaches its scheduled termination date, there is a risk
that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable
as on the expiring transaction. If this occurs, it could have a negative impact on the performance of the Fund.
While
a Fund may utilize swaptions for hedging purposes or to seek to increase total return, their use might result in poorer
overall performance for the Fund than if it had not engaged in any such transactions. If, for example, a Fund had insufficient
cash, it might have to sell or pledge a portion of its underlying portfolio of securities in order to meet daily mark-to-market
collateralization requirements at a time when it might be disadvantageous to do so. There may be an imperfect
correlation between a Fund’s portfolio holdings and swaptions entered into by the Fund, which may prevent the
Fund from achieving the intended hedge or expose the Fund to risk of loss. Further, a Fund’s use of swaptions to reduce
risk involves costs and will be subject to the Adviser’s ability to predict correctly changes in interest rate relationships
or other factors. No assurance can be given that the Adviser’s judgment in this respect will be correct.
Options
on Futures Contracts. There
are several risks relating to options on futures contracts. The ability to establish and
close out positions on such options will be subject to the existence of a liquid market. In addition, the purchase of put or
call options will be based upon predictions as to anticipated trends in interest rates, commodities and securities markets
by a Fund’s Adviser, which could prove to be incorrect. Even if those expectations were correct, there may be an imperfect
correlation between the change in the value of the options and of the portfolio securities hedged.
As
contrasted with the direct investment in such a contract, an option on a futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a fixed income or equity security futures contract at a specified
exercise price at any time prior to the expiration date of the option. The potential loss related to the purchase of an
option on futures contracts is limited to the premium paid for the option, plus transaction costs. Because the value of the
option is fixed at the point of sale, there are no daily cash payments to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would be reflected in the NAV of the Funds.
Options
on Interest Rate Futures Contracts.
A Fund may purchase and write put and call options on interest rate futures
contracts that are traded on a U.S. or foreign exchange or board of trade. These transactions may be used as a hedge
against changes in interest rates and market conditions. A Fund may enter into closing transactions with respect to
such options to terminate existing positions. There is no guarantee that such closing transactions can be effected.
Additional
Information on Portfolio Instruments and Investment Policies 57
Options
on Foreign Currency Futures Contracts.
A Fund may purchase and write put and call options on foreign currency
futures contracts that are traded on a U.S. exchange or board of trade. These transactions may be used as a hedge
against changes in currency exchange rates and market conditions. A Fund may enter into closing transactions with
respect to such options to terminate existing positions. There is no guarantee that such closing transactions can be effected.
New
regulations governing certain OTC derivatives may also increase the costs of using these types of instruments or
make them less effective, as described under “Strategic Transactions, Derivatives and Synthetic Investments – Risks of Strategic
Transactions Inside the U.S.”
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Pay-In-Kind
Bonds (“PIK Bonds”) and Deferred Payment Securities.
PIK Bonds pay all or a portion of their interest in the form
of debt or equity securities. Deferred payment securities are securities that remain zero coupon securities until a predetermined
date, at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals.
Deferred payment securities are often sold at substantial discounts from their maturity value.
PIK
Bonds and deferred payment securities tend to be subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying debt securities with similar maturities. PIK Bonds and deferred payment securities
may be issued by a wide variety of corporate and governmental issuers. Although these instruments are generally
not traded on a national securities exchange, they are widely traded by brokers and dealers and, to such extent,
will not be considered illiquid for the purposes of a Fund’s limitation on investments in illiquid securities.
Preferred
Stock. Preferred stocks,
like some debt obligations, are generally fixed income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a fixed rate when and as declared by the issuer’s board of directors,
but do not participate in other amounts available for distribution by the issuing corporation. Dividends on the preferred
stock may be cumulative, and all cumulative dividends usually must be paid prior to common shareholders of common
stock receiving any dividends. Because preferred stock dividends must be paid before common stock dividends,
preferred stocks generally entail less risk than common stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the same as the par or stated value, and are senior in right of payment
to common stock. Preferred stocks are, however, equity securities in the sense that they do not represent a liability
of the issuer and, therefore, do not offer as great a degree of protection of capital or assurance of continued income
as investments in corporate debt securities. Preferred stocks are generally subordinated in right of payment to all debt
obligations and creditors of the issuer, to
the extent proceeds are available after paying any more senior creditors, and
convertible preferred stocks may be subordinated to other preferred stock of the same issuer.
Private
Placements and Other Restricted Securities Risk.
Private placement and other restricted securities include securities
that have been privately placed and are not registered under the Securities Act, such as unregistered securities eligible
for resale without registration pursuant to Rule 144A (“Rule 144A Securities”) and privately placed securities of U.S. and
non-U.S. issuers offered outside of the U.S. without registration with the SEC
pursuant to Regulation S (“Regulation S Securities”).
Private
placements may offer attractive opportunities for investment not otherwise available on the open market.
Private
placements securities typically may be sold only to qualified institutional buyers (or, in the case of the initial sale
of certain securities, such as those issued in collateralized debt obligations or collateralized loan obligations, to accredited
investors (as defined in Rule 501(a) under the Securities Act)), or in a privately negotiated transaction or to a limited
number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions
are met pursuant to an exemption from registration. Rule 144A Securities and Regulation S Securities may be freely
traded among certain qualified institutional investors, such as the Funds, but their resale in the U.S. is permitted only in
limited circumstances.
Issuers
of restricted securities may not be subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. Where a registration statement is required for the resale of restricted
securities, a Fund may be required to bear all or part of the registration expenses. A Fund may be deemed to be
an “underwriter” for purposes of the Securities Act when selling restricted securities to the public and, in such event,
the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially inaccurate
or misleading. Private placements typically are subject to restrictions on resale as a matter of contract or under
federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under
adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a
Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities
only at prices lower than if such securities were more widely held. At times, it also may be more difficult to determine
the fair value of such securities for purposes of computing a Fund’s NAV
due to the absence of a trading market.
58 Additional
Information on Portfolio Instruments and Investment Policies
Private
placements and restricted securities may be considered illiquid securities, which could have the effect of increasing
the level of a Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of purchase may subsequently
become illiquid. Restricted securities that are determined to be illiquid may not exceed a Fund’s limit on investments
in illiquid securities.
Disposing
of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. A Fund may have to bear the extra expense of registering
the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations
typically are less readily available for these securities.
Put
Bonds. “Put”
bonds are securities (including securities with variable interest rates) that may be sold back to the issuer
of the security at face value at the option of the holder prior to their stated maturity. The Adviser intends to purchase
only those put bonds for which the put option is an integral part of the security as originally issued. The option to “put”
the bond back to the issuer prior to the stated final maturity can cushion the price decline of the bond in a rising interest
rate environment. However, the premium paid, if any, for an option to put will have the effect of reducing the yield otherwise
payable on the underlying security.
Additional
Information on Portfolio Instruments and Investment Policies 59
Real
Estate Investment Trusts.
REITs are pooled investment vehicles which invest primarily in income-producing real estate
or real estate related loans or interests. REITs are sometimes informally characterized as equity REITs, mortgage REITs
and hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from
the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest
payments. Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs.
Investment
in REITs may subject a Fund to risks associated with the direct ownership of real estate, such as decreases
in real estate values, overbuilding, increased competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws, casualty or condemnation losses, possible
environmental liabilities, regulatory limitations on rent and fluctuations in rental income. Equity REITs generally experience
these risks directly through fee or leasehold interests, whereas mortgage REITs generally experience these risks
indirectly through mortgage interests, unless the mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of a Fund’s investment in REITs. For instance, changes
in interest rates may hurt real
estate values or the values of underlying mortgage loans, therefore make REIT shares less attractive, more volatile and
less liquid than other income producing investments
Certain
REITs have relatively small market capitalizations, which may tend to increase the volatility of the market price
of their securities. Furthermore, REITs are dependent upon specialized management skills, have limited diversification
and are, therefore, subject to risks inherent in operating and financing a limited number of projects. Like regulated
investment companies such as the Funds, REITs are not taxed on income distributed to shareholders provided that
they comply with certain requirements under the Internal Revenue Code. Each Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the expenses paid by the Fund. REITs are
dependent upon management skills, are not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects and illiquid markets. REITs are also subject to heavy cash flow dependency, defaults by borrowers
and the possibility of failing to qualify for tax-free pass-through of income under the Code, and to maintain exemption
from the registration requirements of the 1940 Act. By investing in REITs indirectly through a Fund, a shareholder
will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses
of the REITs. In addition, REITs depend generally on their ability to generate cash flow to make distributions to
60 Additional
Information on Portfolio Instruments and Investment Policies
shareholders.
The management of a REIT may be subject to conflicts of interest with respect to the operation of the business
of the REIT and may be involved in real estate activities competitive with the REIT. REITs may own properties through
joint ventures or in other circumstances in which the REIT may not have control over its investments. REITs may incur
significant amounts of leverage.
Real
Estate Securities Risk. Although
a Fund may not invest directly in real estate, a Fund may invest in securities
of issuers that are principally engaged in
the real estate industry. The value of the shares of a Fund investing in such issuers will be affected
by factors affecting the value of real estate and the earnings of companies engaged in the real estate industry. These
factors include, among others: (1) changes in general economic and market conditions; (2) changes in the value of
real estate properties; (3) risks related to local economic conditions, overbuilding and increased competition; (4) increases
in property taxes and operating expenses; (5) changes in zoning laws; (6) casualty and condemnation losses; (7)
variations in rental income, neighborhood values or the appeal of property to tenants; (8)
changes in interest rates;
and (9) changes in demographic
trends and occupancy rates. Many real estate
companies utilize leverage, which increases
investment risk and could adversely affect a company’s operations and market value in periods of rising interest
rates. The value of securities of companies in the real estate industry may go through cycles of relative under performance
and out performance in comparison to equity securities markets in general.
There
are also special risks associated with particular sectors of real estate investments:
Retail
Properties. Retail properties
are affected by the overall health of the economy and may be adversely affected by,
among other things, the growth of alternative forms of retailing, bankruptcy, departure or cessation of operations of a tenant,
a shift in consumer demand due to demographic changes, changes in spending patterns and lease terminations.
Office
Properties. Office properties
are affected by the overall health of the economy, and other factors such as a downturn
in the businesses operated by their tenants, obsolescence and non-competitiveness.
Hotel
Properties. The risks of
hotel properties include, among other things, the necessity of a high level of continuing capital
expenditures, competition, increases in operating costs which may not be offset by increases in revenues, dependence
on business and commercial travelers and tourism, increases in fuel costs and other expenses of travel, and adverse
effects of general and local economic conditions. Hotel properties tend to be more sensitive to adverse economic
conditions and competition than many other commercial properties.
Healthcare
Properties. Healthcare properties
and healthcare providers are affected by several significant factors, including
federal, state and local laws governing licenses, certification, adequacy of care, pharmaceutical distribution, rates,
equipment, personnel and other factors regarding operations, continued availability of revenue from government reimbursement
programs and competition on a local and regional basis. The failure of any healthcare operator to comply
with governmental laws and regulations may affect its ability to operate its facility or receive government reimbursements.
Multifamily
Properties. The value and
successful operation of a multifamily property may be affected by a number of
factors such as the location of the property, the ability of the management team, the level of mortgage rates, the presence
of competing properties, adverse economic conditions in the locale, oversupply and rent control laws or other laws
affecting such properties.
Community
Centers. Community center
properties are dependent upon the successful operations and financial condition
of their tenants, particularly certain of their major tenants, and could be adversely affected by bankruptcy of those
tenants. In some cases a tenant may lease a significant portion of the space in one center, and the filing of bankruptcy
could cause significant revenue loss. Like others in the commercial real estate industry, community centers are
subject to environmental risks and interest rate risk. They also face the need to enter into new leases or renew leases on
favorable terms to generate rental revenues. Community center properties could be adversely affected by changes in the
local markets where their properties are located, as well as by adverse changes in national economic and market conditions.
Self-Storage
Properties. The value and
successful operation of a self-storage property may be affected by a number
of factors, such as the ability of the management team, the location of the property, the presence of competing properties,
changes in traffic patterns and effects of general and local economic conditions with respect to rental rates and
occupancy levels.
Other
factors may contribute to the risk of real estate investments:
Development
Issues. Certain real estate
companies may engage in the development or construction of real estate properties.
These companies in which a Fund invests (“portfolio companies”) are exposed to a variety of risks inherent in real
estate development and construction, such as the risk that there will be insufficient tenant demand to occupy newly developed
properties, and the risk that prices of construction materials or construction labor may rise materially during the
development.
Additional
Information on Portfolio Instruments and Investment Policies 61
Lack
of Insurance. Certain of
the portfolio companies may fail to carry comprehensive liability, fire, flood, earthquake
extended coverage and rental loss insurance, or insurance in place may be subject to various policy specifications,
limits and deductibles. Should any type of uninsured loss occur, the portfolio company could lose its investment
in, and anticipated profits and cash flows from, a number of properties and, as a result, adversely affect a Fund’s
investment performance.
Financial
Leverage. Global real estate
companies may be highly leveraged and financial covenants may affect the ability
of global real estate companies to operate effectively.
Environmental
Issues. In connection with
the ownership (direct or indirect), operation, management and development
of real properties that may contain hazardous or toxic substances, a portfolio company may be considered
an owner, operator or responsible party of such properties and, therefore, may be potentially liable for removal
or remediation costs, as well as certain other costs, including governmental fines and liabilities for injuries to persons
and property. The existence of any such material environmental liability could have a material adverse effect on the
results of operations and cash flow of any such portfolio company and, as a result, the amount available to make distributions
on shares of the Fund could be reduced.
Recent
Events. The value of real
estate is particularly susceptible to acts of terrorism and other changes in foreign and
domestic conditions.
REIT
Issues. REITs are subject
to a highly technical and complex set of provisions in the Code. It is possible that the Fund
may invest in a real estate company which purports to be a REIT but which fails to qualify as a REIT. In the event of any
such unexpected failure to qualify as a REIT, the purported REIT would be subject to corporate level taxation, significantly
reducing the return to the Fund on their investment in such company.
Financing
Issues. Financial institutions
in which the Fund may invest are subject to extensive government regulation. This
regulation may limit both the amount and types of loans and other financial commitments a financial institution can make,
and the interest rates and fees it can charge. In addition, interest and investment rates are highly sensitive and are determined
by many factors beyond a financial institution’s control, including general and local economic conditions (such
as inflation, recession, money supply and unemployment) and the monetary and fiscal policies of various governmental
agencies such as the Federal Reserve Board. These limitations may have a significant impact on the profitability
of a financial institution since profitability is attributable, at least in part, to the institution’s ability to make financial
commitments such as loans. Profitability of a financial institution is largely dependent upon the availability and cost
of the institution’s funds, and can fluctuate significantly when interest rates change.
Repurchase
Agreements. In a repurchase
agreement, a Fund acquires ownership of a security and simultaneously commits
to resell that security to the seller, typically a bank or broker/dealer.
A
repurchase agreement provides a means for a Fund to earn income on funds for periods as short as overnight. It is an
arrangement under which the purchaser (i.e., a Fund) acquires a security (“Obligation”) and the seller agrees, at the time
of sale, to repurchase the Obligation at a specified time and price. Repurchase agreements are considered by the staff
of the SEC to be loans by a Fund. The repurchase price may be higher than the purchase price, the difference being income
to a Fund, or the purchase and repurchase prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to a Fund is unrelated to the interest rate on
the Obligation itself. Obligations will be held by the custodian or in the Federal Reserve Book Entry System.
It
is not clear whether a court would consider the Obligation purchased by a Fund subject to a repurchase agreement
as being owned by the Fund or as being collateral for a loan by the Fund to the seller. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, a Fund may encounter delay and incur costs before being able to sell the
security. Delays may involve loss of interest or decline in price of the Obligation. If the court characterizes the transaction
as a loan and a Fund has not perfected a security interest in the Obligation, the Fund may be required to return
the Obligation to the seller’s estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, a
Fund would be at risk of losing some or all of the principal and income involved in the transaction. As with any unsecured
debt Obligation purchased for a Fund, the Adviser seeks to reduce the risk of loss through repurchase agreements
by analyzing the creditworthiness of the obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may fail to repurchase the Obligation, in which
case a Fund may incur a loss if the proceeds to the Fund of the sale to a third-party are less than the repurchase price.
However, if the market value of the Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), a Fund will direct the seller of the Obligation to deliver additional securities so that the
market value (including interest) of all securities subject to the repurchase agreement will equal or exceed the repurchase
price.
Reverse
Repurchase Agreements. Reverse
repurchase agreements are repurchase agreements in which a Fund, as the
seller of the securities, agrees to repurchase them at an agreed upon time and price. A Fund generally retains the right
to interest and principal payments on the security. Since a Fund receives cash upon entering into a reverse repurchase
agreement, it may be considered a borrowing (see “Borrowing”). Reverse repurchase agreements involve the
risk that the market value of the securities retained in lieu of sale may decline below the price of the securities a Fund
62 Additional
Information on Portfolio Instruments and Investment Policies
has
sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether
to enforce a Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such determination. Reverse repurchase agreements are considered
to be borrowings under the 1940 Act. A Fund will enter into reverse repurchase agreements only when the Adviser
believes that the interest income to be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction. Such transactions may increase fluctuation in the market value of Fund
assets and their yields.
Rights
Issues and Warrants. Rights
Issues give the right, to existing shareholders, to buy a proportional number of additional
securities at a given price (generally at a discount) within a fixed period (generally on a short term period) and are
offered at the company’s discretion.
Warrants
are securities that give the holder the right, but not the obligation, to subscribe for newly created equity issues
(consisting of common and preferred stock, convertible preferred stock and warrants that themselves are only convertible
into common, preferred or convertible preferred stock) of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Warrants are speculative and have no value if they are not exercised
before the expiration date.
The
equity issue underlying an equity warrant is outstanding at the time the equity warrant is issued or is issued together
with the warrant. At the time a Fund acquires an equity warrant convertible into a warrant, the terms and conditions
under which the warrant received upon conversion can be exercised will have been determined; the warrant received
upon conversion will only be convertible into a common, preferred or convertible preferred stock. Equity warrants
are generally issued in conjunction with an issue of bonds or shares, although they also may be issued as part of a
rights issue or scrip issue. When issued with bonds or shares, they usually trade separately from the bonds or shares after
issuance.
OTC
equity warrants are usually traded only by financial institutions that have the ability to settle and clear these instruments.
OTC warrants are instruments between the Fund and its counterparty (usually a securities dealer or bank) with
no clearing organization guarantee. Thus, when the Fund purchases an OTC warrant, the Fund relies on the counterparty
to fulfill its obligations to the Fund if the Fund decides to exercise the warrant.
Index
warrants are rights created by an issuer, typically a financial institution, entitling the holder to purchase, in the case
of a call, or sell, in the case of a put, an equity index at a certain level over a fixed period of time. Index warrant transactions
settle in cash.
Covered
warrants are rights created by an issuer, typically a financial institution, ordinarily entitling the holder to purchase
from the issuer of the covered warrant outstanding securities of another company (or in some cases a basket of
securities), which issuance may or may not have been authorized by the issuer or issuers of the securities underlying the
covered warrants. In most cases, the holder of the covered warrant is entitled on its exercise to delivery of the underlying
security, but in some cases the entitlement of the holder is to be paid in cash the difference between the value of
the underlying security on the date of exercise and the strike price. The securities in respect of which covered warrants are
issued are usually common stock, although they may entitle the holder to acquire warrants to acquire common stock.
Covered warrants may be fully covered or partially covered. In the case of a fully covered warrant, the issuer of the warrant
will beneficially own all of the underlying securities or will itself own warrants (which are typically issued by the issuer
of the underlying securities in a separate transaction) to acquire the securities. The underlying securities or warrants
are, in some cases, held by another member of the issuer’s group or by a custodian or other fiduciary for the holders
of the covered warrants.
Interest
rate warrants are rights that are created by an issuer, typically a financial institution, entitling the holder to purchase,
in the case of a call, or sell, in the case of a put, a specific bond issue or an interest rate index (Bond Index) at a certain
level over a fixed time period. Interest rate warrants can typically be exercised in the underlying instrument or settle
in cash.
Long
term options operate much like covered warrants. Like covered warrants, long term options are call options created
by an issuer, typically a financial institution, entitling the holder to purchase from the issuer outstanding securities of
another issuer. Long-term options have an initial period of one year or more, but generally have terms between three and
five years. Unlike U.S. options, long term European options do not settle through a clearing corporation that guarantees
the performance of the counterparty. Instead, they are traded on an exchange and subject to the exchange’s
trading regulations. A Fund may only acquire covered warrants, index warrants, interest rate warrants and long
term options that are issued by entities deemed to be creditworthy by the Adviser. Investment in these instruments involves
the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or warrants
to acquire the underlying security (or cash in lieu thereof).
Additional
Information on Portfolio Instruments and Investment Policies 63
Secondary
Offerings. A Fund may invest
a portion of its assets in shares secondary offerings. A secondary offering is a
registered offering of a large block of a security that has been previously issued to the public. A secondary offering can occur
when an investor sells to the public a large block of stock or other securities it has been holding in its portfolio. In a sale
of this kind, all of the profits go to the seller rather than the issuer. Secondary offerings can also originate when the issuer
issues new shares of its stock over and above those sold in its IPO, usually in order to raise additional capital.
However,
because an increase in the number of shares devalues those that have already been issued, many companies
make a secondary offering only if their stock prices are high or they are in need of capital. Secondary offerings
may have a magnified impact on the performance of a Fund with a small asset base. Secondary offering shares
frequently are volatile in price. Therefore, a Fund may hold secondary offering shares for a very short period of time.
This may increase the portfolio turnover rate of a Fund and may lead to increased expenses for the Fund, such as commissions
and transaction costs. In addition, secondary offering shares can experience an immediate drop in value if the
demand for the securities does not continue to support the offering price.
Securities
Backed by Guarantees. Securities
backed by guarantees are securities backed by guarantees from banks, insurance
companies and other financial institutions. Changes in the credit quality of these institutions could have an adverse
impact on securities they have guaranteed or backed, which could cause losses to a Fund.
Securities
Lending. A Fund may lend
its portfolio securities to brokers, dealers and other financial institutions, provided it
receives collateral, with respect to each loan of U.S. and non-U.S. securities, equal to at least 100% of the value of the portfolio
securities loaned. Typically, a Fund will receive collateral, with respect to each loan of U.S. securities, equal to at least
102% of the value of the portfolio securities loaned, and, with respect to each loan of non-U.S. securities, collateral of at
least 105% of the value of the portfolio securities loaned. At all times thereafter, the borrower shall be required to mark to
market such collateral on a daily basis so that the market value of such collateral does not fall below 100% of the market
value of the portfolio securities so loaned. By lending its portfolio securities, a Fund can increase its income through
the investment of the collateral. For the purposes of this policy, a Fund considers collateral consisting of cash, U.S. Government
securities or letters of credit issued by banks whose securities meet the standards for investment by the Fund
to be the equivalent of cash. From time to time, a Fund may return to the borrower or a third-party which is unaffiliated
with it, and which is acting as a “placing broker,” a part of the interest earned from the investment of collateral received
for securities loaned.
The
SEC currently requires that the following conditions must be met whenever portfolio securities are loaned: (1) the
fund must receive from the borrower collateral equal to at least 100% of the value of the portfolio securities loaned; (2)
the borrower must increase such collateral whenever the market value of the securities loaned rises above the level of
such collateral; (3) the fund must be able to terminate the loan at any time; (4) the fund must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable on the loaned securities, and any increase
in market value; (5) the fund may pay only reasonable custodian fees in connection with the loan; and (6) while any
voting rights on the loaned securities may pass to the borrower, the fund’s board of directors/trustees must be able to
terminate the loan and regain the right to vote the securities if a material event adversely affecting the investment occurs.
These conditions may be subject to future modifications.
Loan
agreements involve certain risks in the event of default or insolvency of the other party including possible delays
or restrictions upon a Fund’s ability to recover the loaned securities or dispose of the collateral for the loan. In addition,
there is the possibility of losses resulting from the investment of collateral where the market value of the collateral
falls below 100%. Such losses may include, but are not limited to, losses associated with deterioration in the credit
of the investments of collateral. These losses generally would be borne by the Fund lending its portfolio securities, which
would have a negative impact on the lending Fund’s performance.
Cash
received as collateral through loan transactions may be invested in other securities eligible for purchase by the Fund.
The investment of cash collateral subjects that investment, as well as the securities loaned, to market appreciation or
depreciation. The Fund is obligated to return the collateral to the borrower at the termination of the loan. A Fund could suffer
a loss in the event the Fund must return the cash collateral and there are losses on investments made with cash collateral.
A Fund’s securities lending program may be temporarily suspended if the Board and/or the Adviser determine it
to be in the best interests of a Fund’s shareholders.
The
collateral received from a borrower as a result of a Fund’s securities lending activities will be used to purchase both
fixed income securities and other securities with debt-like characteristics that are rated A1 or P1 (except as noted below)
on a fixed rate or floating rate basis, including but not limited to: (a) bank obligations, such as bank bills, bank notes,
certificates of deposit, commercial paper, deposit notes, loan participations, medium term notes, mortgage backed
securities, structured liquidity notes, and time deposits; (b) corporate obligations, such as commercial paper, corporate
bonds, investment agreements, funding agreements, or guaranteed investment contracts entered into with, or guaranteed
by, an insurance company, loan participations, master notes, medium term notes, and second tier commercial
paper (which must have a minimum rating of two of the following: A-2, P-2 and F-2); (c) sovereigns, such as commercial
paper, U.S. Government securities (including securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, establishments or the like), sovereign obligations of non-U.S. countries that
are members of the Organization for Economic Co-operation and Development of the European Union (including securities
issued or guaranteed as to principal and interest by the sovereign, its agencies, instrumentalities,
64 Additional
Information on Portfolio Instruments and Investment Policies
establishments
or the like) and supranational issuers; and (d) repurchase agreements, including reverse repurchase agreements
(which permitted collateral, in most cases, must have an investment grade rating from at least two NRSROs).
Except for the investment agreements, funding agreements or guaranteed investment contracts guaranteed by
an insurance company, master notes, and medium term notes (which are described below), these types of investments
are described elsewhere in the SAI. Collateral may also be invested in a money market mutual fund or short-term
collective investment trust.
Investment
agreements, funding agreements, or guaranteed investment contracts entered into with, or guaranteed by,
an insurance company are agreements where an insurance company either provides for the investment of a Fund’s assets
or provides for a minimum guaranteed rate of return to the investor.
Master
notes are promissory notes issued usually with large, creditworthy broker-dealers on either a fixed rate or floating
rate basis. Master notes may or may not be collateralized by underlying securities. If the master note is issued by an
unrated subsidiary of a broker-dealer, then an unconditional guarantee is provided by the issuer’s parent.
Medium
term notes are unsecured, continuously offered corporate debt obligations. Although medium term notes may
be offered with a maturity from one to ten years, in the context of securities lending collateral the maturity of the medium
term note will not generally exceed two years.
Securities
of Investment Companies.
To the extent permitted by the 1940 Act, a Fund may generally invest up to 10% of
its total assets, calculated at the time of investment, in the securities of other investment companies. No more than 5% of
a Fund’s total assets may be invested in the securities of any one investment company nor may it acquire more than 3%
of the voting securities of any other investment company. For purposes of these limitations, a Fund would aggregate its
investments in any private placements with its investment company holdings, which would include ETF holdings unless an
exemption applies (as described in “Exchange-Traded Funds” above). Rule 12d1-4 under the 1940 Act permits registered
investment companies to acquire securities of another investment company in excess of these amounts, subject
to certain conditions.
To
the extent a Fund invests in another investment company, the Fund indirectly will bear its proportionate share of any
management fees paid by an investment company in which it invests in addition to the advisory fee paid by the Fund. Some
of the countries in which a Fund may invest may not permit direct investment by outside investors. Investments in such
countries may only be permitted through foreign government-approved or government-authorized investment vehicles,
which may include other investment companies. Each Fund may not acquire securities of registered open-end investment
companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
See
also “Exchange-Traded
Funds” above.
Short
Sales. In a short sale of
securities, a Fund sells a security that it does not own, making delivery with securities “borrowed”
from a broker. A Fund is then obligated to replace the security borrowed by purchasing it at the market price at
the time of replacement. This price may or may not be less than the price at which the security was sold by a Fund. Until
the security is replaced, a Fund is required to pay the lender any dividends or interest which accrue during the period of
the loan. In order to borrow the security, a Fund may also have to pay a premium and/or interest which would increase the
cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out. In addition, the broker may require the deposit of collateral (generally,
up to 50% of the value of the securities sold short).
A
Fund will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. A Fund will realize a gain if the security declines in price
between those two dates. The amount of any gain will be decreased and the amount of any loss will be increased by
any premium or interest a Fund may be required to pay in connection with the short sale. When a cash dividend is declared
on a security for which a Fund has a short position, the Fund incurs the obligation to pay an amount equal to that
dividend to the lender of the shorted security. However, any such dividend on a security sold short generally reduces the
market value of the shorted security, thus increasing a Fund’s unrealized gain or reducing a Fund’s unrealized loss on its
short-sale transaction. Whether a Fund will be successful in utilizing a short sale will depend, in part, on the Adviser’s or Subadviser’s
ability to correctly predict whether the price of a security it borrows to sell short will decrease.
In
a short sale, the seller does not immediately deliver the securities sold and is said to have a short position in those securities
until delivery occurs. In accordance with current federal securities laws, rules, and staff positions, a Fund must segregate
or earmark an amount of cash or other liquid assets equal to the difference between (a) the market value of securities
sold short at the time that they were sold short and (b) the value of the collateral deposited with the broker to meet
margin requirements in connection with the short sale (not including the proceeds from the short sale).
A
Fund also may engage in short sales if at the time of the short sale the Fund owns or has the right to obtain without additional
cost an equal amount of the security being sold short. This investment technique is known as a short sale “against
the box.” The Funds do not intend to engage in short sales against the box for investment purposes. A Fund may, however,
make a short sale as a hedge, when it believes that the price of a security may decline, causing a decline in the value
of a security owned by the Fund (or a security convertible or exchangeable for such security), or when the Fund wants
to sell the security at an attractive current price. In such case, any future losses in a Fund’s long position should be
Additional
Information on Portfolio Instruments and Investment Policies 65
offset
by a gain in the short position and, conversely, any gain in the long position should be reduced by a loss in the short position.
The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative
to the amount a Fund owns. There will be certain additional transaction costs associated with short sales against the
box. For tax purposes a Fund that enters into a short sale “against the box” may be treated as having made a constructive
sale of an “appreciated financial position” causing the Fund to realize a gain (but not a loss).
“Special
Situations” Companies Risk.
“Special situations” with respect to a portfolio company include a change in management
or management policies, the acquisition of a significant equity position in the company by others, a merger
or reorganization, or the sale or spin-off of a division or subsidiary which, if resolved favorably, would improve the value
of the company’s stock. If the actual or prospective situation does not materialize as anticipated, the market price of
the securities of a special situation company may decline significantly. There can be no assurance that a special situation
that exists at the time of its investment will be consummated under the terms and within the time period contemplated.
Investments in “special situations” companies can present greater risks than investments in companies not
experiencing special situations.
Standby
Commitment Agreements. Standby
commitment agreements commit a Fund, for a stated period of time, to purchase
a stated amount of fixed income securities that may be issued and sold to the Fund at the option of the issuer. The
price and coupon of the security is fixed at the time of the commitment. At the time of entering into the agreement a Fund
is paid a commitment fee, regardless of whether or not the security is ultimately issued. A Fund enters into such agreements
for the purpose of investing in the security underlying the commitment at a yield and price that is considered
advantageous to the Fund.
Strategic
Transactions, Derivatives and Synthetic Investments.
A Fund may, but is not required to, utilize various other investment
strategies as described below for a variety of purposes, such as hedging various market risks, managing the effective
maturity or duration of the fixed income securities in the Fund’s portfolio or enhancing potential gain. These strategies
may be executed through the use of derivative contracts. In certain circumstances, a Fund may wish to obtain the
price performance of a security without actually purchasing the security in circumstances where, for example, the security
is illiquid, or is unavailable for direct investment or available only on less attractive terms. In such circumstances, a Fund
may invest in synthetic or derivative alternative investments (“Synthetic Investments”) that are based upon or otherwise
relate to the economic performance of the underlying securities. Synthetic Investments may include swap transactions,
notes or units with variable redemption amounts, and other similar instruments and contracts. Synthetic Investments
typically do not represent beneficial ownership of the underlying security, usually are not collateralized or otherwise
secured by the counterparty and may or may not have any credit enhancements attached to them.
In
the course of pursuing these investment strategies, a Fund may purchase and sell exchange-listed and OTC put and
call options on securities, equity and fixed income indices and other instruments, purchase and sell futures contracts and
options thereon, enter into various transactions such as swaps, caps, floors, collars, currency forward contracts, currency
futures contracts, currency swaps or options on currencies, or currency futures and various other currency transactions
(collectively, all the above are called “Strategic Transactions”). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory changes occur. Strategic Transactions
may be used subject to certain limits imposed by the 1940 Act to attempt to protect against possible changes
in the market value of securities held in or to be purchased for a Fund’s portfolio resulting from securities markets
or currency exchange rate fluctuations, to protect a Fund’s unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration of a Fund’s portfolio,
or to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities. Any
or all of these investment techniques may be used at any time and in any combination, and there is no particular strategy
that dictates the use of one technique rather than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Fund to utilize these Strategic Transactions successfully will
depend on the Adviser’s ability to predict pertinent market movements, which cannot be assured. A Fund will comply with
applicable regulatory requirements when implementing these strategies, techniques and instruments. Strategic Transactions
will not be used to alter fundamental investment purposes and characteristics of a Fund, and, in accordance
with current federal securities laws, rules, and staff positions, a Fund will segregate assets (or enter into certain
offsetting positions) to cover its obligations under options, futures and swaps to limit leveraging of the Fund.
Strategic
Transactions, including derivative contracts and Synthetic Investments, have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the extent the Adviser’s view as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions could result in losses greater than if they
had not been used. Synthetic Investments also involve exposure to the creditworthiness of the issuer of the underlying
security, changes in exchange rates and future governmental actions taken by the jurisdiction in which the underlying
security is issued, and counterparties involved. Use of put and call options may result in losses to a Fund, force the
sale or purchase of portfolio securities at inopportune times or for prices higher than (in the case of put options) or lower
than (in the case of call options) current market values, limit the amount of appreciation a Fund can realize on its investments
or cause a Fund to hold a security it might otherwise sell. The use of currency transactions can result in a Fund
incurring losses as a result of a number of factors including the imposition of exchange controls, suspension of settlements,
or the inability to deliver or receive a specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price movements of futures contracts and
66 Additional
Information on Portfolio Instruments and Investment Policies
price
movements in the related portfolio position of a Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Fund’s position. In addition, futures and options markets may not be liquid in all
circumstances and certain OTC options may have no markets. As a result, in certain markets, a Fund might not be able to
close out a transaction without incurring substantial losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of such position. Finally, the daily variation
margin requirements for futures contracts and short options positions would create a greater ongoing potential financial
risk than would purchases of options (i.e., long options positions, when the exposure is limited to the cost of the initial
premium). Losses resulting from the use of Strategic Transactions would reduce NAV, and possibly income, and such
losses can be greater than if the Strategic Transactions had not been utilized.
Risks
of Strategic Transactions Inside the U.S.
It is possible that government regulation of various types of derivative instruments,
such as the currency and interest rate transactions, credit default swaps and options described herein, may limit
or prevent a Fund from using such instruments as part of its investment strategy, which could negatively impact a Fund.
For example, it is possible that developments in the derivatives market, including new regulatory requirements, could
limit or prevent a Fund’s ability to utilize derivatives as part of its investment strategy, terminate existing derivatives or
realize amounts to be received under such derivatives, which could negatively affect the Fund. Some derivatives currently
are, and more in the future will be, required to be centrally cleared, which affects how derivatives are transacted.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (the “Dodd-Frank Act”), resulted
in a comprehensive regulatory regime for derivatives that qualify as “swaps”, which are generally regulated by the
CFTC, and “security-based swaps”, which are generally regulated by the SEC. Foreign exchange forwards and spot foreign
exchange are generally exempt from this regulation. The Dodd-Frank Act created a new clearing and exchange-trading
requirements for OTC derivatives that are swaps or security-based swaps. The Dodd-Frank Act also requires
the CFTC, SEC and banking or prudential regulators, to establish capital requirements for certain regulated counterparties
(such as swap dealers), as well as requirements for such regulated counterparties to collect margin from and
post margin to counterparties, such as the Funds, to uncleared derivatives and to impose clearing and central trading
requirements, that also require margin posting by the Funds. The CFTC and banking or prudential regulators have adopted
margin rules for uncleared swaps and, in the case of prudential regulators, security-based swaps as well. Variation
margin requirements have been implemented by the CFTC and prudential regulators (and
in some cases initial margin).
The SEC has also adopted a set of regulations that apply to security-based swaps, including dealer registration, central
clearing, business conduct and margin requirements that are expected to go into effect in the near future. The Funds
may incur additional costs in complying with the SEC rules because many of those rules differ from the rules adopted
for swaps by the CFTC and the prudential regulators.
If
a swap entered into by a Fund is required to be centrally cleared, Dodd-Frank and the CFTC’s regulations may also require
that the swap be executed on a regulated market facility such as a “swap execution facility” or “SEF”. Similar
regulatory requirements also
apply to security-based swaps that are subject to the jurisdiction of the SEC.
While
some provisions of the Dodd-Frank Act have either already been implemented through rulemaking by the CFTC
and/or the SEC, or by the banking or prudential regulators in the case of capital requirements and margin requirements
for uncleared swaps with respect to certain regulated counterparties, or must be implemented through future
rulemaking by those and other federal agencies, and any regulatory or legislative activity may not necessarily have
a direct, immediate effect upon the Fund, it is possible that, when compliance with these rules is required, they could potentially
limit or completely restrict the ability of a Fund to use certain derivatives as a part of its investment strategy, increase
the cost of entering into derivatives transactions or require more assets of the Fund to be used for collateral in support
of those derivatives than is currently the case. Limits or restrictions applicable to the counterparties with which a Fund
engages in derivative transactions also could prevent the Fund from using derivatives or affect the pricing or other factors
relating to these transactions, or may change the availability of certain derivatives.
The
CFTC and the SEC continue to review the proposed and current regulatory requirements applicable to derivatives,
including swaps and security-based swaps. It is not certain at this time how the regulators may change these requirements
and such proposals may create barriers to the Fund’s use of certain types of investments.
As
described above, the Fund may also trade in currency forward contracts. There is less protection against defaults in
the forward trading of currencies since such contracts are currently not guaranteed by any clearing house. The Dodd- Frank
Act includes in the definition of “swaps” that are regulated by the CFTC most types of currency derivatives including cash-settled
or non-deliverable foreign currency forwards. Such currency derivatives may, in the future, be required to be
cleared by a clearinghouse and traded on a regulated exchange, and are now generally subject to the final swap regulations
adopted by the CFTC in connection with its authority under the Dodd-Frank Act. A limited category of currency
derivatives, namely physically-settled or deliverable foreign currency forwards and swaps, however, are excluded
from certain of the Dodd-Frank Act regulations as a result of a determination issued by the Secretary of the Treasury.
These foreign currency derivatives are not subject to the mandatory clearing or exchange-trading requirements
of the Dodd-Frank Act.
Additional
Information on Portfolio Instruments and Investment Policies 67
Risks
of Strategic Transactions Outside the U.S.
When conducted outside the U.S., Strategic Transactions may not be regulated
as rigorously as in the U.S. (which may depend on whether the Fund is executing trades with a CFTC or SEC registered
dealer), may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of
such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii) delays in a Fund’s ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Combined
Transactions. A Fund may
enter into multiple transactions, including multiple options transactions, multiple
futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate transactions (“component” transactions),
instead of a single Strategic Transaction, as part of a single or combined strategy when, in the opinion of the
Adviser, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions are normally entered into based on the
Adviser’s judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
Close-out
Risk for Qualified Financial Contracts.
Regulations adopted by the prudential regulators require counterparties
of the banks and other financial intermediaries that are part of U.S. or foreign global systemically important
banking organizations to include contractual restrictions on close-out and cross-default in agreements relating
to qualified financial contracts. Qualified financial contracts include agreements relating to swaps, currency forwards
and other derivatives as well as repurchase agreements and securities lending agreements. The restrictions prevent
a Fund from closing out a qualified financial contract during a specified time period if the counterparty is subject to
resolution proceedings and prohibit the Fund from exercising default rights due to a receivership or similar proceeding of
an affiliate of the counterparty. These requirements may increase credit and other risks to the Funds.
Structured
Notes. Structured notes
are specially-designed derivative debt instruments in which the terms may be structured
by the purchaser and the issuer of the note. The amount of principal repayments and/or interest payments is based
upon the movement of one or more “factors.” These factors include, but are not limited to, currency and currency baskets,
interest rates (such as the prime lending rate),
a single security, basket of securities, indices (such as the Standard
& Poor’s 500 Index) and precious metal-related instruments and other commodities. In some cases, the impact of
the movements of these factors may increase or decrease through the use of multipliers or deflators. Structured notes may
be designed to have particular quality and maturity characteristics and may vary from money market quality to below
investment grade. Depending on the factor used and use of multipliers or deflators, however, changes in interest rates
and movement of the factor may cause significant price fluctuations or may cause particular structured notes to become
illiquid.
Structured
Securities. A structured
investment is a security whose value or performance is linked to an underlying index
or other security or asset class. Structured investments involve the transfer of specified financial assets to a special purpose
entity, generally a corporation or trust, or the deposit of financial assets with a custodian; and the issuance of securities
or depository receipts backed by, or representing interests in those assets.
Some
structured investments are individually negotiated agreements or are traded OTC. Structured investments may
be organized and operated to restructure the investment characteristics of the underlying security. The cash flow on
the underlying instruments may be apportioned among the newly issued structured securities to create securities with
different investment characteristics, such as varying maturities, payment priorities and interest rate provisions, and the
extent of such payments made with respect to structured securities is dependent on the extent of the cash flow on the
underlying instruments. Investments in structured securities generally involve a class of structured securities that is either
subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically
have higher yields and present greater risks than unsubordinated structured securities. Structured securities are also
subject to such risks as the inability or unwillingness of the issuers of the underlying securities to repay principal and interest,
and requests by the issuers of the underlying securities to reschedule or restructure outstanding debt and to extend
additional loan amounts.
Supranational
Entities. Supranational
entities are international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank),
the European Coal and Steel Community, The Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational entities are backed by the guarantee of one or more foreign governmental parties which
sponsor the entity. Supranational entities have no taxing authority and are dependent on their members for payments
of interest and principal. If one or more members of a supranational entity fails to make necessary contributions,
the entity may be unable to pay interest or repay principal on its debt securities. Political changes in principal
donor nations may unexpectedly disrupt the finances of supranational entities.
68 Additional
Information on Portfolio Instruments and Investment Policies
Sustainable
Investing Risk. A Fund’s
“Sustainable Investing” strategies could cause it to perform differently compared to
funds that do not have such strategies. The criteria related to a Fund’s “Sustainable Investing” strategy, including
the exclusion of securities of companies in
certain business activities, may result in a Fund forgoing opportunities to buy certain
securities when it might otherwise be advantageous to do so, or selling securities for ESG reasons when it might be
otherwise disadvantageous for it to do so. In addition, there is a risk that the companies identified as sustainable leaders
by the Adviser do not operate as expected when addressing ESG issues. There are significant differences in interpretations
of what it means for a company to have positive ESG characteristics. While the Adviser believes its definitions
are reasonable, the portfolio decisions it makes may differ with other investors’ or advisers’ views. Successful application
of a Fund’s sustainable investment strategy will depend on the Adviser’s skill in identifying and analyzing material
ESG issues as well as the information available for each issuer, which may not always be complete.
Data inputs for ESG purposes
may include information self-reported by issuers or from third party data providers, which may be incomplete
or inaccurate to certain extent. U.S. and foreign laws and regulations governing sustainable investing, including,
but not limited to, the definition and/or the application of sustainability criteria, are continuously evolving, which may
have an adverse effect on a Fund’s ability to invest in accordance with its sustainable investing strategy.
Swaps,
Caps, Floors and Collars.
To the extent used by a Fund, total return equity, interest rate, credit default, currency,
index and other swaps and the purchase or sale of related caps, floors and collars are expected to be used primarily
to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. A Fund will not sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
A
Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. Rule 18f-4 under the 1940 Act has eliminated the general asset segregation requirement
in connection with certain derivatives transactions, in light of the rule’s requirements for funds to establish and
maintain derivatives risk management programs that comply with certain risk-based limits. A Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the Counterparty meets the Adviser’s
current creditworthiness standards. If there is a default by the Counterparty, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are
less liquid than swaps.
Total
Return Swaps. A total return
swap is a swap in which one party pays the total return of an asset, and the other party
makes periodic interest payments. The total return is the capital gain or loss, plus any interest or dividend payments. If
the total return is negative, then the party making periodic interest or dividend payments pays this amount to the other party.
The parties have exposure to the return of the underlying stock or index, without having to hold the underlying assets.
The profit or loss of the party making periodic interest or dividend payments is the same as actually owning the underlying
asset. An equity swap is a special type of total return swap, where the underlying asset is a stock, a basket of stocks,
or a stock index. One party to an equity swap agrees to make periodic payments based on the change in market value
of a specified equity security, basket of equity securities or equity index in return for periodic payments from the other
party based on a fixed or variable interest rate or the change in market value of a different equity security, basket of equity
securities or equity index. The parties to an equity swap do not make an initial payment and do not have any voting or
other rights of a stockholder. An index swap is an agreement to swap cash flows on a notional amount based on changes
in the values of the reference indices.
Interest
Rate Swaps. Interest rate
swaps involve the exchange by a Fund with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to
a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the
purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below
a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates or values.
Credit
Default Swaps. A credit
default swap is a credit derivative contract between two counterparties. The buyer makes
periodic payments to the seller, and in return receives protection if an underlying financial instrument defaults. A Fund
might use credit default swap contracts to limit or to reduce risk exposure of the Fund to defaults of corporate and sovereign
issuers (i.e., to reduce risk when the Fund owns or has exposure to such issuers). A Fund also might use credit default
swap contracts to create direct or synthetic short or long exposure to domestic or foreign corporate debt securities
or certain sovereign debt securities to which the Fund is not otherwise exposed.
Additional
Information on Portfolio Instruments and Investment Policies 69
As
the seller in a credit default swap contract, a Fund would be required to pay the par (or other agreed-upon) value of
a referenced debt obligation to the counterparty in the event of a default (or similar event) by a third-party, such as a U.S.
or foreign issuer, on the debt obligation. In return, a Fund would receive from the counterparty a periodic stream of payments
over the term of the contract, provided that no event of default (or similar event) occurs. If no event of default (or
similar event) occurs, a Fund would keep the stream of payments and would have no payment of obligations. As the seller
in a credit default swap contract, a Fund effectively would add economic leverage to its portfolio because, in addition
to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap.
As
the purchaser in a credit default swap contract, a Fund would function as the counterparty referenced in the preceding
paragraph. This would involve the risk that the investment might expire worthless. It also would involve credit risk,
which means that the seller may fail to satisfy its payment obligations to the Fund in the event of a default (or similar event).
As the purchaser in a credit default swap contract, a Fund’s investment would generate income only in the event of
an actual default (or similar event) by the issuer of the underlying obligation.
Currency
Swaps. A currency swap is
a foreign-exchange agreement between two institutions to exchange aspects (namely
the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present
value loan in another currency.
Index
Swap. An index swap is a
swap of a market index for some other asset, such as a stock-for-stock or debt-for-stock
swap.
New
regulations governing certain OTC derivatives may also increase the costs of using these types of instruments or
make them less effective, as described under “Strategic Transactions, Derivatives and Synthetic Investments – Risks of Strategic
Transactions Inside the U.S.”
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Tax
Reclaim Risk.
Funds managed by the adviser may be entitled to tax reclaims related to portfolio holdings in certain
jurisdictions. Dividend and interest income from non-U.S. portfolio holdings received by a Fund are generally subject
to non-U.S. withholding taxes and are recorded on ex-dividend date. The Fund generally files for tax reclaims for the
refund of such withholding taxes according to tax treaties. Tax reclaims that are deemed collectible are booked as a tax
reclaim receivable for the Fund. The actual receipt and timing of receipt of a tax reclaim varies depending on the foreign
jurisdiction and receipt of reclaims in certain jurisdictions may be significantly delayed.
Temporary
Investments. Generally each
Fund will be fully invested in accordance with its investment objective and strategies.
However, pending investment of cash balances or for other cash management purposes, or if the Adviser believes
that business, economic, political or financial conditions warrant, a Fund may invest, without limit, in cash or cash equivalents,
including: (1) foreign money market instruments (such as bankers’ acceptances, certificates of deposit, commercial
paper, short-term government and corporate obligations, and repurchase agreements); (2) obligations issued
or guaranteed by the U.S. Government its agencies and instrumentalities; (3) certificates of deposit, bankers’ acceptances,
and interest-bearing savings deposits of commercial banks; (4) prime quality commercial paper; (5) repurchase
agreements covering any of the securities in which the Fund may invest directly; (6) money market instruments;
and (7) high quality debt securities without equity features. Should this occur, a Fund will not be pursuing and may
not achieve its investment objective or may miss potential market upswings.
In
addition, pending the investment of cash balances or for other cash management purposes, a Fund may invest without
limit in other instruments, including but not limited to derivatives that provide exposure to markets or companies in
which a Fund may invest and in shares of other investment companies that invest in securities in which the Fund may invest,
subject to the limits of the 1940 Act.
Transactions
Leverage Risk. Certain transactions
may give rise to a form of leverage. Such transactions may include, among
others, loans of securities, and the use of when-issued, delayed delivery or forward commitment transactions. The
use of derivatives may also create leveraging risk. Leverage may cause a Fund to be more volatile than if a Fund had not
been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a Fund’s
securities. Rule 18f-4 under the 1940 Act, which became fully effective in August 2022, generally has eliminated the
requirement to maintain “segregated accounts” for funds that engage in these types of transactions, provided that the
fund complies with the rule’s risk-based limits on leverage and other conditions.
Trust
Preferred Securities. Trust
Preferred Securities are hybrid instruments issued by a special purpose trust (the “Special
Trust”), the entire equity interest of which is owned by a single issuer. The proceeds of the issuance to a Fund of Trust
Preferred Securities are typically used to purchase a junior subordinated debenture, and distributions from the Special
Trust are funded by the payments of principal and interest on the subordinated debenture.
If
payments on the underlying junior subordinated debentures held by the Special Trust are deferred by the debenture
issuer, the debentures would be treated as original issue discount (“OID”) obligations for the remainder of their term.
As a result, holders of Trust Preferred Securities, such as the Funds, would be required to accrue daily for federal income
tax purposes their share of the stated interest and the de minimis OID on the debentures (regardless of whether the
Fund receives any cash distributions from the Special Trust), and the value of Trust Preferred Securities would likely be
70 Additional
Information on Portfolio Instruments and Investment Policies
negatively
affected. Interest payments on the underlying junior subordinated debentures typically may only be deferred if
dividends are suspended on both common and preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and preferred securities of the issuer,
but rank below other subordinated debentures and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred Securities may be more volatile
than those of conventional debt securities. Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act, and, unless and until registered, are restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities, such as the Funds to sell their holdings.
U.S.
Government Securities. There
are two broad categories of U.S. Government-related debt instruments: (a) direct obligations
of the U.S. Treasury, and (b) securities issued or guaranteed by U.S. Government agencies.
Examples
of direct obligations of the U.S. Treasury are Treasury Bills, Notes, Bonds and other debt securities issued by the
U.S. Treasury. These instruments are backed by the “full faith and credit” of the United States. They differ primarily in
interest rates, the length of maturities and
the dates of issuance. Treasury bills have original maturities of one year or less. Treasury
notes have original maturities of one to ten years and Treasury bonds generally have original maturities of greater
than ten years.
Some
agency securities are backed by the full faith and credit of the United States (such as Maritime Administration Title
XI Ship Financing Bonds and Agency for International Development Housing Guarantee Program Bonds) and others are
backed only by the rights of the issuer to borrow from the U.S. Treasury (such as Federal Home Loan Bank Bonds and Fannie
Mae Bonds), while still others, such as the securities of the Federal Farm Credit Bank, are supported only by the credit
of the issuer. With respect to securities supported only by the credit of the issuing agency or by an additional line of credit
with the U.S. Treasury, there is no guarantee that the U.S. Government will provide support to such agencies and such
securities may involve risk of loss of principal and interest. U.S. Government Securities may include “zero coupon” securities
that have been stripped by the U.S. Government of their unmatured interest coupons and collateralized obligations
issued or guaranteed by a U.S. Government agency or instrumentality.
Interest
rates on U.S. Government obligations may be fixed or variable. Interest rates on variable rate obligations are adjusted
at regular intervals, at least annually, according to a formula reflecting then current specified standard rates, such
as 91-day U.S. Treasury bill rates. These adjustments generally tend to reduce fluctuations in the market value of the securities.
The
government guarantee of the U.S. Government Securities in a Fund’s portfolio does not guarantee the NAV of the
shares of the Fund. There are market risks inherent in all investments in securities and the value of an investment in a Fund
will fluctuate over time. Normally, the value of investments in U.S. Government Securities varies inversely with changes
in interest rates. For example, as interest rates rise the value of investments in U.S. Government Securities will tend
to decline, and as interest rates fall the value of a Fund’s investments will tend to increase. In addition, the potential for
appreciation in the event of a decline in interest rates may be limited or negated by increased principal prepayments with
respect to certain mortgage-backed securities, such as Government National Mortgage Association Certificates. Prepayments
of high interest rate mortgage-backed securities during times of declining interest rates will tend to lower the
return of a Fund and may even result in losses to the Fund if some securities were acquired at a premium. Moreover, during
periods of rising interest rates, prepayments of mortgage-backed securities may decline, resulting in the extension
of a Fund’s average portfolio maturity. As a result, a Fund’s portfolio may experience greater volatility during periods
of rising interest rates than under normal market conditions.
TIPS
Bonds. Treasury Inflation-Protected
Securities (“TIPS”) are fixed income securities issued by the U.S. Treasury whose
principal value is periodically adjusted according to the rate of inflation. The U.S. Treasury uses a structure that accrues
inflation into the principal value of the bond. Inflation-indexed securities issued by the U.S. Treasury have maturities
of five, ten or thirty years, although it is possible that securities with other maturities will be issued in the future. TIPS
bonds typically pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted amount. For
example, if a Fund purchased an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return coupon
(payable 1.5% semi-annually), and inflation over the first six months was 1%, the mid-year par value of the bond would
be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second
half of the year resulted in the whole year’s inflation equaling 3%, the end-of-year par value of the bond would be $1,030
and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If
the periodic adjustment rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these securities (calculated with respect to a smaller principal amount)
will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in
the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of
the bonds is not guaranteed and will fluctuate.
The
value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates
in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to
rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-indexed
bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might
rise, leading to a decrease in value of inflation-indexed bonds.
Additional
Information on Portfolio Instruments and Investment Policies 71
While
these securities are expected to be protected from long-term inflationary trends, short-term increases in inflation
may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes
in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not
reflected in the bond’s inflation measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer Price Index for Urban Consumers (“CPI-U”),
which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and energy. There can be no assurance that
the CPI-U will accurately measure the real rate of inflation in the prices of goods and services.
Any
increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though
investors do not receive their principal until maturity.
When-Issued
Securities and Delayed-Delivery.
A Fund may purchase equity and debt securities on a “when-issued,” “delayed
delivery” or “forward delivery” basis. The price of such securities, which may be expressed in yield terms, is fixed
at the time the commitment to purchase is
made, but delivery and payment for the securities takes place at a later date. During
the period between purchase and settlement, no payment is made by a Fund to the issuer and no interest accrues
to the Fund. When a Fund purchases such securities, it immediately assumes the risks of ownership, including the
risk of price fluctuation. Failure to deliver a security purchased on this basis may result in a loss or missed opportunity to
make an alternative investment.
To
the extent that assets of a Fund are held in cash pending the settlement of a purchase of securities, the Fund would
earn no income. While such securities may be sold prior to the settlement date, each Fund intends to purchase them
with the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time a Fund
makes the commitment to purchase a security on this basis, it will record the transaction and reflect the value of the security
in determining its NAV. The market value of the securities may be more or less than the purchase price. In accordance
with current federal securities laws, rules, and staff positions, a Fund will establish a segregated account in which
it will maintain cash and liquid assets equal in value to commitments for such securities.
When
a Fund engages in when-issued or delayed-delivery transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in a Fund incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
When
a Fund enters into a delayed delivery transaction, a when-issued transaction or a forward transaction, the Fund
may be required to provide collateral to cover potential losses of the counterparty, due to changes in the value of the
security, in the event that the event that the transaction is unable to settle (e.g., in the event of a default on the Fund). Similarly,
the counterparty may be required to provide collateral to cover the potential losses of the Fund, due to changes in
the value of the security, in the event that the transaction is unable to settle (e.g., the seller fails to deliver the security). A Fund
may reduce the amount of liquid assets it will segregate to the extent it provides such collateral.
Rule
18f-4 under the 1940 Act, which became fully effective in August 2022, provides that funds may invest in securities
on a when-issued or forward-settling basis, or with a non-standard settlement cycle. These transactions are not
deemed
to involve a senior security, and thus generally do
not require the Fund to maintain a “segregated account” when engaging
in these types of transactions, subject to certain conditions and any other restrictions that the Fund has adopted.
There
can be no assurance that the securities subject to a standby commitment will be issued and the value of the security,
if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, the Fund may bear the risk of a decline in the value of such security
and may not benefit from appreciation in the value of the security during the commitment period if the security is
not ultimately issued.
The
purchase of a security subject to a standby commitment agreement and the related commitment fee will be recorded
on the date on which the security can reasonably be expected to be issued, and the value of the security will thereafter
be reflected in the calculation of the Fund’s NAV. The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the commitment fee will be recorded as income on the expiration
date of the standby commitment.
Zero
Coupon, Discount and Payment-In-Kind Securities.
A Fund may also invest in zero coupon U.S. Treasury securities and
in zero coupon securities issued by financial institutions, which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon bond is a security that makes no fixed interest payments but instead is sold at a discount
from its face value. The bond is redeemed at its face value on the specified maturity date. Zero coupon bonds may
be issued as such, or they may be created by a broker who strips the coupons from a bond and separately sells the rights
to receive principal and interest. The prices of zero coupon bonds tend to fluctuate more in response to changes in market
interest rates than do the prices of interest-paying debt securities with similar maturities. A Fund investing in zero coupon
bonds generally accrues income on such securities prior to the receipt of cash payments. Since a Fund must distribute
substantially all of its income to shareholders to qualify as a regulated investment company under federal income
tax law, to the extent that the Fund invests in zero coupon bonds, it may have to dispose of other securities,
72 Additional
Information on Portfolio Instruments and Investment Policies
including
at times when it may be disadvantageous to do so, to generate the cash necessary for the distribution of income
attributable to its zero coupon bonds. The market values of zero coupon securities generally are more volatile than
the market prices of securities that pay interest periodically.
Payment-in-kind
securities allow the lender, at its option, to make current interest payments on such securities either
in cash or in additional securities. Accordingly, such securities usually are issued and traded at a deep discount from
their face or par value and generally are subject to greater fluctuations of market value in response to changing interest
rates than securities of comparable maturities and credit quality that pay cash interest (or dividends in the case of
preferred stock) on a current basis.
Portfolio
Turnover
The
portfolio turnover rate for a Fund is calculated by dividing the lesser of purchases and sales of portfolio securities for
the year by the monthly average value of the portfolio securities, excluding securities whose maturities at the time of purchase
were one year or less. Portfolio turnover may involve the payment by a Fund of brokerage and other transaction
costs, on the sale of securities, as well as on the investment of the proceeds in other securities. The greater the
portfolio turnover, the greater transaction costs to the Fund, which could have an adverse effect on the Fund’s total rate
of return. In addition, funds with high portfolio turnover rates may be more likely than low turnover funds to generate capital
gains that must be distributed to shareholders as taxable income.
The
table below shows the Funds’ portfolio turnover rates for the fiscal years ended October 31, 2023
and 2022.
|
|
|
Fund
|
2023
|
2022
|
China
A Fund |
36.32%
|
23.60%
|
Dynamic
Dividend Fund |
62.85%
|
78.51%
|
Emerging
Markets Dividend Fund |
23.45%
|
38.19%
|
Emerging
Markets ex-China Fund(1)
|
36.00%
|
129.38%
|
Emerging
Markets Fund |
30.01%
|
36.82%
|
Emerging
Markets Sustainable Leaders Fund |
27.11%
|
29.36%
|
Focused
U.S. Small Cap Equity Fund |
16.83%
|
55.89%
|
Global
Equity Impact Fund |
30.88%
|
36.90%
|
Global
Infrastructure Fund |
20.33%
|
23.33%
|
High
Income Opportunities Fund |
74.58%
|
96.73%
|
Infrastructure
Debt Fund |
140.60%
|
180.82%
|
Intermediate
Municipal Income Fund |
79.85%
|
20.98%
|
International
Small Cap Fund |
35.89%
|
46.90%
|
Realty
Income & Growth Fund |
23.77%
|
23.36%
|
Short
Duration High Yield Municipal Fund |
57.71%
|
57.98%
|
Ultra
Short Municipal Income Fund |
231.34%
|
320.87%
|
U.S.
Small Cap Equity Fund |
29.74%
|
59.08%
|
U.S.
Sustainable Leaders Fund |
31.62%
|
44.12%
|
(1) |
The
Fund’s portfolio turnover was higher during the fiscal year ended October 31, 2022 due to the change in the Fund’s strategy
that took place during the fiscal year. |
Additional
Information on Portfolio Instruments and Investment Policies 73
Investment
Restrictions
Fundamental
Investment Restrictions:
The
following are fundamental investment restrictions of each Fund which cannot be changed without the vote of the
majority of the outstanding shares of the Fund for which a change is proposed. The vote of the majority of the outstanding
shares means the vote of (A) 67% or more of the voting securities present at a meeting, if the holders of more
than 50% of the outstanding voting securities are present or represented by proxy or (B) a majority of the outstanding
voting securities, whichever is less.
China
A Fund, Emerging Markets Dividend
Fund, Emerging Markets ex-China Fund,
Emerging Markets Fund,
Emerging Markets
Sustainable Leaders Fund, Global
Equity Impact Fund, High
Income Opportunities
Fund, Infrastructure
Debt Fund, Intermediate Municipal Income
Fund, International Small Cap Fund, U.S.
Small Cap Equity Fund, Focused
U.S. Small
Cap Equity Fund
and U.S. Sustainable Leaders Fund:
● |
May
not (except the Emerging Markets ex-China Fund)(1)
purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if, immediately after such purchase, more
than 5% of the Fund’s total assets would be invested in such issuer or the Fund would hold more than 10% of the outstanding
voting securities of the issuer, except that 25% or less of the Fund’s total assets may be invested without regard
to such limitations. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. |
● |
May
not borrow money or issue senior securities, except that each Fund may sell securities short, enter into reverse repurchase
agreements and may otherwise borrow money and issue senior securities as and to the extent permitted by
the 1940 Act or any rule, order or interpretation thereunder. |
● |
May
not act as an underwriter of another issuer’s securities, except to the extent that the Fund may be deemed an underwriter
within the meaning of the Securities Act in connection with the purchase and sale of portfolio securities. |
● |
May
not purchase or sell commodities or commodities contracts, except to the extent disclosed in the current Prospectus
or SAI of the Fund. |
● |
May
not purchase the securities of any issuer if, as a result, 25% or more (taken at current value) of the Fund’s total assets
would be invested in the securities of issuers, the principal activities of which are in the same industry. This limitation
does not apply to securities issued by the U.S. Government or its agencies or instrumentalities or securities of other
investment companies. For each Fund except the Emerging Markets Fund, Infrastructure
Debt Fund and U.S. Sustainable
Leaders Fund, the following industries are considered separate industries for purposes of this investment restriction:
electric, natural gas distribution, natural gas pipeline, combined electric and natural gas, and telephone utilities,
captive borrowing conduit, commercial mortgage, residential mortgage, equipment finance, premium finance,
leasing finance, consumer finance and other finance; commercial mortgage and residential mortgage are not
considered separate industries. For the Intermediate Municipal Income Fund, this limitation does not apply to tax-exempt
obligations issued by state, county or municipal governments. |
● |
May
not lend any security or make any other loan, except that each Fund may in accordance with its investment objective
and policies (i) lend portfolio securities, (ii) purchase and hold debt securities or other debt instruments, including
but not limited to loan participations and subparticipations, assignments, and structured securities, (iii) make loans
secured by mortgages on real property, (iv) enter into repurchase agreements, and (v) make time deposits with financial
institutions and invest in instruments issued by financial institutions, and enter into any other lending arrangement
as and to the extent permitted by the 1940 Act or any rule, order or interpretation thereunder. |
● |
May
not purchase or sell real estate, except that each Fund may (i) acquire real estate through ownership of securities or
instruments and sell any real estate acquired thereby, (ii) purchase or sell instruments secured by real estate (including
interests therein), and (iii) purchase or sell securities issued by entities or investment vehicles that own or deal
in real estate (including interests therein). |
For
purposes of the fundamental policy restricting investments in an issuer if, as a result, 25% or more of the Fund’s total assets
would be invested in the securities of issuers, the principal activities of which are in the same industry, each of the Funds
will, as a non-fundamental policy, consider commercial mortgage and residential mortgage to be a single industry (notwithstanding
the statement defining separate industries contained in the policy). In addition, notwithstanding the statement
defining separate industries contained in the policy, each of the Funds may elect to consider certain of such industries
as part of the same industry to be consistent with a third-party industry classification system (e.g., BICS, GICS or
Barclays Live), and may otherwise define industries consistent with applicable law and SEC guidance. Further, each of the
Funds will endeavor to consider the concentration policy of underlying investment companies when determining the Fund’s
compliance with its concentration policy.
(1) |
Emerging
Markets ex-China Fund was previously non-diversified, but is now a diversified fund and complies with this restriction. |
Short
Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund
● |
With
respect to 75% of its total assets, each of the Short Duration High Yield Municipal Fund and Ultra Short Municipal Income
Fund may not purchase a security, other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, if as a result of such purchase, more than 5% of each Fund’s total assets would be |
74 Investment
Restrictions
|
invested
in the securities of any one issuer, or each Fund would own more than 10% of the voting securities of any one issuer;The
SEC has taken the position that, for purposes of the restrictions applicable to a fund’s diversification, investments
in securities of other investment companies, including in exchange-traded funds, are considered investments
in the portfolio securities of such investment companies. |
● |
May
not purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities) if, as a result, more than 25% of each of the Fund’s total assets would be invested
in the securities of companies whose principal business activities are in the same industry; and further provided
that, notwithstanding any other fundamental investment policy or limitation, each Fund may invest all of its investable
assets in a single open-end management investment company that has the same investment objective and
substantially the same investment policies as the Fund; |
● |
May
not issue senior securities as defined by the 1940 Act, or borrow money, except that each Fund may borrow from banks
for temporary, extraordinary or emergency purposes (but not for investment for Ultra Short Municipal Income Fund)
in an amount up to one-third of the value of each Fund’s respective total assets (calculated at the time of the borrowing).
Each Fund may not make additional investments while it has any borrowings outstanding. This restriction shall
not be deemed to prohibit each Fund from purchasing or selling securities on a when-issued or delayed delivery basis,
or entering into repurchase agreements; |
● |
The
Ultra Short Municipal Income Fund may not purchase or sell commodities or commodity contracts, and may not purchase
or sell real estate or interests in real estate (including limited partnership interests), except that the Fund, to the
extent not prohibited by other investment policies, may purchase and sell securities of issuers that deal in real estate
or are engaged in the real estate business, including real estate investment trusts, and may purchase and sell securities
secured by real estate or interests therein; the Short Duration High Yield Municipal Fund may purchase or sell commodities
or contracts related to commodities and real estate to the extent permitted by (i) the 1940 Act or interpretations
or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or
other relief or permission from the SEC, SEC staff or other authority; Because
most swaps are now considered interests under the Commodity Exchange Act of 1936 and related rules, each
Fund’s fundamental investment restriction related to investing in commodity interests is being interpreted to permit
each Fund to engage in transactions in swaps and options on swaps related to financial instruments, such as securities
indexes, currencies and other financial instruments, but not to engage in transactions in swaps related to physical
commodities, such as oil or metals. |
● |
The
Short Duration High Yield Municipal Fund may not underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of securities, each Fund may be deemed to be an underwriter under the Securities
Act; the Ultra Short Municipal Income Fund may not underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of securities, the Fund may be deemed to be an underwriter under the Securities
Act; |
● |
May
not make loans of money or securities, except through the purchase of permitted investments, including repurchase
agreements; |
● |
May
not make short sales of securities or purchase securities on margin, except for such short-term credits as may be necessary
for the clearance of transactions; and |
● |
May
not pledge, hypothecate, mortgage or otherwise encumber each Fund’s assets, except as may be necessary to secure
permitted borrowings. Collateral and other arrangements incident to permissible investment practices are not deemed
to be subject to this restriction. |
● |
The
80% investment policy for each Fund is fundamental and may not be changed without a shareholder vote. |
Dynamic
Dividend Fund, Global Infrastructure Fund and Realty Income & Growth Fund
● |
With
respect to 75% of its total assets, each Fund (except the Realty Income & Growth Fund) may not purchase a security,
other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, if as a result
of such purchase, more than 5% of that Fund’s total assets would be invested in the securities of any one issuer, or
that Fund would own more than 10% of the voting securities of any one issuer; The
SEC has taken the position that, for purposes of the restrictions applicable to a fund’s diversification, investments in
securities of other investment companies, including in exchange-traded funds, are considered investments in the portfolio
securities of such investment companies. |
● |
Will
not (except the Realty Income & Growth Fund) underwrite any issue of securities except as it may be deemed an underwriter
under the Securities Act in connection with the sale of securities in accordance with its investment objectives,
policies and limitations; |
● |
May
not purchase, sell or invest in interests in oil, gas or other mineral exploration or development programs; |
|
For
the avoidance of doubt, the policies above prohibiting investing in oil, gas or other mineral leases, rights, royalty contracts,
or exploration or development programs do not prohibit investments in securities of companies that deal in
oil, gas or other mineral leases, rights, royalty contracts, or exploration or development programs. |
Investment
Restrictions 75
● |
May
not (except the Global Infrastructure Fund and Realty Income & Growth Fund) invest more than 25% of its total assets
in the securities in any single industry, provided that there shall be no limitation on the purchase of U.S. Government
securities; |
● |
May
effect short sales of securities subject to the limitation that a Fund may not sell a security short if, as a result of such
sale, the current value of securities sold short by the Fund would exceed 10% of the Fund’s net assets; provided, however,
if the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (i.e.,
short sales “against the box”), this limitation is not applicable; |
● |
May
not make loans of money or securities, except to the extent that a Fund may lend money through the purchase of permitted
investments, including repurchase agreements; |
● |
May
not lend their portfolio securities, unless the borrower is a broker-dealer or financial institution that pledges and maintains
collateral with the Fund consisting of cash or securities issued or guaranteed by the U.S. government having a
value at all times not less than 100% of the current market-value of the loaned securities, including accrued interest, provided
that the aggregate amount of such loans shall not exceed 30% of the Fund’s net assets; |
● |
May
not purchase, sell or invest in commodities, provided that this restriction shall not prohibit a Fund from purchasing and
selling securities or other instruments backed by commodities or financial futures contracts and related options, including
but not limited to, currency futures contracts and stock index futures; |
● |
Because
most swaps are now considered interests under the Commodity Exchange Act and its rules, the Funds’ fundamental
investment restriction related to investing in commodity interests is being interpreted to permit a Fund to engage
in transactions in swaps and options on swaps related to financial instruments, such as securities indexes, currencies
and other financial instruments, but not to engage in transactions in swaps related to physical commodities,
such as oil or metals. |
● |
May
not (except the Global Infrastructure Fund) purchase, sell or invest in real estate, but may invest in securities of companies
that deal in real estate or are engaged in the real estate business, including real estate investment trusts, and
securities secured by real estate or interests therein and may hold and sell real estate acquired through default, liquidation
or other distributions of an interest in real estate as a result of a Fund’s ownership of such securities; |
● |
May
not issue senior securities as defined by the 1940 Act, except that a Fund may borrow money from banks and enter
into reverse repurchase agreements (i) in the aggregate amount of up to 10% of its total assets to increase its holdings
of portfolio securities and (ii) for temporary extraordinary or emergency purposes, subject to the overall limitation
that total borrowings by that Fund (including borrowing through reverse repurchase agreements) may not exceed
33⅓% of the value of a Fund’s total assets (measured in each case at the time of borrowing); |
● |
May
not pledge, mortgage, hypothecate or otherwise encumber their assets, except to secure permitted borrowings and
to implement collateral and similar arrangements incident to permitted investment practices; |
● |
The
investment objective(s) for each Fund is/are fundamental and may not be changed without the approval of a majority
of the outstanding voting securities of that Fund. |
Additional
Fundamental Restrictions of the Global Infrastructure Fund
● |
May
not purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities) if, as a result, more than 25% of the Fund’s total assets would be invested in the securities
of companies whose principal business activities are in the same industry, except that the Fund will concentrate
its investments in infrastructure-related issuers; and |
● |
May
not purchase or invest in real estate or interests in real estate (although each may purchase securities secured by real
estate or interests therein or issued by companies or investment trusts which invest in real estate or interests therein).
|
Additional
Fundamental Restrictions of the Realty Income & Growth Fund
● |
May
not invest more than 5% of its total assets, at the time of the investment in question, in the securities of any one issuer
other than the U.S. government and its agencies or instrumentalities, except that up to 50% of its total assets may be
invested without regard to such 5% limitation; |
● |
The
SEC has taken the position that, for purposes of the restrictions applicable to a fund’s diversification, investments in
securities of other investment companies, including in exchange-traded funds, are considered investments in the portfolio
securities of such investment companies. |
● |
May
not engage in the business of underwriting securities of other issuers; and |
● |
May
not purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities) if, as a result, more than 25% of the Fund’s total assets would be invested in the securities
of companies whose principal business activities are in the same industry, except that the Fund will concentrate
its investments in the securities of companies engaged principally in the real estate industry and may invest
all of its assets in such securities; however, the Fund may temporarily invest less than 25% of its assets in such securities
during periods of adverse economic conditions in the real estate industry. |
76 Investment
Restrictions
For
purposes of its policies and limitations, each of the Dynamic Dividend Fund, Global Infrastructure Fund, Realty Income &
Growth Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund consider certificates of deposit
and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan association having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be “cash items.” For the
purposes of determining compliance with the Funds’ policies on concentrating in any one industry, each Fund will endeavor
to consider the concentration policy of underlying investment companies when determining a Fund’s compliance
with its concentration policy.
The
Following are the Non-Fundamental Operating Policies of the Funds Listed Below Which May Be Changed by the Board
of Trustees of the Trust Without Shareholder Approval:
As
a matter of non-fundamental policy, each Fund except the Emerging
Markets Dividend Fund, Global Equity Impact
Fund and High
Income Opportunities
Fund, may not:
● |
acquire
any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net
assets in illiquid investments that are assets (that is, investments that the Fund reasonably expects cannot be sold in
current market conditions in seven calendar days without significantly changing the market value of the investments).
|
As
a matter of non-fundamental policy, each of the China A Fund, Emerging Markets Fund, Emerging Markets ex-China Fund,
Emerging Markets Sustainable Leaders Fund, Infrastructure
Debt Fund, Intermediate Municipal Income Fund,
International Small Cap Fund, U.S. Small Cap
Equity Fund, Focused
U.S. Small
Cap Equity Fund and U.S. Sustainable Leaders
Fund
will not:
● |
acquire
securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. |
As
a matter of non-fundamental policy, each of the Infrastructure
Debt Fund and International Small Cap Fund
(unless noted below) currently does not intend
to:
● |
borrow
money in an amount greater than 5% of its total assets except (i) for temporary or emergency purposes and (ii)
by engaging in reverse repurchase agreements, dollar rolls, or other investments or transactions described in the Fund’s
registration statement which may be deemed to be borrowings; |
● |
purchase
securities on margin or make short sales, except (i) short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall not be deemed to constitute selling securities short,
and (v) that the Fund may obtain such short-term credits as may be necessary for the clearance of securities transactions;
|
● |
purchase
options, unless the aggregate premiums paid on all such options held by the Fund at any time do not exceed 20%
of its total assets; or sell put options, if as a result, the aggregate value of the obligations underlying such put options
would exceed 50% of its total assets; |
● |
purchase
warrants if as a result, such securities, taken at the lower of cost or market value, would represent more than 5%
of the value of the Fund’s total assets (for this purpose, warrants acquired in units or attached to securities will be deemed
to have no value); |
● |
lend
portfolio securities in an amount greater than 33⅓% of its total assets; |
● |
pledge,
mortgage or hypothecate its assets, except to the extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow in connection with purchase of securities on a forward commitment
or delayed-delivery basis and collateral and initial or variation margin arrangements with respect to currency
transactions, options, futures contracts, and options on futures contracts; and |
● |
make
additional investments (including roll-overs) if the Fund’s borrowings exceed 5% of its net assets. |
Each
of the China A Fund, Emerging Markets Sustainable Leaders Fund, Emerging Markets ex-China Fund, Intermediate Municipal
Income Fund, U.S. Small Cap Equity Fund, Focused
U.S. Small
Cap Equity Fund and U.S. Sustainable Leaders
Fund
may not:
● |
Sell
securities short (except for the U.S. Sustainable Leaders Fund and Focused
U.S. Small Cap Equity Fund), unless the Fund
owns or has the right to obtain securities equivalent in kind and amount to the securities sold short or unless it covers
such short sales as required by the current rules and positions of the SEC or its staff, and provided that short positions
in forward currency contracts, options, futures contracts, options on futures contracts, or other derivative instruments
are not deemed to constitute selling securities short. The U.S. Sustainable Leaders Fund and Focused
U.S. Small Cap Equity
Fund may only sell securities short in accordance with the description contained in its Prospectus or in
this SAI. |
● |
Purchase
securities on margin, except that the Funds may use margin to the extent necessary to engage in short sales and
may obtain such short-term credits as are necessary for the clearance of transactions; and provided that margin deposits
in connection with options, futures contracts, options on futures contracts, transactions in currencies or other derivative
instruments shall not constitute purchasing securities on margin. |
Investment
Restrictions 77
● |
Purchase
or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities
that are illiquid. |
● |
Pledge,
mortgage or hypothecate any assets owned by the Fund except as may be necessary in connection with permissible
borrowings or investments and then such pledging, mortgaging or hypothecating may not exceed 33⅓% of
the Fund’s total assets at the time of such pledging, mortgaging or hypothecating. |
Each
of the China A Fund, Emerging Markets Sustainable Leaders Fund, Emerging Markets ex-China Fund, Intermediate Municipal
Income Fund, U.S. Small Cap Equity Fund, Focused
U.S. Small
Cap Equity Fund and U.S. Sustainable Leaders
Fund
may not:
● |
Purchase
securities of other investment companies except (a) in connection with a merger, consolidation, acquisition, reorganization
or offer of exchange, or (b) to the extent permitted by the 1940 Act or any rules or regulations thereunder
or pursuant to any exemptions therefrom, however, the Funds may not acquire securities of registered open-end
investment companies or registered unit investment trusts in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G)
of the 1940 Act. |
As
a matter of non-fundamental policy, the Emerging
Markets Dividend Fund may not:
● |
Make
short sales of securities or maintain a short position, except that the Fund may maintain short positions in forward
currency contracts, options and futures contracts and make short sales “against the box.” |
● |
Purchase,
write or sell puts, calls, straddles, spreads or combinations thereof, except that the Fund may (a) purchase or
write options on securities, indices, commodities and currencies and (b) purchase or write options on futures contracts.
|
● |
Purchase
securities of other investment companies except in connection with a merger, consolidation, acquisition, reorganization
or offer of exchange, or as otherwise permitted under the 1940 Act. |
● |
Purchase
securities on margin, except that the Fund may obtain any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the maintenance of margin in connection with options,
forward contracts and futures contracts or related options will not be deemed to be a purchase of securities on
margin. |
● |
Invest
more than 15% of the value of the Fund’s total assets in securities, which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available market quotations. For purposes of
this limitation, (a) repurchase agreements with maturities greater than seven days and (b) time deposits maturing in
more than seven calendar days shall be considered illiquid. |
As
a matter of non-fundamental policy, the Global Equity Impact Fund may not:
● |
Make
short sales of securities or maintain a short position, except that the Fund may maintain short positions in forward
currency contracts, options and futures contracts and make short sales “against the box.” |
● |
Purchase
securities of other investment companies except in connection with a merger, consolidation, acquisition, reorganization
or offer of exchange, or as otherwise permitted under the 1940 Act. |
● |
Purchase
securities on margin, except that the Fund may obtain any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the maintenance of margin in connection with options,
forward contracts and futures contracts or related options will not be deemed to be a purchase of securities on
margin. |
● |
Invest
more than 15% of the value of the Fund’s total assets in securities, which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available market quotations. For purposes of
this limitation, (a) repurchase agreements with maturities greater than seven days and (b) time deposits maturing in
more than seven calendar days shall be considered illiquid. |
As
a matter of non-fundamental policy, the High
Income Opportunities
Fund may not:
● |
Invest
more than 15% of the value of the Fund’s total assets in securities, which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available market quotations. For purposes of
this limitation, (a) repurchase agreements with maturities greater than seven days and (b) time deposits maturing in
more than seven calendar days shall be considered illiquid. |
With
respect to all Funds:
If
any percentage restriction or requirement described above is satisfied at the time of investment, a later increase or
decrease in such percentage resulting from a change in NAV will not constitute a violation of such restriction or requirement.
However, should a change in NAV or other external events cause a Fund’s investments in illiquid securities including
repurchase agreements with maturities in excess of seven days, to exceed the limit set forth above for such Fund’s
investment in illiquid securities, a Fund will act to cause the aggregate amount of such securities to come within such
limit as soon as reasonably practicable. In such event, however, such Fund would not be required to liquidate any portfolio
securities where a Fund would suffer a loss on the sale of such securities.
78 Investment
Restrictions
The
investment objective of each Fund, except for the Dynamic Dividend Fund, Global Infrastructure Fund and Realty
Income & Growth Fund, is not fundamental and may be changed by the Board of Trustees without shareholder approval.
Internal
Revenue Code Restrictions
In
addition to the investment restrictions above, each Fund must be diversified according to Code requirements. Specifically,
at each tax quarter end, each Fund’s holdings must be diversified so that (a) at least 50% of the market value of
its total assets is represented by cash, cash items (including receivables), U.S. Government securities, securities of other U.S.
regulated investment companies, and other securities, such other securities limited so that no one issuer has a value greater
than 5% of the value of the Fund’s total assets and that the Fund holds no more than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of the Fund’s assets is invested in the securities (other
than those of the U.S. Government or other U.S. regulated investment companies) of any one issuer or of two or more
issuers of which the Fund holds 20% or more of the voting stock and which are engaged in the same, similar, or related
trades or businesses or the securities of one or more qualified publicly traded partnerships (defined as a partnership
whose interests are traded on an established securities market or are readily tradable on a secondary market,
unless 90% or more of such partnership’s gross income is derived from its business of investing in stock, securities or
currencies).
Investment
Restrictions 79
Disclosure
of Portfolio Holdings
The
Board of Trustees has adopted a policy on selective disclosure of portfolio holdings in accordance with regulations
that seek to ensure that disclosure of information about portfolio securities is in the best interest of Fund shareholders
and to address the conflicts between the interests of Fund shareholders and its service providers. The policy provides
that divulging non-public portfolio holdings information to selected parties is permissible only when a Fund has legitimate
business purposes for doing so and the recipients are subject to a duty of confidentiality, including a duty not to trade
on the non-public information. In addition, the disclosure of a Fund’s portfolio securities is permitted only where it is consistent
with the anti-fraud provisions of the federal securities laws and the Trust’s or the Adviser’s or a Subadviser’s
fiduciary duties. The Trust, the Adviser,
Subadvisers or any agent, or any employee thereof (a “Fund Representative”) may not
disclose a Fund’s portfolio holdings information to any person other than in accordance with the policy. For purposes of
the policy, “portfolio holdings information” means a Fund’s actual portfolio holdings, as well as non-public information
about its trading strategies or pending transactions.
Neither a Fund nor a Fund Representative may solicit or accept any compensation
or other consideration in connection with the disclosure of portfolio holdings information. A Fund Representative
may provide portfolio holdings information to third parties if such information has been included in the Fund’s
public filings with the SEC or is disclosed on the Funds’ publicly accessible website. The parties receiving such information
may include ratings agencies, individual or institutional investors, or intermediaries that sell shares of a Fund.
Each
Fund posts onto the Trust’s internet site its securities holdings and its top ten portfolio holdings as of the end of each
month. Such portfolio holdings are available no earlier than 7 business days after the end of the previous month for equity
funds and no earlier than 15
business days after the end of the previous month for fixed income funds. Each Fund’s complete schedule
of portfolio holdings for the second and fourth quarters of each fiscal year are included in the Fund’s semi-annual
and annual reports to shareholders. Each Fund files its complete schedule of portfolio holdings with the SEC quarterly.
Each Fund’s full portfolio holdings as of its first and third fiscal quarters will be made publicly available 60 days after
the end of each quarter on www.sec.gov.
If
a Fund Representative seeks to disclose portfolio holdings information that is not publicly available to specific recipients
pursuant to circumstances not specifically addressed by the policy, the Fund Representative must obtain approval
from the Trust’s Chief Compliance Officer prior to such disclosure. Exceptions to the portfolio holdings release policy
described above can only be authorized by the Trust’s Chief Compliance Officer and will be made only when:
● |
A
Fund has a legitimate business purpose and it is in the best interest of the Fund to release portfolio holdings information
in advance of release to all shareholders or the general public; and |
● |
The
recipient of the information provides written assurances that the non-public portfolio holdings information will remain
confidential and that persons with access to the information will be prohibited from trading based on the information.
|
In
connection with providing services to the Funds, the Funds’ service providers may receive portfolio holdings information
in advance of general release on an as needed basis. The service providers that may receive portfolio holdings
information include:
80 Disclosure
of Portfolio Holdings
|
|
|
Service
Provider |
Service
|
Holdings
Access |
abrdn
Inc. |
Investment
management and administrator |
Complete
list on intraday basis with no lag |
abrdn Investments
Limited and abrdn Asia
Limited |
Investment
management |
Holdings
under Sub-adviser’s management on
intraday basis with no lag |
KPMG
LLP |
Independent
registered public accounting firm
|
Complete
list on annual basis with no lag |
State
Street Bank and Trust Company |
Custodian,
fund accountant, sub-administrator
|
Complete
list on intraday basis with no lag |
Charles
River Development |
Order
and execution management system |
Complete
list on intraday basis with no lag |
Citibank
NA and its affiliates |
Providers
of certain middle-and back-office services
to the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Lipper
Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Morningstar,
Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Bloomberg,
L.P. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
FactSet
Research Systems, Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Morgan
Stanley Capital International, Inc. |
Stock
index provider |
Complete
list on daily basis with one day lag |
ICE
Data Services |
Valuation
services |
Complete
list on monthly basis with no lag |
ISS
Governance |
Proxy
voting service |
Complete
list on annual basis with no lag |
In
addition, certain third parties are provided with nonpublic holdings information by the Adviser or another service provider
on an ad hoc basis. These third parties may include: broker-dealers, borrowers of the Funds’ portfolio securities, tax
agent services, pricing services and legal counsel.
The
service providers are subject to express or implied duties to keep all portfolio holdings information that is not publicly
available confidential and not to trade on such information. In addition, non-public portfolio holdings information may
be provided to mutual fund rating or ranking services or portfolio analytics services prior to such information becoming
publicly available so long as (i) such disclosure is subject to confidentiality agreement and trading restrictions or
(ii) the entity to which portfolio holdings information will be provided (a) has adopted policies and/or procedures that seek
to ensure that such information will remain confidential and restrict the entity and its employees from trading on the information
and (b) prior to disclosure, the Trust’s Chief Compliance Officer receives in writing a copy of such policies and/or
procedures and determines they are acceptable.
The
Trust’s Chief Compliance Officer conducts periodic reviews of compliance with the policy and provides annually a
report to the Board of Trustees regarding the operation of the policy, exceptions and waivers granted under the policy and
any material changes recommended as a result of such review. Additionally, the Trust’s Chief Compliance Officer will
provide quarterly reports to the Board of Trustees listing persons or entities with whom the Trust or the Adviser has entered
into Confidentiality Agreements with respect to Trust business during the quarter. The policy also provides that in the
event of a violation of the policy, the Board will receive a report at its next quarterly meeting about any disclosures that
were made concerning the Trust’s portfolio holdings which will describe to whom and under what circumstances such
disclosure was made.
Disclosure
of Portfolio Holdings 81
Board
of Trustees and Officers of the Trust
|
|
|
|
|
TRUSTEES
WHO ARE NOT INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE* |
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE** |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Radhika
Ajmera****
Year
of Birth: 1964 |
Trustee
since 2020 |
Ms.
Ajmera was appointed Chair of abrdn
Japan Equity Fund Inc in 2017, having
served as a director since 2014. She
has been an independent nonexecutive
director of abrdn Asia-Pacific
Income Fund VCC since 2015.
She is also an independent non-executive
director of abrdn Funds since
2020 and abrdn Global Income Fund
Inc, abrdn Asia-Pacific Income Fund
Inc and abrdn Australia Equity Fund
Inc since 2021. She has over 20 years’
experience in fund management,
predominantly in emerging
markets. She has also held a number
of UK closed end fund non-executive
directorships. Ms. Ajmera
is a graduate of the London School
of Economics. |
5
RICs consisting of 23
Portfolios |
None.
|
P.
Gerald Malone****
Year
of Birth: 1950 |
Trustee
since December 2007
Chairman
of the Board
|
Mr.
Malone is, by profession, a lawyer of
over 40 years. Currently, he is a nonexecutive
director of a number of U.S.
companies, including Medality Medical
(medical technology company)
since 2018. He is also Chairman
of many of the open and closed
end funds in the Fund Complex. He
previously served as a non-executive
director of U.S. healthcare
company Bionik Laboratories
Corp. (2018 - July 2022), as
Independent Chairman of UK companies
Crescent OTC Ltd (pharmaceutical
services) until February
2018; and fluidOil Ltd. (oil services)
until June 2018; U.S. company
Rejuvenan llc (wellbeing services)
until September 2017 and as chairman
of UK company Ultrasis plc (healthcare
software services company)
until October 2014. Mr. Malone
was previously a Member of Parliament
in the U.K. from 1983 to 1997
and served as Minister of State for
Health in the U.K. government from 1994
to 1997. |
9
RICs consisting of 27
Portfolios |
None.
|
Rahn
K. Porter****
Year
of Birth: 1954 |
Trustee
since September 2016
|
Mr.
Porter is the Principal at RPSS Enterprises
(consulting and advisory) since
2019. He was the Chief Financial and
Administrative Officer of The Colorado
Health Foundation from 2013
to 2021. Mr. Porter was formerly the
CFO of Telenet, Inc. and Nupremis, Inc.
He also served as Treasurer of Qwest
Communications, Inc. and MediaOne
Group. Mr. Porter was previously
a board member and audit chair
for BlackRidge Financial Inc. and Community
First Bancshares, Inc. |
2
RICs consisting of 20
Portfolios |
Director
of Century Link Investment
Management Company
since 2006, Director
of BlackRidge Financial
Inc. from 2004 to 2019.
|
82 Board
of Trustees and Officers of the Trust
|
|
|
|
|
TRUSTEES
WHO ARE NOT INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE* |
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE** |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Warren
C. Smith****
Year
of Birth: 1955 |
Trustee
since December 2007
|
Mr.
Smith has been a founding partner of
MRB Partners Inc. (independent investment
research and consultancy firm)
since 2010. He has been a Director
of abrdn Asia-Pacific Income Fund
VCC (Canadian investment fund)
since 1993. |
1
RIC consisting of 19
Portfolios |
None.
|
|
|
|
|
|
TRUSTEES
WHO ARE INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE**
|
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Stephen
Bird****,†
Year
of Birth: 1967 |
Trustee
since June 2021
|
Mr.
Bird joined the Board of abrdn plc in
July 2020 as Chief Executive- Designate,
and was formally appointed
Chief Executive Officer in September
2020. Previously, Mr. Bird served
as chief executive officer of global
consumer banking at Citigroup from
2015, retiring from the role in November
2019. His responsibilities encompassed
all consumer and commercial
banking businesses in 19 countries,
including retail banking and wealth
management, credit cards, mortgages,
and operations and technology
supporting these businesses.
Prior to this, Mr. Bird was chief
executive for all of Citigroup’s Asia
Pacific business lines across 17 markets
in the region, including India and
China. Mr. Bird joined Citigroup in 1998,
and during his 21 years with the company
he held a number of leadership
roles in banking, operations and
technology across its Asian and Latin
American businesses. Before this, he
held management positions in the UK
at GE Capital – where he was director
of UK operations from 1996 to 1998
– and at British Steel. |
15
RICs consisting of 33
Portfolios |
None.
|
* |
Each
Trustee holds office for an indefinite term until his successor is elected and qualified. |
** |
The
abrdn Fund Complex consists of the Trust, which currently consists of 19 portfolios, abrdn Asia-Pacific Income Fund, Inc., abrdn Global
Income Fund, Inc., abrdn Australia Equity
Fund, Inc., abrdn Emerging Markets Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity Fund, Inc., abrdn Income
Credit Strategies Fund, abrdn Global Dynamic Dividend Fund, abrdn Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund,
abrdn Global Infrastructure
Income Fund, abrdn National Municipal Income Fund, abrdn Healthcare Investors, abrdn Life Sciences Investors, abrdn Healthcare
Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 Portfolios). |
*** |
Directorships
held in (1) any other investment companies registered under the 1940 Act, (2) any company with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or (3) any company subject to the
requirements of Section 15(d) of the Exchange
Act. |
**** |
Each
Trustee may be contacted by writing to the Trustee c/o abrdn Inc., 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, Attn:
Megan Kennedy. |
† |
Mr.
Bird is considered to be an “interested person” of the Trust as defined in the 1940 Act because of his affiliation with
the Adviser. |
Board
of Trustees and Officers of the Trust 83
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Alan
Goodson**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1974 |
President
and Chief Executive Officer
(Since
2022) |
Currently,
Executive Director, Product & Client Solutions
– Americas for abrdn Inc., overseeing Product
Management & Governance, Product Development
and Client Solutions for registered and
unregistered investment companies in the U.S., Brazil
and Canada. Mr. Goodson is Director and Vice
President of abrdn Inc. and joined abrdn Inc. in 2000.
|
Joseph
Andolina**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1978 |
Vice
President and Chief Compliance Officer
(Since
2017) |
Currently,
Chief Risk Officer – Americas for abrdn Inc.
and serves as the Chief Compliance Officer for abrdn
Inc. Prior to joining the Risk and Compliance Department,
he was a member of abrdn Inc.’s Legal
Department, where he served as US Counsel since
2012. |
Michael
Marsico**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1980 |
Treasurer,
Chief Financial Officer and Principal
Accounting Officer
(Since
2023) |
Currently,
Senior Product Manager for abrdn Inc. Mr.
Marsico joined abrdn Inc. as a Fund Administrator
in 2014. |
Megan
Kennedy**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1974 |
Secretary
and Vice President
(Since
2009) |
Currently,
Senior Director, Product Governance for abrdn
Inc. Ms. Kennedy joined abrdn Inc. in 2005. |
Lucia
Sitar**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1971 |
Vice
President
(Since
2008) |
Currently,
Vice President and Head of Product Management
and Governance for abrdn Inc. since 2020.
Previously, Ms. Sitar was Managing U.S. Counsel
for abrdn Inc. She joined abrdn Inc. as U.S. Counsel
in July 2007. |
Ben
Moser**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1979 |
Vice
President
(Since
2018) |
Currently,
Head of Commercial Operations, Americas
for abrdn Inc. Mr. Moser joined abrdn Inc. in
July 2008. |
Katie
Gebauer**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1986 |
Vice
President
(Since
2023) |
Currently,
Chief Compliance Officer – ETFs and serves
as the Chief Compliance Officer for abrdn ETFs
Advisors LLC. Ms. Gebauer joined abrdn Inc. in 2014.
|
Sharon
Ferrari**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1977 |
Vice
President
(Since
2022) |
Currently,
Director, Product Management for abrdn
Inc. Prior to that she was a Senior Fund Administration
Manager for abrdn Inc. Ms. Ferrari joined
the company in June 2008. |
84 Board
of Trustees and Officers of the Trust
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Heather
Hasson**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1982 |
Vice
President
(Since
2022) |
Currently,
Senior Product Solutions and Implementation
Manager for abrdn Inc. Ms. Hasson joined
the company in November 2006. |
Brian
Kordeck**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1978 |
Vice
President
(Since
2022) |
Currently,
Senior Product Manager for abrdn Inc. Mr.
Kordeck joined abrdn Inc. as a Senior Fund Administrator
in 2013. |
Katherine
Corey**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1985 |
Vice
President
(Since
2023) |
Currently,
Senior Legal Counsel - Product Governance
for abrdn Inc. Prior to joining abrdn Inc.
in 2013, Ms. Corey was an associate at Faegre Drinker
Biddle & Reath LLP in Philadelphia. |
Andrew
Kim**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1983 |
Vice
President
(Since
2022) |
Currently,
Senior Product Governance Manager for
abrdn Inc. Mr. Kim joined abrdn Inc. as a Product Manager
in 2013. |
Robert
Hepp**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1986 |
Vice
President
(Since
2022) |
Currently,
Senior Product Governance Manager for
abrdn Inc. Mr. Hepp joined abrdn Inc. as a Senior Paralegal
in 2016. |
Matt
Kence**
abrdn
Inc. 28 State Street 17th
floor Boston, MA
02109
Year
of Birth: 1974 |
Vice
President
(Since
2022) |
Currently,
Investment Director for abrdn Inc. |
George
Westervelt**
abrdn
Inc. 28 State Street 17th
floor Boston, MA
02109
Year
of Birth: 1977 |
Vice
President
(Since
2022) |
Currently,
Head of Global High Yield and Head of U.S.
High Yield Research for abrdn Inc. |
Ben
Ritchie**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1980 |
Vice
President
(Since
2022) |
Currently
Head of the Developed Markets Equity team
at abrdn. |
Board
of Trustees and Officers of the Trust 85
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Svitlana
Gubriy**
abrdn
Inc. 1 George Street Edinburgh EH2
2LL
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently
Head of Indirect Real Assets at abrdn. |
Josh
Duitz**
abrdn
Inc. 875 Third Ave 4th
Floor, Suite 403 New
York, NY 10022
Year
of Birth: 1970 |
Vice
President
(Since
2022) |
Currently,
Head of Global Income at abrdn, Inc. Mr. Duitz
joined abrdn Inc. In 2018 from Alpine Woods Capital
Investors LLC where he was a Portfolio Manager.
|
Jonathan
Mondillo**
abrdn
Inc. 875 Third Ave 4th
Floor, Suite 403 New
York, NY 10022
Year
of Birth: 1983 |
Vice
President
(Since
2022) |
Currently,
Head of U.S. Fixed Income. He joined the firm
in 2018. Previously he managed mutual funds at
Alpine Woods Capital Investors, LLC. |
Devan
Kaloo**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently,
Global Head of Public Markets, Equities for
abrdn. Mr. Kaloo joined abrdn in 2000 as part of the
Asian equities team in Singapore. |
Chris
Colarik**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently
Head of U.S. Smaller Companies at abrdn Inc.
He joined the firm in March 2023. Previously, he was
a portfolio manager at Glenmede Investment Management.
|
Nick
Robinson**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1978 |
Vice
President
(Since
2022) |
Currently,
Senior Investment Director on the Global Emerging
Markets Equity team at abrdn since 2016.
Previously, Mr. Robinson was a Director and Head
of Brazilian Equities of abrdn’s operations in Sao
Paulo, Brazil from 2009 to 2016. Currently, Senior
Investment Director on the Global Emerging Markets
Equity team at abrdn since 2016. Previously,
Mr. Robinson was a Director and Head of
Brazilian Equities of abrdn’s operations in Sao Paulo,
Brazil from 2009 to 2016. |
* |
Each
officer holds office for an indefinite term at the pleasure of the Board of Trustees and until his or her successor is elected and qualified. |
** |
Ms.
Kennedy, Mr. Goodson, Mr. Andolina, Ms. Sitar, Mr. Moser, Ms. Gebauer,
Ms. Ferrari, Ms. Hasson, Mr. Kordeck, Mr.
Marsico, Ms. Corey, Mr. Kim,
Mr. Hepp, Mr. Kence,
Mr. Westervelt, Mr. Ritchie, Ms. Gubriy, Mr. Duitz, Mr. Kaloo, Mr. Colarik
and Mr. Robinson
hold officer position(s) in one or more of the following:
abrdn Asia-Pacific Income Fund, Inc., abrdn Australia Equity Fund, Inc., abrdn Global Income Fund, Inc., abrdn Emerging Markets Equity
Income Fund, Inc., The India Fund, Inc., abrdn
Japan Equity Fund, Inc., abrdn Income Credit Strategies Fund, abrdn Global Dynamic Dividend Fund, abrdn
Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund,
abrdn Global Infrastructure Income Fund, abrdn National Municipal Income
Fund, abrdn Healthcare Investors, abrdn Life Sciences Investors, abrdn Healthcare Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 portfolios),
each of which may also be deemed to be a part of the same “Fund Complex” as the Trust. |
Responsibilities
of the Board of Trustees
The
business and affairs of the Trust are managed under the direction of its Board of Trustees subject to the laws of the
State of Delaware and the Trust’s Amended and Restated Agreement and Declaration of Trust. The Board of Trustees sets
and reviews policies regarding the operation of the Trust, and directs the officers to perform the daily functions of the Trust.
Additional
Information about the Board of Trustees
The
Board believes that each Trustee’s experience, qualifications, attributes or skills on an individual basis and in combination
with those of the other Trustees lead to the conclusion that the Trustee possesses the requisite experience, qualifications,
attributes and skills to serve on the Board. The Board believes that the Trustees’ ability to review critically,
86 Board
of Trustees and Officers of the Trust
evaluate,
question and discuss information provided to them; to interact effectively with the Adviser, Sub-advisers,
other service providers, counsel and independent
auditor; and to exercise effective business judgment in the performance of their
duties, support this conclusion. The Board has also considered the contributions that each Trustee can make to the Board
and the Funds. A Trustee’s ability to perform his duties effectively may have been attained through the Trustee’s executive,
business, consulting, and/or legal positions; experience from service as a Trustee of the Trust and other funds/portfolios
in the abrdn fund complex, other investment funds, public companies, or non-profit entities or other organizations;
educational background or professional training or practice; and/or other life experiences. In this regard, the
following specific experience, qualifications, attributes and/or skills apply as to each Trustee in addition to the information
set forth in the table above: Ms. Ajmera, financial services, investment management and executive experience
and board experience with investment management and fund companies; Mr. Bird, investment management
experience as the Chief Executive Officer of abrdn plc and executive experience with other financial services
and banking companies; Mr. Malone, legal background and public service leadership experience, board experience
with other public and private companies, and executive and business consulting experience; Mr. Porter, financial,
accounting and executive experience with other companies and board experience with investment management
and fund companies; and
Mr. Smith, experience as managing editor and director of a financial publications
firm.
The
Board believes that the significance of each Trustee’s experience, qualifications, attributes or skills is an individual
matter (meaning that experience important for one Trustee may not have the same value for another) and that
these factors are best evaluated at the Board level, with no single Trustee, or particular factor, being indicative of Board
effectiveness. In its periodic self-assessment of the effectiveness of the Board, the Board considers the complementary
individual skills and experience of the individual Trustees in the broader context of the Board’s overall composition
so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and experience to oversee
the business of the Trust. References to the qualifications, attributes and skills of Trustees are pursuant to requirements
of the SEC, do not constitute holding out the Board or any Trustee as having any special expertise or experience,
and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
Board
and Committee Structure
The
Board of Trustees is composed of four
Independent Trustees and one Interested Trustee, Stephen Bird. The Board
has appointed Mr. Malone, an Independent Trustee, as Chairman. The Chairman presides at meetings of the Trustees,
participates in the preparation of the agenda for meetings of the Board, and acts as a liaison between the Independent
Trustees and the Trust’s management between Board meetings. Except for any duties specified herein, the designation
of the Chairman does not impose on such Trustee any duties, obligations or liability that is greater than the duties,
obligations or liability imposed on such person as a member of the Board, generally.
The
Board holds regular quarterly meetings each year to consider and address matters involving the Trust and its Funds.
The Board also may hold special meetings to address matters arising between regular meetings. The Independent
Trustees also meet outside the presence of management in executive session at least quarterly and have engaged
separate, independent legal counsel to assist them in performing their oversight responsibilities.
The
Board has established a committee structure that includes an Audit Committee
and Nominating and Corporate Governance Committee
(each discussed in more detail below) to assist the Board in the oversight and direction of the business
affairs of the Funds, and from time to time may establish informal ad hoc committees or working groups to review
and address the practices of the Funds with respect to specific matters. The Committee system facilitates the timely
and efficient consideration of matters by the Trustees, and facilitates effective oversight of compliance with legal and
regulatory requirements and of the Funds’ activities and associated risks. The standing Committees currently conduct
an annual review of their charters, which includes a review of their responsibilities and operations. The Nominating
and Corporate Governance Committee and the Board as a whole also conduct an annual evaluation of the performance
of the Board, including consideration of the effectiveness of the Board’s committee structure. Each Committee
is comprised entirely of Independent Trustees. The Board reviews its structure regularly and believes that its leadership
structure, including having a super-majority of Independent Trustees, coupled with an Independent Trustee as Chairman,
is appropriate because it allows the Board to exercise informed and independent judgment over the matters under
its purview and it allocates areas of responsibility among the Committees and the full Board in a manner that enhances
efficient and effective oversight.
The
Audit Committee
is comprised of Ms. Ajmera and Messrs. Malone, Porter
and Smith. Mr. Porter serves as Chair of the
Audit Committee
as well as the Audit Committee
Financial Expert. The purposes of the Audit Committee
are to: (a) annually select, retain or terminate,
and recommend to the Trustees for their ratification, the selection, retention or termination
of the Trust’s independent auditor
and, in connection therewith, to evaluate the terms of the engagement (including
compensation of the independent auditor) and
the qualifications and independence of the independent auditor;
(b) review in advance, and consider approval of, any and all proposals by Management
or the Adviser that the Trust, the
Adviser or their affiliated persons, employ
the independent auditor to render permissible non-audit services to the
Trust and to consider whether such services are consistent with the independent auditor’s independence; (c) meet periodically
with the Trust’s independent auditor and
Management, including private meetings, as necessary (i) to review the
arrangements for and scope of the annual audit and any special audits, and the fees proposed to be charged in
Board
of Trustees and Officers of the Trust 87
connection
with such services, (ii) review and discuss
the Trust’s annual audited financial statements,
(iii) to discuss any matters
of concern relating to the Trust’s financial statements,
including any adjustments to such statements recommended
by the independent auditor,
or the results of said audit(s), including matters required to be discussed by PCAOB
Auditing Standard 1301, and Management’s response to such matters,
(iv) to consider the
independent auditor’s comments with
respect to the Trust’s financial policies,
procedures and internal accounting controls and Management’s
responses thereto, (v)
to review the form of opinion the independent auditor proposes to render to the Board and shareholders,
and (vi) to review the performance of the independent auditor;
(d) review and discuss policies with respect to
risk assessment and risk management
with respect to the Funds; (e) set
clear hiring policies when the Trust considers hiring
employees or former employees of the independent auditor; (f) report its activities to the full Board on a regular basis
and to make such recommendations with respect to the above and other matters as the Committee may deem necessary
or appropriate; (g) review annually with management
and with the
independent auditors
their separate evaluations of the adequacy
and effectiveness of the Trust’s system of internal controls; and
(h) consider the independent
auditor’s comments with respect to the Trust’s financial policies, procedures and
internal accounting controls
and Management’s responses thereto. The function of the Audit Committee is oversight; it is the responsibility of the
Trust’s management and to the extent delegated to the Adviser and Administrator, such Adviser and Administrator
to maintain appropriate systems for accounting
and internal controls.
It is the responsibility of the Trust’s independent auditor
to plan and carry out a proper audit. The independent auditor is directly
accountable to the Audit
Committee and must report
directly to the Audit Committee. Each of the
members is
able to understand basic financial statements, including
the Fund’s balance sheet, income statement and statement of cash flows
and are not interested persons of the Trust,
as defined in the 1940 Act.
The Audit Committee met 4 times during the fiscal year ended October 31, 2023.
The
Nominating and Corporate Governance Committee (“Nominating Committee”) is comprised of Ms. Ajmera and
Messrs. Malone, Porter and Smith. Mr. Malone serves as Chair of the Nominating Committee.
The Nominating Committee
has the following responsibilities: (1) to select and nominate all persons for election or appointment as Trustees
of the Trust (provided that nominees for independent Trustee are recommended for selection and approval by all
of the incumbent independent Trustees then serving on the Board); (2) to review, discuss, and make recommendations
to the Board, relating to those issues that pertain to the effectiveness of the Board in carrying out its responsibilities
in governing the Fund and overseeing the management of the Fund, including: (a) composition of the Board,
including size, areas of expertise represented, tenure of the directors, including term limits and/or age limits, (b) committee
assignments, (c) the role of the Board’s committees, including the scope of each committee’s responsibilities, and
(d) the role of the Independent Directors, including periodic review of governance policies adopted by the Board; and
(3) to implement (or cause to be implemented) an annual evaluation of the performance of the Board and the organization
and effectiveness of its committees. The Nominating Committee reports to the full Board with recommendations
of any appropriate changes to the Board.
The
Nominating Committee will consider nominees recommended by shareholders. When considering whether to add
additional or substitute Trustees to the Board of Trustees of the Trust, the Trustees take into account any proposals for candidates
that are properly submitted to the Trust’s Secretary. Shareholders wishing to present one or more candidates for
Trustee for consideration may do so by submitting a signed written request to the Trust’s Secretary at attn: Secretary, abrdn
Funds, 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, which includes the following information: (i) name
and address of shareholder and, if applicable, name of broker or record holder; (ii) number of shares owned; (iii) name
of Fund(s) in which shares are owned; (iv) whether the proposed candidate(s) consent to being identified in any proxy
statement utilized in connection with the election of Trustees; (v) the name and background information of the proposed
candidates and (vi) a representation that the candidate or candidates are willing to provide additional information
about themselves, including assurances as to their independence. The Nominating Committee met 2 times during
the fiscal year ended October 31, 2023.
The
Funds are subject to a number of risks, including, among others, investment, compliance, operational and valuation
risks. Risk oversight forms part of the Board’s general oversight of the Funds and is addressed as part of various Board
and Committee activities. The Board has adopted, and periodically reviews, policies and procedures designed to address
these risks. Different processes, procedures and controls are employed with respect to different types of risks. Day-to-day
risk management functions are subsumed within the responsibilities of the Adviser, who carries out the Trust’s
investment management and business affairs, and also by the Funds’ Subadvisers, as applicable, and other service
providers in connection with the services they provide to the Funds. Each of the Adviser, Subadvisers and other service
providers have their own, independent interest in risk management, and their policies and methods of risk management
will depend on their functions and business models. As part of its regular oversight of the Trust, the Board, directly
and/or through a Committee, interacts with and reviews reports from, among others, the Adviser, Subadvisers, and
the Trust’s other service providers (including the Trust’s distributor and transfer agent), the Trust’s Chief Compliance
Officer, the Trust’s independent registered
public accounting firm, legal counsel to the Trust, and internal auditors, as appropriate,
relating to the operations of the Trust. The Board also requires the Adviser to report to the Board on other matters
relating to risk management on a regular and as-needed basis. The Board recognizes that it may not be possible to
identify all of the risks that may affect the Trust or to develop processes and controls to eliminate or mitigate their occurrence
or effects. The Board may, at any time and in its discretion, change the manner in which it conducts risk oversight.
88 Board
of Trustees and Officers of the Trust
Ownership
of Shares of abrdn Funds
As
of December 31, 2023,
the Trustees held shares of the Funds and of the abrdn Family of Investment Companies as
indicated below.
|
|
|
INDEPENDENT
TRUSTEES |
Name
|
Fund/Dollar
Range of Fund Shares Owned |
Aggregate
Dollar Range of Shares Owned
in Registered Investment Companies
Overseen by Trustee in the
Family of Investment Companies*
|
Radhika
Ajmera |
abrdn
Emerging Markets Fund - $10,001-$50,000 |
$10,001
- $50,000 |
P.
Gerald Malone |
abrdn
Emerging Markets Fund - $1-$10,000 |
$50,001-$100,000
|
|
abrdn
Emerging Markets Sustainable Leaders Fund - $1-$10,000 |
|
Rahn
K. Porter |
abrdn
Emerging Markets Fund - $10,001-$50,000 |
$50,001-$100,000
|
Warren
C. Smith |
abrdn
Emerging Markets Fund - $10,001-$50,000 |
$10,001
- $50,000 |
|
|
|
INTERESTED
TRUSTEE |
Name
|
Fund/Dollar
Range of Fund Shares Owned |
Aggregate
Dollar Range of Shares Owned in Registered
Investment Companies Overseen by Trustee
in the Family of Investment Companies*
|
Stephen
Bird |
None
|
$50,001-$100,000
|
* |
As
of December 31, 2023,
the Family of Investment Companies consisted of the Trust, which contained 19
portfolios and abrdn ETFs (consisting of 3 portfolios);
however, each Trustee did not serve on the Board of every fund in such Family of Investment Companies. Ownership information is provided
with respect to only those funds that each Trustee oversaw as of December 31, 2023. |
As
of January 31, 2024,
the Officers and Trustees, as a group, owned of record and beneficially less than 1% of each Fund’s
shares.
Compensation
of Trustees
The
Compensation Table below sets forth the total compensation that each Trustee received from the Trust and the Fund
Complex (as defined below) for the fiscal year ended October 31, 2023.
|
|
|
|
|
INDEPENDENT
TRUSTEES |
Name
of Trustee |
Aggregate
Compensation from
the Trust
|
Pension
Retirement Benefits
Accrued as Part
of Trust Expenses
|
Estimated
Annual Benefits
Upon Retirement
|
Total
Compensation from
the Fund Complex*
|
Radhika
Ajmera |
$114,211
|
None
|
None
|
$336,421
|
P.
Gerald Malone |
$135,045
|
None
|
None
|
$613,816
|
Rahn
K. Porter |
$133,221
|
None
|
None
|
$191,096
|
Steven
N. Rappaport(1)
|
$107,413
|
None
|
None
|
$182,926
|
Warren
C. Smith |
$120,721
|
None
|
None
|
$149,601
|
(1) |
Mr.
Rappaport retired from the Board effective September 8, 2023. |
|
|
|
|
|
INTERESTED
TRUSTEE |
Name
|
Aggregate
Compensation from the
Trust |
Pension
Retirement Benefits Accrued as Part
of Trust Expenses
|
Estimated
Annual Benefits Upon Retirement
|
Total
Compensation from the Fund Complex*
|
Stephen
Bird |
None
|
None
|
None
|
None
|
* |
As
of October 31, 2023,
the abrdn Fund Complex consisted of the Trust, which contained 19
portfolios, as well as abrdn Asia-Pacific Income Fund, Inc., abrdn
Global Income Fund, Inc., abrdn Australia
Equity Fund, Inc., abrdn Emerging Markets Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity
Fund, Inc., abrdn Income
Credit Strategies Fund, abrdn Global Dynamic
Dividend Fund, abrdn Global
Premier Properties Fund, abrdn Total Dynamic
Dividend Fund, abrdn
Global Infrastructure Income Fund, abrdn National Municipal Income Fund, abrdn Healthcare Investors, abrdn Life Sciences
Investors, abrdn Healthcare Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 portfolios). |
The
Trust does not maintain any pension or retirement plans for the Officers or Trustees of the Trust.
Board
of Trustees and Officers of the Trust 89
Sales
Loads
Class
A and Class A1 shares
may be sold at NAV without payment of any sales charge to Trustees and retired Trustees of the Trust and
to directors, officers and employees (including retired directors, officers and employees and immediate family members
of abrdn and its affiliates). The sales load waivers are due to the nature of the investors and the reduced sales effort
and expenses that are needed to obtain such investment. See “Waiver of Class A and Class A1 Sales
Charges” for more information.
Code
of Ethics
Federal
law requires the Trust, the Adviser and Subadvisers and its principal underwriter to adopt codes of ethics which
govern the personal securities transactions of their respective personnel. Accordingly, each such entity has adopted
a Code of Ethics pursuant to which their respective personnel may invest in securities for their personal accounts
(including securities that may be purchased or held by the Trust). Copies of these Codes of Ethics are on file with
the SEC and are available to the public.
Proxy
Voting Policies and Procedures
Regulations
under the federal securities laws require the Trust, the Adviser and Subadvisers to adopt procedures for voting
proxies (“Proxy Voting Policies and Procedures”) and to provide a summary of those Proxy Voting Policies and Procedures
used to vote the securities held by the Funds. The Trust has adopted proxy voting policies and procedures that
delegate the responsibility for proxy voting to the Adviser and Subadvisers, as applicable. The Adviser and Subadvisers
have adopted proxy voting policies and procedures, which have been reviewed and approved by the Funds’ Board,
to ensure the proper and timely voting of the proxies on behalf of the Funds. Moreover, the Adviser will assist the Funds
in the preparation of the Funds’ complete proxy voting record on Form N-PX for the twelve-month period ended June
30, which must be filed with the SEC by no later than August 31 of each year. Any material changes to the proxy voting
policies and procedures of the Funds or the Adviser and Subadvisers will be submitted to the Board for approval or review,
as the case may be. For additional information, also attached hereto in Appendix C is the Adviser’s and Subadvisers’
Listed Company Stewardship Guidelines, which among other things, expands upon how the Adviser and Sub-advisers
approach environmental, social and governance issues when engaging with company management and voting
proxies. Adviser’s and Subadvisers’ proxy voting policies and procedures attached hereto as Appendix C.
Information
about how the Funds voted proxies relating to portfolio securities during the most recent 12 month period
ended June 30 is available after August 31 of the relevant year (1) without charge, upon request, by calling 866-667-9231
and (2) on the SEC’s website at http://www.sec.gov.
90 Board
of Trustees and Officers of the Trust
Investment
Advisory and Other Services
Trust
Expenses
The
Trust pays the compensation of the Trustees who are not employees of abrdn, or its affiliates, and all expenses (other
than those assumed by the Adviser), including governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust; investment advisory fees and any Rule 12b-1 fees; fees under the Trust’s
Fund Administration and Transfer Agency Agreements, which includes the expenses of calculating the Funds’ NAVs;
fees and expenses of independent certified public accountants and legal counsel to the Trust and to the Independent
Trustees; expenses of preparing, printing, and mailing shareholder reports, notices, proxy statements, and reports
to governmental offices and commissions; expenses connected with the execution, recording, and settlement of portfolio
security transactions; short sale dividend expenses; insurance premiums; administrative services fees under an Administrative
Services Plan; fees and expenses of the custodian for all services to the Trust; expenses of shareholder meetings;
and expenses relating to the issuance, registration, and qualification of shares of the Trust. The Adviser may, from
time to time, agree to voluntarily or contractually waive advisory fees, and if necessary reimburse expenses, in order to
limit total operating expenses for each Fund and/or classes, as described below.
Investment
Adviser and Subadvisers
Under
the Investment Advisory Agreement with the Trust, abrdn manages the Funds in accordance with the policies and
procedures established by the Trustees.
Except
as described below, the Adviser manages the day-to-day investments of the assets of the Funds. For certain Funds,
the Adviser also provides investment management evaluation services in initially selecting and monitoring on an ongoing
basis the performance of one or more Subadvisers who manage the investment portfolio of a particular Fund. The
Adviser is also authorized to select and place portfolio investments on behalf of such subadvised Funds; however, the Adviser
does not intend to do so as a routine matter at this time.
Certain
of the Funds are subadvised by abrdn Investments Limited (“aIL”)
and abrdn Asia Limited (“aAL”),
affiliates of the Adviser. The Adviser and
Subadvisers are each wholly-owned subsidiaries of abrdn (Holdings) PLC. abrdn (Holdings) PLC
is a wholly-owned subsidiary of abrdn plc. abrdn plc, its affiliates and subsidiaries are referred to herein as the “abrdn”.
abrdn, combined with its subsidiaries and affiliates, manages approximately
$467.4
billion in assets as of December
31, 2023. abrdn provides asset management
and investment solutions for clients and customers worldwide and
also has a strong position in the pensions and savings market.
In
rendering investment advisory services, the Adviser, aAL
and aIL may use the resources of investment
adviser subsidiaries of abrdn plc. These affiliates
have entered into a memorandum of understanding/personnel sharing procedures
pursuant to which investment professionals from each affiliate may render portfolio management and research
services to U.S. clients of the abrdn plc affiliates, including the Funds, as associated persons of the Adviser or Subadvisers.
No remuneration is paid by the Funds with respect to the memorandum of understanding/personnel sharing
arrangements.
The
following Funds are subadvised:
abrdn
China A Fund
abrdn
Dynamic Dividend Fund
abrdn
Emerging Markets Dividend Fund
abrdn
Emerging Markets ex-China Fund
abrdn
Emerging Markets Fund
abrdn
Emerging Markets Sustainable Leaders Fund
abrdn
Global Equity Impact Fund
abrdn
Global Infrastructure Fund
abrdn
Infrastructure Debt Fund
abrdn
International Small Cap Fund
abrdn
Realty Income & Growth Fund
abrdn
Inc.
abrdn
pays the compensation of the officers of the Trust employed by abrdn. abrdn also furnishes, at its own expense,
all necessary administrative services, office space, equipment, and clerical personnel for servicing the investments
of the Trust and maintaining its investment advisory facilities, and executive and supervisory personnel for managing
the investments and effecting the portfolio transactions of the Trust. In addition, abrdn pays, out of its legitimate
profits, broker-dealers, trust companies, transfer agents and other financial institutions in exchange for their selling
of shares of the Trust’s series or for recordkeeping or other shareholder related services.
The
Investment Advisory Agreement also specifically provides that abrdn, including its directors, officers, and employees,
shall not be liable for any error of judgment, or mistake of law, or for any loss arising out of any investment, or for
any act or omission in the execution and management of the Trust, except for 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
Investment
Advisory and Other Services 91
Agreement.
The Agreement continues in effect for an initial period of no more than two years, and thereafter shall continue
automatically for successive annual periods provided such continuance is specifically approved at least annually
by the Trustees, or by vote of a majority of the outstanding voting securities of the Trust, and, in either case, by a majority
of the Trustees who are not parties to the Agreement or interested persons of any such party. The Agreement terminates
automatically in the event of its “assignment,” as defined under the 1940 Act. It may be terminated as to a Fund
without penalty by vote of a majority of the outstanding voting securities of that Fund, or by either party, on not less than
60 days’ written notice. The Agreement further provides that abrdn may render similar services to others.
abrdn
Inc., located at 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, is indirectly owned by abrdn plc.
Stephen Bird, Trustee of the Trust, is the CEO of abrdn plc.
For
services provided under the Investment Advisory Agreement, abrdn receives an annual fee paid monthly based on
average daily net assets of the applicable Fund according to the following schedule:
|
|
|
Fund
|
Asset
|
Investment
Advisory Fee
|
abrdn
China A Share Equity Fund |
$0
up to $500 million |
0.85%
|
|
$500
million up to $2 billion |
0.80%
|
|
$2
billion and more |
0.75%
|
abrdn
Dynamic Dividend Fund |
$0
up to $250 million |
1.00%
|
|
$250
million and more |
0.95%
|
abrdn
Emerging Markets Dividend Fund |
$0
up to $500 million |
0.75%
|
|
$500
million up to $2 billion |
0.73%
|
|
$2
billion and more |
0.70%
|
abrdn
Emerging Markets ex-China Fund |
$0
up to $500 million |
0.80%
|
|
$500
million up to $2 billion |
0.75%
|
|
$2
billion and more |
0.70%
|
abrdn
Emerging Markets Fund |
All
Assets |
0.90%
|
abrdn
Emerging Markets Sustainable Leaders Fund |
All
Assets |
0.80%
|
abrdn
Global Equity Impact Fund |
$0
up to $500 million |
0.75%
|
|
$500
million up to $2 billion |
0.73%
|
|
$2
billion and more |
0.70%
|
abrdn
Global Infrastructure Fund |
$0
up to $250 million |
0.75%
|
|
$250
million up to $750 million |
0.70%
|
|
$750
million up to $1 billion |
0.65%
|
|
$1
billion and more |
0.55%
|
abrdn
High Income Opportunities Fund |
$0
up to $500 million |
0.55%
|
|
$500
million up to $1 billion |
0.525%
|
|
$1
billion and more |
0.50%
|
abrdn
Infrastructure Debt Fund |
$0
up to $500 million |
0.50%
|
|
$500
million up to $1 billion |
0.475%
|
|
$1
billion and more |
0.45%
|
abrdn
Intermediate Municipal Income Fund |
$0
up to $250 million |
0.425%
|
|
$250
million up to $1 billion |
0.375%
|
|
$1
billion and more |
0.355%
|
abrdn
International Small Cap Fund |
$0
up to $100 million |
0.85%
|
|
$100
million and more |
0.75%
|
abrdn
Realty Income & Growth Fund |
All
Assets |
0.80%
|
abrdn
Short Duration High Yield Municipal Fund |
$0
up to $250 million |
0.55%
|
|
$250
million and more |
0.50%
|
abrdn
Ultra Short Municipal Income Fund |
All
Assets |
0.40%
|
abrdn
U.S. Small Cap Equity Fund |
$0
up to $100 million |
0.95%
|
|
$100
million or more |
0.80%
|
92 Investment
Advisory and Other Services
|
|
|
Fund
|
Asset
|
Investment
Advisory Fee
|
abrdn
Focused U.S. Small Cap Equity Fund |
$0
up to $500 million |
0.75%
|
|
$500
million up to $2 billion |
0.70%
|
|
$2
billion and more |
0.65%
|
abrdn
U.S. Sustainable Leaders Fund |
$0
up to $500 million |
0.70%
|
|
$500
million up to $2 billion |
0.65%
|
|
$2
billion and more |
0.60%
|
Limitation
of Fund Expenses
In
the interest of limiting the expenses of the Funds, abrdn may from time to time waive some or all of its investment advisory
fee or reimburse other fees for any of the Funds. In this regard, abrdn has entered into written expense limitation agreements
with the Trust on behalf of the Funds. Pursuant to the expense limitation agreements, abrdn has agreed to waive
or limit its fees and to assume other expenses to the extent necessary, subject to certain exclusions, to limit the total annual
operating expenses of each Class of each such Fund to the limits described below. With respect to the Dynamic Dividend
Fund, Global Infrastructure Fund, Realty Income & Growth Fund, Short Duration High Yield Municipal Fund and Ultra
Short Municipal Income Fund, this limit excludes interest, brokerage commissions, Acquired Fund Fees and Expenses and
extraordinary expenses. With
respect to the Emerging Markets Dividend Fund, Global Equity Impact Fund and High Income
Opportunities Fund, this limit excludes certain
Fund expenses, including any taxes, interest, brokerage fees, short sale
dividend expenses, Acquired Fund Fees and Expenses, and
12b-1 fees
for Class A shares
and extraordinary expenses
for a Fund. For
all other Funds of the Trust, this limit excludes
certain Fund expenses, including any taxes, interest,
brokerage fees, short sale dividend expenses, Acquired Fund Fees and Expenses, 12b-1
fees, administrative
services fees, transfer
agent out-of-pocket expenses for Class A shares,
Class R shares and Institutional Service Class shares
and extraordinary expenses for a Fund. Please
note that the waiver of fees will cause the total return and yield of a Fund
to be higher than they would otherwise be in the absence of such a waiver.
abrdn
may request and receive reimbursement from a Fund of the advisory fees waived and other expenses reimbursed
pursuant to the expense limitation agreements at a later date not to exceed three years from the fiscal year in
which the corresponding reimbursement to the Fund was made. No reimbursement will be made unless: (i) the total annual
expense ratio of the class making such reimbursement is less than the limit set forth below; and (ii) the payment of
such reimbursement is approved by the Board of Trustees on a quarterly basis (the “Reimbursement Requirements”). If the
Board approves any changes in the waiver terms or limitations, reimbursements are only permitted to the extent that the
terms of the expense limitation agreement that were in effect at the time of the waiver are met at the time that reimbursement
is approved. Except as provided for in the expense limitation agreement, reimbursement of amounts previously
waived or assumed by abrdn is not permitted.
abrdn
has agreed contractually to waive, through February 28,
2025, advisory fees and, if necessary, reimburse
expenses in order to limit total annual fund
operating expenses of the Trust, excluding certain expenses as described above,
as follows:
|
|
Name
of Fund/Class |
2024
Expense Limitation*
|
abrdn
China A Share Equity Fund |
0.99%
|
abrdn
Dynamic Dividend Fund |
|
Institutional
Class |
1.25%
|
Class
A |
1.50%
|
abrdn
Emerging Markets Fund |
1.10%
|
abrdn
Emerging Markets ex-China Fund |
0.99%
|
abrdn
Emerging Markets Sustainable Leaders Fund |
1.10%
|
abrdn
Infrastructure Debt Fund |
0.65%
|
abrdn
Global Equity Impact Fund |
0.90%
|
abrdn
High Income Opportunities Fund |
0.70%
|
abrdn
Global Infrastructure Fund |
|
Institutional
Class |
0.99%
|
Class
A |
1.24%
|
abrdn
Intermediate Municipal Income Fund |
0.50%
|
abrdn
International Small Cap Fund |
0.99%
|
abrdn
Emerging Markets Dividend Fund |
0.90%
|
Investment
Advisory and Other Services 93
|
|
Name
of Fund/Class |
2024
Expense Limitation*
|
abrdn
Realty Income & Growth Fund |
|
Institutional
Class |
0.99%
|
Class
A |
1.24%
|
abrdn
Short Duration High Yield Municipal Fund |
|
Institutional
Class |
0.65%
|
Class
A |
0.90%
|
Class
C |
1.65%
|
abrdn
Ultra Short Municipal Income Fund |
|
Institutional
Class |
0.45%
|
Class
A |
0.70%
|
Class
A1 |
0.70%
|
abrdn
U.S. Small Cap Equity Fund |
0.99%
|
abrdn
U.S. Sustainable Leaders Fund |
0.90%
|
abrdn
Focused U.S. Small Cap Equity Fund |
0.90%
|
* |
The
Expense Limitation is effective as of February 29,
2024, and may not be terminated before February
28,
2025 without the approval of the Independent
Trustees. |
Predecessor
Adviser
As
explained in the “General Information” section of this SAI, the Funds in this SAI were created as part of the reorganizations
of the Aberdeen Investment Funds Predecessor Funds into newly created series of the Trust. Prior to the reorganizations,
investment advisory services for the Aberdeen Investment Funds Predecessor Funds were provided by the
Adviser (the “Predecessor Adviser”), which is the same as each Fund’s current Adviser. The Aberdeen Investment Funds
Predecessor Funds were obligated to pay a monthly fee based on average daily net assets of the applicable Aberdeen
Investment Funds Predecessor Fund. The contractual advisory fees paid by each Aberdeen Investment Fund Predecessor
Fund to the Predecessor Adviser are shown in the following schedule:
|
|
|
Fund
|
Asset
|
Investment
Advisory Fee
|
abrdn
Emerging Markets Dividend Fund |
The
first $500 million in average daily net assets; |
0.80%
|
|
The
next $1.5 billion in average daily net assets; and |
0.78%
|
|
Daily
net assets over $2 billion |
0.75%
|
abrdn
Global Equity Impact Fund |
The
first $500 million in average daily net assets; |
0.80%
|
|
The
next $1.5 billion in average daily net assets; and |
0.78%
|
|
Daily
net assets over $2 billion |
0.75%
|
abrdn
High Income Opportunities Fund |
The
first $5.0 billion in average daily net assets; |
0.65%
|
|
The
next $2.5 billion in average daily net assets; |
0.63%
|
|
The
next $2.5 billion in average daily net assets; and |
0.60%
|
|
Daily
net assets over $10 billion |
0.59%
|
The
amounts paid by the Aberdeen Investment Funds Predecessor Funds to the Predecessor Adviser for the applicable
fiscal years ended October 31 is set forth in the table below.
Investment
Advisory Fees
The
table below shows the investment advisory fees paid by each Fund to the Adviser (which includes amounts paid by
the Adviser to the affiliated Subadviser(s), as applicable) and the advisory fees waived and additional fund expenses reimbursed,
if any, by the Adviser for the fiscal years ended October 31, 2023,
2022 and 2021 (or for the life of the Fund
if shorter). Advisory fee information for
the Emerging
Markets Dividend Fund, Global Equity Impact
Fund and High
Income Opportunities
Fund for the periods prior to December 3,
2021 reflects fees paid by the Aberdeen Investment Funds Predecessor
Funds to the Adviser for the past three fiscal years ended October 31 is set forth in the table below.
94 Investment
Advisory and Other Services
|
|
|
|
|
|
|
|
|
|
|
Year
Ended October 31, 2023 |
|
Year
Ended October 31, 2022 |
|
Year
Ended October 31, 2021 |
|
Fund
|
Fees
Paid |
Fees
Waived/Reimbursed
|
Recoupment of
Prior Fees Waived
|
Fees
Paid |
Fees
Waived/Reimbursed
|
Recoupment of
Prior Fees Waived
|
Fees
Paid |
Fees
Waived/Reimbursed
|
Recoupment of
Prior Fees Waived
|
China
A Fund |
$305,374
|
$158,769
|
$0
|
$514,523
|
$299,918
|
$0
|
$667,889
|
$244,894
|
$0
|
Dynamic
Dividend Fund
|
$1,037,433
|
$119,893
|
$0
|
$1,155,648
|
$104,327
|
$0
|
$1,256,000
|
$180,278
|
$0
|
Emerging
Markets ex-China
Fund |
$283,908
|
$296,060
|
$0
|
$236,354
|
$183,875
|
$0
|
$267,569
|
$191,740
|
$0
|
Emerging
Markets Fund
|
$19,673,914
|
$1,294,758
|
$0
|
$31,331,992
|
$3,610,371
|
$7,853
|
$47,131,314
|
$1,800,053
|
$0
|
Emerging
Markets Sustainable
Leaders Fund
|
$654,746
|
$186,614
|
$0
|
$1,214,612
|
$262,777
|
$0
|
$1,799,302
|
$38,869
|
$0
|
Infrastructure
Debt Fund(1)
|
$198,039
|
$201,396
|
$0
|
$343,462
|
$507,424
|
$0
|
$163,090
|
$540,814
|
$0
|
Global
Equity Impact Fund(2),(3)
|
$368,958
|
$202,030
|
$0
|
$425,395
|
$300,067
|
$0
|
$1,128,359
|
$331,787
|
$0
|
High
Income Opportunities
Fund(2),(4)
|
$600,912
|
$310,592
|
$0
|
$736,148
|
$439,426
|
$0
|
$579,749
|
$243,745
|
$0
|
Global
Infrastructure Fund
|
$410,904
|
$166,135
|
$0
|
$461,041
|
$181,503
|
$0
|
$447,783
|
$207,420
|
$0
|
Intermediate
Municipal Income Fund
|
$198,661
|
$215,294
|
$0
|
$229,083
|
$206,321
|
$0
|
$271,702
|
$233,143
|
$0
|
International
Small Cap Fund
|
$1,365,477
|
$361,392
|
$0
|
$2,036,968
|
$386,527
|
$0
|
$1,727,393
|
$261,986
|
$0
|
Emerging
Markets Dividend Fund(2),(5)
|
$624,188
|
$260,483
|
$0
|
$795,934
|
$426,614
|
$0
|
$985,628
|
$570,392
|
$0
|
Realty
Income & Growth
Fund |
$402,310
|
$186,600
|
$0
|
$512,380
|
$214,703
|
$0
|
$530,610
|
$245,459
|
$0
|
Short
Duration High Yield
Municipal Fund |
$941,197
|
$448,911
|
$0
|
$2,183,044
|
$760,410
|
$0
|
$2,247,203
|
$812,551
|
$0
|
Ultra
Short Municipal Income
Fund |
$3,196,687
|
$1,869,917
|
$0
|
$4,045,200
|
$2,289,342
|
$0
|
$5,541,935
|
$3,286,759
|
$0
|
U.S.
Small Cap Equity
Fund |
$4,794,673
|
$674,100
|
$0
|
$7,495,875
|
$573,835
|
$0
|
$8,327,634
|
$604,829
|
$0
|
U.S.
Sustainable Leaders
Fund |
$2,581,429
|
$290,346
|
$0
|
$3,101,261
|
$209,581
|
$0
|
$3,487,972
|
$216,967
|
$0
|
Focused
U.S. Small Cap Equity
Fund |
$106,214
|
$159,457
|
$0
|
$139,684
|
$213,043
|
$0
|
$122,196
|
$202,597
|
$0
|
(1) |
Prior
to the change in the Fund’s name, strategy and fee structure on August 18, 2023, the management fee rate for the Fund was 0.60%
on assets up to $500 million, 0.55% on
assets of $500 million up to $1 billion and 0.50% on assets of $1 billion and more. |
(2) |
As
explained in the “General Information” section of this SAI, this
Fund was created as part of the reorganization
of an Aberdeen Investment Funds Predecessor
Fund
into a newly
created series of the Trust. Prior to the reorganization,
investment advisory services for the Aberdeen Investment Funds Predecessor
Fund
were provided by the Adviser. |
(3) |
The
fees paid for the fiscal year ended October 31, 2021 reflect the management fee rate that was in effect for the Predecessor Fund. The
management fee rate for the Predecessor Fund
was 0.80% on assets up to $500 million, 0.78% on assets of $500 million up to $2 billion and 0.75% on assets
of $2 billion and more and the expense limitation in effect with respect to the Fund was 1.10% for Institutional Class and 1.35%
for Class A. |
(4) |
Prior
to the change in the Fund’s name, strategy and fee structure on August 18, 2023, the management fee rate for the Fund was 0.65%
on assets up to $5 billion,
0.63% on assets of $5 billion up to $7.5 billion, 0.60% on assets of $7.5 billion up to $10 billion and 0.59% on assets of
$10 billion and more and the
expense limitation in effect with respect to the Fund was 0.75%. Effective August 18, 2023, the Fund’s expense limitation was
lowered to 0.70%. |
(5) |
The
fees paid for the fiscal year ended October 31, 2021 reflect the management fee rate that was in effect for the Predecessor Fund. The
management fee rate for the Predecessor Fund
was 0.80% on assets up to $500 million, 0.78% on assets of $500 million up to $2 billion and 0.75% on assets
of $2 billion and more and the expense limitation in effect with respect to the Fund was 1.10% for Institutional Class and 1.35%
for Class A. |
Investment
Advisory and Other Services 95
Subadvisers
The
Subadvisers for certain of the Funds advised by the Adviser are as follows:
|
|
FUND
|
SUBADVISER
|
abrdn
China A Share Equity Fund |
abrdn
Asia Limited (“aAL”) |
abrdn
Dynamic Dividend Fund |
abrdn
Investments Limited (“aIL”) |
abrdn
Emerging Markets Fund |
aIL
and aAL |
abrdn
Emerging Markets ex-China Fund |
aIL
|
abrdn
Emerging Markets Sustainable Leaders Fund |
aIL
|
abrdn
Infrastructure Debt Fund |
aIL
|
abrdn
Global Equity Impact Fund |
aIL
|
abrdn
Global Infrastructure Fund |
aIL
|
abrdn
International Small Cap Fund |
aIL
|
abrdn
Emerging Markets Dividend Fund |
aIL
|
abrdn
Realty Income & Growth Fund |
aIL
|
aIL,
a Scottish Company, and aAL,
a Singapore corporation, each serve as Subadviser to the Funds listed in the chart above.
aIL
and aAL are both affiliates of the Adviser.
aIL’s
registered office is located at 10 Queen’s Terrace, Aberdeen, Scotland
AB10 1YG. aAL
is located at 21 Church Street, #01-01 Capital Square Two, Singapore 049480.
Under
the subadvisory agreements among the Trust, the Adviser and each Subadviser, and subject to the supervision
of the Adviser and the Trustees, each of the Subadvisers manages the assets of the Fund listed above in accordance
with the Fund’s investment objectives and policies. Each Subadviser makes investment decisions for the Fund
and in connection with such investment decisions places purchase and sell orders for securities.
Subadvisory
Fees
The
subadvisory fees for subadvised Funds are paid by the Adviser from the management fee it receives. For the investment
management services they provide to the Funds, the Subadvisers are entitled to the percentage of the advisory
fee received after fee waivers and expense reimbursements, if any, by the Adviser as detailed below:
|
|
|
|
SUBADVISORY
FEE |
FUND
|
aAL
|
aIL
|
China
A Fund |
90%
|
N/A
|
Dynamic
Dividend Fund |
N/A
|
90%
|
Emerging
Markets Fund |
45%
|
45%
|
Emerging
Markets ex-China Fund |
N/A
|
90%
|
Emerging
Markets Sustainable Leaders Fund |
N/A
|
90%
|
Infrastructure
Debt Fund |
N/A
|
90%
|
Global
Equity Impact Fund |
N/A
|
90%
|
Global
Infrastructure Fund |
N/A
|
90%
|
International
Small Cap Fund |
N/A
|
90%
|
Emerging
Markets Dividend Fund |
N/A
|
90%
|
Realty
Income & Growth Fund |
N/A
|
10%
|
Multi-Manager
Structure
On
September 22, 2008, the Adviser and the Trust received an exemptive order from the SEC for a multi-manager structure
which allows the Adviser, subject to the approval of the Board of Trustees, to hire, replace or terminate unaffiliated
subadvisers without the approval of shareholders. The order also allows the Adviser to revise a subadvisory agreement
with an unaffiliated subadviser without shareholder approval. If a new unaffiliated subadviser is hired, the change
would be communicated to shareholders within 90 days of such change, and all changes would be approved by the
Trust’s Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust or the Adviser.
The multi-manager structure is intended to facilitate the efficient operation of the Funds and afford the Trust increased
management flexibility.
The
Adviser provides investment management evaluation services to the Funds principally by performing initial due diligence
on prospective subadvisers for the Fund and thereafter monitoring the performance of the subadviser through quantitative
and qualitative analysis as well as periodic in-person, telephonic and written consultations with the subadviser.
The Adviser has responsibility for communicating performance expectations and evaluations to the
96 Investment
Advisory and Other Services
subadviser
and ultimately recommending to the Trust’s Board of Trustees whether the subadviser’s contract should be renewed,
modified or terminated; however, the Adviser does not expect to recommend frequent changes of subadvisers.
The Adviser will regularly provide written reports to the Trust’s Board of Trustees regarding the results of its evaluation
and monitoring functions. Although the Adviser will monitor the performance of the subadvisers, there is no certainty
that the subadviser or the Funds will obtain favorable results at any given time. The Adviser does not currently rely
on the manager of managers order with respect to its management of the Funds.
Portfolio
Managers
Appendix
A contains the following information regarding the portfolio managers identified in the Funds’ Prospectus: (i)
a description of the portfolio manager’s compensation structure and (ii) information regarding other accounts managed
by the portfolio manager and potential conflicts of interest that might arise from the management of multiple accounts.
Information relating to each portfolio manager’s ownership in the Funds contained in this SAI that he or she manages,
as part of the team, as of October 31, 2023,
is set forth in the chart below.
Investment
Advisory and Other Services 97
|
|
|
Portfolio
Manager |
Portfolio
Managed |
Dollar
Range of Portfolio Shares
Owned |
Chris
Haimendorf |
U.S.
Sustainable Leaders Fund |
None
|
Christopher
Colarik |
U.S.
Small Cap Equity Focused
U.S. Small Cap Equity Fund |
None None
|
Scott
Eun |
Focused
U.S. Small Cap Equity Fund U.S.
Small Cap Equity Fund |
None None
|
Joanna
McIntyre |
U.S.
Sustainable Leaders Fund |
None
|
Jamie
Mills O’Brien |
U.S.
Sustainable Leaders Fund |
None
|
Kirsty
Desson |
International
Small Cap Fund |
None
|
Liam
Patel |
International
Small Cap Fund |
None
|
Matt
Williams |
Emerging
Markets Dividend Fund |
None
|
Gabriel
Sacks |
Emerging
Markets Dividend Fund |
None
|
Dominic
Byrne |
Global
Equity Impact Fund U.S.
Sustainable Leaders Fund |
None
|
Martin
Connaghan |
Dynamic
Dividend Fund |
None
|
Josh
Duitz |
Dynamic
Dividend Fund Global
Infrastructure Fund |
$10,001-$50,000 $100,001
- $500,000 |
Ruairidh
Finlayson |
Dynamic
Dividend Fund |
None
|
Sarah
Norris |
Global
Equity Impact Fund |
None
|
Donal
Reynolds |
Global
Infrastructure Fund |
None
|
Pruksa
Iamthongthong |
China
A Fund |
None
|
Jim
Jiang |
China
A Fund |
None
|
Elizabeth
Kwik |
China
A Fund |
None
|
Nicholas
Yeo |
China
A Fund |
None
|
Kristy
Fong |
Emerging
Markets Fund Emerging
Markets ex-China Fund Emerging
Markets Sustainable Leaders Fund |
None None None
|
Joanne
Irvine |
Emerging
Markets Fund |
None
|
Devan
Kaloo |
Emerging
Markets Fund |
None
|
Nick
Robinson |
Emerging
Markets Fund Emerging
Markets ex-China Fund Emerging
Markets Sustainable Leaders Fund |
None None None
|
Nina
Petry |
Emerging
Markets Sustainable Leaders Fund |
None
|
Miguel
Laranjeiro |
Intermediate
Municipal Income Fund Short
Duration High Yield Municipal Fund Ultra
Short Municipal Income Fund |
None None None
|
Jonathan
Mondillo |
Intermediate
Municipal Income Fund Short
Duration High Yield Municipal Fund Ultra
Short Municipal Income Fund Infrastructure
Debt Fund |
None None None None
|
Ben
Pakenham |
High
Income Opportunities Fund |
None
|
George
Westervelt |
High
Income Opportunities Fund |
None
|
Matthew
Kence |
High
Income Opportunities Fund Infrastructure
Debt Fund |
None None
|
Adam
Tabor |
High
Income Opportunities Fund |
None
|
Jay
Carlington |
Realty
Income & Growth Fund |
None
|
Svitlana
Gubriy |
Realty
Income & Growth Fund |
None
|
Bill
Pekowitz |
Realty
Income & Growth Fund |
None
|
Distributor
The
Trust and Aberdeen Fund Distributors LLC (the “distributor” or “AFD”) have entered into a distribution agreement
whereby AFD will act as principal underwriter
for the Trust’s shares. The principal business address of AFD is 1900 Market Street,
Suite 200, Philadelphia, Pennsylvania 19103. AFD is affiliated with the Funds’ Adviser.
98 Investment
Advisory and Other Services
Under
the distribution agreement, the distributor must use reasonable efforts, consistent with its other business, in connection
with the continuous offering of shares of the Trust.
The
distributor has no obligation to sell any specific quantity of Fund shares. Unless otherwise terminated, the distribution
agreement has an initial term of two years and thereafter will remain in effect from year to year for successive
annual periods if approved at least annually by (i) the Trust’s Board of Trustees or by the vote of a majority of the
outstanding shares of that Fund, and (ii) the vote of a majority of the Trustees of the Trust who are not parties to the distribution
agreement or interested persons (as defined in the 1940 Act) of any party to the distribution agreement, cast in
person at a meeting called for the purpose of voting on such approval. The distribution agreement may be terminated in
the event of any assignment, as defined in the 1940 Act.
The
distributor may enter into arrangements with various financial institutions through which a shareholder may purchase
or redeem shares. The distributor may enter into agreements with selected broker-dealers, banks or other financial
institutions for distribution of shares of the Funds. If applicable to a class of the Trust’s Shares as described below, the
distributor may receive distribution fees from certain of the Funds as authorized by the Distribution and Service Plan described
below.
The
distributor also receives the proceeds of contingent deferred sales charges imposed on certain redemptions of Class
C shares (and certain Class A shares).
The
distributor reallows to Financial Industry Regulatory Authority registered dealers: 5.00% of sales charges on Class A
shares of the Funds that have a maximum front-end sales charge of 5.75%; 2.50% of sales charges on Class A shares of the
Infrastructure
Debt Fund and High
Income Opportunities
Fund; 2.00% of sales charges on Class
A shares of the Intermediate Municipal Income
Fund and Short Duration High Yield Municipal Fund; 0.50% of sales charges on Class A1 shares
of the Ultra Short Municipal Income Fund; and 1.00% on Class C shares of the Funds.
Predecessor
Distributor
As
explained in the “General Information” section of this SAI, each of the Emerging
Markets Dividend Fund, Global Equity
Impact Fund and High
Income Opportunities
Fund acquired the assets and liabilities of
the Aberdeen International Sustainable Leaders
Fund, Aberdeen Global Equity Impact Fund and Aberdeen Global High Income Fund, respectively, through
a reorganization. Prior to the reorganization date of December 3, 2021, the Aberdeen Investment Funds Predecessor
Funds had the same distributor, AFD.
Distributor
Fees
The
information presented below for the fiscal years ended October 31, 2023,
2022 and 2021 reflects the amounts received
in underwriting commissions from a portion of the front end sales charge of certain classes of the Funds, all of which
is retained by AFD.
|
|
|
|
Fund
|
Year
Ended October
31, 2023 |
Year
Ended October
31, 2022 |
Year
Ended October
31, 2021
|
China
A Share Equity Fund |
$450
|
$5,675
|
$22,566
|
Dynamic
Dividend Fund |
$1,681
|
$619
|
$1,346
|
Emerging
Markets Dividend Fund(1)
|
$19
|
$61
|
$0
|
Emerging
Markets ex-China Fund |
$618
|
$584
|
$222
|
Emerging
Markets Fund |
$434
|
$0
|
$11,157
|
Emerging
Markets Sustainable Leaders Fund |
$36
|
$44
|
$38
|
Focused
U.S. Small Cap Equity Fund |
$70
|
$2,532
|
$239
|
Global
Equity Impact Fund(1)
|
$0
|
$21
|
$0
|
Global
Infrastructure Fund |
$1,299
|
$1,963
|
$5,762
|
High
Income Opportunities Fund(1)
|
$111
|
$2,794
|
$0
|
Infrastructure
Debt Fund |
$3
|
$49
|
$20
|
Intermediate
Municipal Income Fund |
$8
|
$9
|
$58
|
International
Small Cap Fund |
$703
|
$842
|
$3,064
|
Realty
Income & Growth Fund |
$0
|
$0
|
$1,965
|
Short
Duration High Yield Municipal Fund |
$138
|
$0
|
$46
|
U.S.
Small Cap Equity Fund |
$5,402
|
$10,873
|
$7,366
|
U.S.
Sustainable Leaders Fund |
$1,447
|
$2,478
|
$3,588
|
Ultra
Short Municipal Income Fund |
$0
|
$0
|
$0
|
Investment
Advisory and Other Services 99
(1) |
Represents
the period from the reorganization until October 31, 2022. For the period from the beginning of the fiscal year until the reorganization,
the amounts received in underwriting commissions
from a portion of the front end sales charge of certain classes of the Global Equity Impact Fund, High
Income Opportunities
Fund and Emerging
Markets Dividend Fund, all of which is retained
by AFD, were $0, $0 and $0, respectively. The information presented
above for the fiscal years ended October 31, 2021 and 2020 reflects the amounts received in underwriting commissions from a portion of
the front end sales charge of certain classes
of the Aberdeen Investment Funds Predecessor Funds, all of which was retained by AFD. |
AFD
also received the proceeds of contingent deferred sales charges imposed on certain redemptions of Class C shares (and certain Class A and A1 shares).
The tables below reflect contingent deferred sales charges paid to AFD on redemptions of the Funds’ shares
for the fiscal year ended October 31, 2023.
|
|
Fund
|
Year
Ended October
31, 2023
|
China
A Share Equity Fund |
$302
|
Dynamic
Dividend Fund |
$0
|
Emerging
Markets Dividend Fund |
$0
|
Emerging
Markets ex-China Fund |
$0
|
Emerging
Markets Fund |
$680
|
Emerging
Markets Sustainable Leaders Fund |
$0
|
Focused
U.S. Small Cap Equity Fund |
$0
|
Global
Equity Impact Fund |
$0
|
Global
Infrastructure Fund |
$0
|
High
Income Opportunities Fund |
$0
|
Infrastructure
Debt Fund |
$0
|
Intermediate
Municipal Income Fund |
$0
|
International
Small Cap Fund |
$0
|
Realty
Income & Growth Fund |
$0
|
Short
Duration High Yield Municipal Fund |
$1,242
|
U.S.
Small Cap Equity Fund |
$4,539
|
U.S.
Sustainable Leaders Fund |
$0
|
Ultra
Short Municipal Income Fund |
$0
|
Distribution
Plan
The
Funds have adopted a Distribution Plan (the “Plan”) under Rule 12b-1 of the 1940 Act with respect to certain classes
of shares. The Plan permits the Funds to compensate the Funds’ distributor for expenses associated with the distribution
of certain classes of shares of the Funds. Although actual distribution expenses may be more or less, under the
Plan the Funds pay the distributor an annual fee in an amount that will not exceed the following amounts:
● |
0.25%
of the average daily net assets of Class A shares of each applicable Fund (distribution or service fees); |
● |
0.25%
of the average daily net assets of Class A1 shares of each applicable Fund (distribution or service fees); |
● |
1.00%
of the average daily net assets of Class C shares of each applicable Fund (0.25% service fee); and |
● |
0.50%
of the average daily net assets of the Class R Shares of each applicable Fund (0.25% of which will be a distribution
fee and 0.25% of which may be a service fee). |
As
required by Rule 12b-1, the Plan was approved by the Board of Trustees, including a majority of the Trustees who have
no direct or indirect financial interest in the operation of the Plan (the “Plan Trustees”). The Plan was approved for the
Funds by the Board of Trustees, and may be amended from time to time upon approval by vote of a majority of the Trustees,
including a majority of the Plan Trustees, cast in person at a meeting called for that purpose. The Plan may be terminated
as to a Class of a Fund by vote of a majority of the Plan Trustees, or by vote of a majority of the outstanding shares
of that Class. Any change in the Plan that would materially increase the distribution cost to a Class requires shareholder
approval. The Trustees will review, quarterly, a written report of such costs and the purposes for which such costs
have been incurred. The Plan may be amended by vote of the Trustees, including a majority of the Plan Trustees, cast
in person at a meeting called for that purpose. For so long as the Plan is in effect, selection and nomination of those Trustees
who are not interested persons of the Trust shall be committed to the discretion of such disinterested persons. All agreements
with any person relating to the implementation of the Plan may be terminated at any time on 60 days’ written
notice without payment of any penalty, by vote of a majority of the Plan Trustees or by a vote of the majority of the outstanding
shares of the applicable Class. The Plan will continue in effect for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the Plan Trustees, and (ii) by a vote of a majority
of the entire Board of Trustees cast in person at a meeting called for that purpose. The Board of Trustees has a
100 Investment
Advisory and Other Services
duty
to request and evaluate such information as may be reasonably necessary for them to make an informed determination
of whether the Plan should be implemented or continued. In addition the Trustees in approving the Plan as to
a Fund must determine that there is a reasonable likelihood that the Plan will benefit such Fund and its shareholders.
The
Board of Trustees of the Trust believes that the Plan is in the best interests of the Funds since it encourages Fund growth
and maintenance of Fund assets. As the Funds grow in size, certain expenses, and therefore total expenses per share,
may be reduced and overall performance per share may be improved.
The
distributor will enter into, from time to time, agreements with selected dealers pursuant to which such dealers will
provide certain services in connection with the distribution and shareholder servicing of a Fund’s shares including, but not
limited to, those discussed above. The Adviser or an affiliate of the Adviser may pay additional amounts from its own resources
to dealers or other financial intermediaries, for aid in distribution or for aid in providing administrative services to
shareholders.
Distribution
Plan Fees
During
the fiscal year ended October 31, 2023,
AFD earned the following distribution fees under the Plan for the Funds.
|
|
|
|
|
Fund
|
Class
A |
Class
A1 |
Class
C |
Class
R |
China
A Share Equity Fund |
$26,822
|
$0
|
$15,902
|
$16,632
|
Dynamic
Dividend Fund |
$10,563
|
$0
|
$0
|
$0
|
Emerging
Markets Dividend Fund |
$1,83,801
|
$0
|
$0
|
$0
|
Emerging
Markets ex-China Fund |
$53,371
|
$0
|
$1,542
|
$3,000
|
Emerging
Markets Fund |
$1,57,366
|
$0
|
$34,561
|
$5,21,502
|
Emerging
Markets Sustainable Leaders Fund |
$30,053
|
$0
|
$1,191
|
$12,966
|
Focused
U.S. Small Cap Equity Fund |
$19,357
|
$0
|
$0
|
$11,438
|
Global
Equity Impact Fund |
$72,444
|
$0
|
$0
|
$0
|
Global
Infrastructure Fund |
$28,837
|
$0
|
$0
|
$0
|
High
Income Opportunities Fund |
$1,49,866
|
$0
|
$0
|
$0
|
Infrastructure
Debt Fund |
$29,113
|
$0
|
$171
|
$0
|
Intermediate
Municipal Income Fund |
$11,592
|
$0
|
$816
|
$0
|
International
Small Cap Fund |
$1,48,802
|
$0
|
$3,683
|
$9,714
|
Realty
Income & Growth Fund |
$887
|
$0
|
$0
|
$0
|
Short
Duration High Yield Municipal Fund |
$25,216
|
$0
|
$259
|
$0
|
Ultra
Short Municipal Income Fund |
$2,76,078
|
$662
|
$0
|
$0
|
U.S.
Small Cap Equity Fund |
$2,57,570
|
$0
|
$2,14,959
|
$16,115
|
U.S.
Sustainable Leaders Fund |
$5,65,991
|
$0
|
$2,994
|
$0
|
For
the fiscal year ended October 31, 2023,
the following expenditures were made using the 12b-1 fees received by AFD
with respect to the Funds:
Investment
Advisory and Other Services 101
|
|
|
|
|
|
Fund
|
Advertising
|
Prospectus
Printing &
Mailing |
Distributor
Compensation &
Costs
|
Financing
Charges with Respect
to C Shares
|
Broker-Dealer
Compensation &
Costs |
China
A Share Equity Fund |
$66
|
$0
|
$681
|
$1,721
|
$56,667
|
Dynamic
Dividend Fund |
$2
|
$0
|
$25
|
$0
|
$10,524
|
Emerging
Markets ex-China Fund |
$813
|
$0
|
$8,769
|
$215
|
$40,278
|
Emerging
Markets Dividend Fund |
$606
|
$0
|
$6,263
|
$0
|
$171,695
|
Emerging
Markets Fund |
$164
|
$0
|
$1,709
|
$1,146
|
$711,173
|
Emerging
Markets Sustainable Leaders Fund |
$93
|
$0
|
$991
|
$61
|
$42,113
|
Focused
U.S. Small Cap Equity Fund |
$183
|
$0
|
$1,963
|
$0
|
$26,929
|
Global
Equity Impact Fund |
$146
|
$0
|
$1,442
|
$0
|
$69,909
|
Global
Infrastructure Fund |
$2
|
$0
|
$20
|
$0
|
$28,775
|
High
Income Opportunities Fund |
$238
|
$0
|
$2,557
|
$0
|
$144,768
|
Infrastructure
Debt Fund |
$158
|
$0
|
$1,673
|
$0
|
$25,676
|
Intermediate
Municipal Income Fund |
$43
|
$0
|
$458
|
$35
|
$11,828
|
International
Small Cap Fund |
$1,911
|
$0
|
$20,334
|
$241
|
$121,129
|
Realty
Income & Growth Fund |
$6
|
$0
|
$68
|
$0
|
$748
|
Short
Duration High Yield Municipal Fund |
$15
|
$0
|
$158
|
$1,353
|
$24,954
|
U.S.
Small Cap Equity Fund |
$306
|
$0
|
$3,031
|
$20,300
|
$467,661
|
U.S.
Sustainable Leaders Fund |
$13,522
|
$0
|
$145,658
|
$66
|
$279,346
|
Ultra
Short Municipal Income Fund |
$27
|
$0
|
$285
|
$0
|
$276,087
|
Administrative
Services Fees/Sub-Transfer Agency Fees
The
Funds may pay and/or reimburse administrative services fees/sub-transfer agency expenses to certain broker-dealers
and financial intermediaries who provide administrative support services to beneficial shareholders on behalf
of the Funds (sometimes referred to as “sub-transfer agency fees”), subject to certain limitations approved by the Board.
Sub-transfer agency fees may be in addition to the Rule 12b-1 fees described in the Funds’ Prospectus.
Sub-transfer
agency fees generally include, but are not limited to, costs associated with omnibus accounting, recordkeeping,
networking, sub-transfer agency or other administrative or shareholder services. The Funds may pay and/or
reimburse sub-transfer agency fees on an average-net-assets basis or on a per-account-per-year basis for services
to the Funds and its shareholders, including on certain non-omnibus accounts. Because these fees are paid out of
a Fund’s assets on an ongoing basis, these fees will increase the cost of an investment in a share class over time and may
cost more than other types of fees.
Class
A, Class A1, Class R and Institutional Service Class shares of the Fund(s) pay for such services pursuant to an Administrative
Services Plan adopted by the Board of Trustees. Under the terms of the Administrative Services Plan, a Fund
is permitted to enter into Servicing Agreements with servicing organizations, such as broker-dealers and financial institutions,
who agree to provide certain administrative support services in connection with the Class A, Class A1, Class R and
Institutional Service Class shares of the Fund(s) (as applicable). Such administrative support services include, but are not
limited to, the following: establishing and maintaining shareholder accounts, processing purchase and redemption transactions,
arranging for bank wires, performing shareholder sub-accounting, answering inquiries regarding the Funds, providing
periodic statements showing the account balance for beneficial owners or for plan participants or contract holders
of insurance company separate accounts, transmitting proxy statements, periodic reports, updated prospectuses
and other communications to shareholders and, with respect to meetings of shareholders, collecting, tabulating
and forwarding to the Trust executed proxies and obtaining such other information and performing such other services
as may reasonably be required. With respect to the Class R shares, these types of administrative support services
will be exclusively provided for retirement plans and their plan participants.
As
authorized by the particular Administrative Services Plan for the Funds, the Trust has entered into Servicing Agreements for the Funds
pursuant to which the contracted servicing agent for the Funds has agreed to provide certain administrative support services in connection
with the applicable Fund shares held beneficially by its customers. In consideration for providing administrative support services, the
servicing agent with whom the Trust may enter into Servicing Agreements will receive a fee, computed at the annual rate of up to 0.25%
for Class A, Class A1, Class R and Institutional Service Class shares of the average daily net assets of the Class A, A1, R or Institutional
Service Class shares of each Fund (as applicable) (or under an amendment to the Administrative Services Plan that is in effect until
at least February 28, 2025,
a maximum of 0.15% for contracts with fees that are calculated as percentage of Fund assets and a maximum of $16 per account for
contracts with fees that are calculated on a dollar per account basis).
For
the fiscal year ended October 31, 2023, the following administrative services fees were paid from the Funds:
102 Investment
Advisory and Other Services
|
|
|
|
|
|
|
Fund
|
Class
A |
Class
C |
Class
A1 |
Class
R |
Institutional Service
Class |
Institutional
Class
|
China
A Fund |
$12,961
|
$1,703
|
N/A
|
$4,110
|
$743
|
$23,667
|
Dynamic
Dividend Fund |
$3,798
|
N/A
|
N/A
|
N/A
|
N/A
|
$73,092
|
Emerging
Markets Fund |
$211,678
|
$5,605
|
N/A
|
$169,987
|
$753,671
|
$2,517,328
|
Emerging
Markets ex-China Fund |
$21,234
|
$355
|
N/A
|
$1,777
|
$270
|
$875
|
Emerging
Markets Sustainable Leaders Fund
|
$21,798
|
$616
|
N/A
|
$5,932
|
$44,716
|
$33,400
|
Infrastructure
Debt Fund |
$23,372
|
$529
|
N/A
|
N/A
|
$7,531
|
$39,677
|
Global
Infrastructure Fund |
$9,892
|
N/A
|
N/A
|
N/A
|
N/A
|
$33,101
|
Global
Equity Impact Fund |
$42,258
|
N/A
|
N/A
|
N/A
|
N/A
|
$24,158
|
High
Income Opportunities Fund |
$88,611
|
N/A
|
N/A
|
N/A
|
N/A
|
$31,128
|
Intermediate
Municipal Income Fund |
$737
|
$92
|
N/A
|
N/A
|
N/A
|
$4,424
|
International
Small Cap Fund |
$86,585
|
$709
|
N/A
|
$3,125
|
N/A
|
$192,105
|
Emerging
Markets Dividend Fund |
$124,917
|
N/A
|
N/A
|
N/A
|
N/A
|
$11,703
|
Realty
Income & Growth Fund |
$571
|
N/A
|
N/A
|
N/A
|
N/A
|
$34,940
|
Short
Duration High Yield Municipal Fund |
$11,225
|
$5
|
N/A
|
N/A
|
N/A
|
$168,886
|
Ultra
Short Municipal Income Fund |
$89,176
|
$22
|
N/A
|
N/A
|
N/A
|
$487,352
|
U.S.
Small Cap Equity Fund |
$162,749
|
$30,101
|
N/A
|
$7,378
|
$46,271
|
$679,339
|
U.S.
Sustainable Leaders Fund |
$112,262
|
$356
|
N/A
|
N/A
|
$83,732
|
$6,832
|
Focused
U.S. Small Cap Equity Fund |
$8,151
|
$353
|
N/A
|
$4,159
|
$525
|
$7,745
|
Class
C and Institutional Class shares may also pay for sub-transfer agency services directly and not pursuant to an Administrative
Services Plan.
Fund
Administration
Under
the terms of a Fund Administration Agreement, abrdn provides various administrative and accounting services,
including daily valuation of the Funds’ shares, preparation of financial statements, tax returns, and regulatory reports,
and presentation of quarterly reports to the Board of Trustees. abrdn is located at 1900 Market Street, Suite 200, Philadelphia,
Pennsylvania 19103. The Trust shall pay fees to abrdn, as set forth directly below, for the provision of services to
the Funds. Fees will be computed daily and payable monthly on the first business day of each month, or as otherwise set
forth below.
Asset-Based
Annual Fee
|
|
Fund
Asset Level |
Aggregate
Fee as a Percentage of Fund Net Assets |
All
Assets |
0.08%
|
The
asset-based fees are subject to an annual minimum fee equal to the number of Funds of the Trust (excluding those
funds for which abrdn does not serve as administrator) multiplied by $25,000.
Fund
Administration Fees
During
the fiscal years ended October 31, 2023, 2022 and 2021, the Funds paid fund administration fees as indicated in
the table below.
Investment
Advisory and Other Services 103
|
|
|
|
Fund
|
Year
Ended October
31, 2023 |
Year
Ended October
31, 2022 |
Year
Ended October
31, 2021
|
China
A Fund |
$28,741
|
$48,426
|
$62,860
|
Dynamic
Dividend Fund |
$82,995
|
$92,452
|
$100,480
|
Emerging
Markets Dividend Fund(1)
|
$66,580
|
$73,790
|
–
|
Emerging
Markets ex-China Fund |
$25,236
|
$21,009
|
$23,784
|
Emerging
Markets Fund |
$1,748,792
|
$2,785,066
|
$4,189,450
|
Emerging
Markets Sustainable Leaders Fund |
$65,474
|
$121,461
|
$179,930
|
Focused
U.S. Small Cap Equity Fund |
$11,330
|
$14,900
|
$13,034
|
Global
Equity Impact Fund(1)
|
$39,355
|
$39,695
|
–
|
Global
Infrastructure Fund |
$38,673
|
$43,392
|
$42,144
|
High
Income Opportunities Fund(1)
|
$76,285
|
$80,984
|
–
|
Infrastructure
Debt Fund |
$27,161
|
$45,795
|
$21,745
|
Intermediate
Municipal Income Fund |
$37,395
|
$43,122
|
$51,144
|
International
Small Cap Fund |
$134,984
|
$206,610
|
$173,588
|
Realty
Income & Growth Fund |
$32,185
|
$40,990
|
$42,449
|
Short
Duration High Yield Municipal Fund |
$115,840
|
$274,940
|
$282,960
|
U.S.
Small Cap Equity Fund |
$464,467
|
$734,587
|
$817,763
|
U.S.
Sustainable Leaders Fund |
$275,353
|
$330,975
|
$372,121
|
Ultra
Short Municipal Income Fund |
$511,470
|
$647,232
|
$886,710
|
(1) |
For
the year ended October 31, 2022, the administration fees were paid by the Aberdeen Investment Fund Predecessor Fund to abrdn Inc. for
the period from November 1, 2021 to December
3, 2021 and the administration fees were paid by the Fund to abrdn Inc. for the period from December 6, 2021
to October 31, 2022. |
Aberdeen
Investment Funds Predecessor Fund Administrator and Custodian
State
Street Bank and Trust Company, One Iron Street, Boston, MA 02210, acted as each Aberdeen Investment Funds
Predecessor Fund’s administrator and custodian and assisted in the supervision of all aspects of the operations of the
Aberdeen Investment Funds Predecessor Funds
(except those performed by the Aberdeen Investment Funds Predecessor
Funds’ adviser); preparing certain period reports; assisting in the preparation of tax returns; and preparing materials
for use in connection with meetings of Trustees and shareholders.
The
administration and custody fees paid by the Aberdeen Investment Funds Predecessor Funds
for the period from November
1, 2021 to December 3, 2021 and the fiscal
year
ended October 31, 2021 were
as follows:
|
|
|
Fund
|
Period
from November 1, 2021 to December
3, 2021 |
Year
Ended October 31, 2021 |
Emerging
Markets Dividend Fund |
$17,158
|
$215,263
|
Global
Equity Impact Fund |
$13,487
|
$159,291
|
High
Income Opportunities Fund |
$15,632
|
$187,245
|
Transfer
Agent
The
Trust has entered into a Transfer Agency and Service Agreement with SS&C GIDS, Inc. (”SS&C”),
333 West 11th Street, Kansas City, Missouri
64105, whereby SS&C provides transfer agent and dividend disbursement agent services.
Sub-Administrator,
Custodian and Fund Accountant
The
Trust has entered into an Amended and Restated Master Custodian Agreement (the “Custody Agreement”) with State
Street, which is located at 1 Heritage Drive, 3rd Floor, North Quincy, MA 02171, whereby State Street provides custody
and fund accounting services for the Funds. abrdn has entered into a Sub-Administration Agreement with State Street
whereby State Street will provide certain administration services to the Funds. For the administration services provided
by State Street to the Funds, abrdn pays State Street an asset-based fee that is calculated based on the assets of
certain registered and unregistered funds and segregated accounts advised by the Adviser and its affiliates, plus certain
out-of-pocket expenses, subject to a minimum fee.
Securities
Lending Activity
Pursuant
to a Securities Lending Authorization Agreement with the Trust, on behalf of the Funds,
Securities Finance Trust Company (“eSecLending”),
acts as securities lending agent for the Funds. During the most recent fiscal year ended October
31, 2023,
the services eSecLending may
provide to the Funds, pursuant to the agreement, primarily included the following:
104 Investment
Advisory and Other Services
1. |
selecting
borrowers from an approved list of borrowers; |
2. |
negotiating
the terms of securities loans, including the amount of fees, and executing a securities lending agreement
as agent on behalf of the Funds with each such borrower; |
3. |
monitoring
the daily value of the loaned securities and directing the payment of additional collateral or the return of excess
collateral, as necessary; |
4. |
investing
cash collateral received in connection with any loaned securities; |
5. |
arranging
for the collection of any interest, dividends or other distributions or other payments of any kind on loaned securities
and payment of the same to the Funds; |
6. |
maintaining
separate records for securities loaned; |
7. |
in
the event of default by a borrower with respect to any securities loan, using the collateral or the proceeds of the liquidation
of collateral to purchase replacement securities of the same issuer, class, quantity and denomination as the
loaned securities; and |
8. |
terminating
securities loans and arranging for the return of loaned securities to the Funds at loan termination.
|
The
following tables show the dollar amounts of income and fees/compensation related to the securities lending activities
of each Fund that received or incurred such income and fees/compensation for the fiscal year ended October 31,
2023.
|
|
|
Fund
|
Emerging Markets Fund
|
High
Income Opportunities
Fund
|
Gross
income from securities lending activities |
$40,408
|
$6,836
|
Fees
and/or compensation for securities lending activities and related services |
|
|
Fees
paid to eSecLending from a “revenue split” (i.e., share of revenue generated by the securities lending program
paid to eSecLending) |
$4,401
|
$684
|
Fees
paid for any cash collateral management service (including fees deducted from a pooled cash collateral
reinvestment vehicle) that are not included in revenue split |
$0
|
$0
|
Administrative
fees not included in revenue split |
$0
|
$0
|
Indemnification
fee not included in revenue split |
$0
|
$0
|
Rebates
(paid to borrowers) |
$0
|
$0
|
Other
fees not included in revenue split |
$0
|
$0
|
Aggregate
fees/compensation for securities lending activities |
$4,401
|
$684
|
Net
income from securities lending activities |
$36,367
|
$6,152
|
Legal
Counsel
Dechert,
LLP, 1900 K Street, NW, Washington, DC 20006-1110, serves as the Trust’s legal counsel. Faegre Drinker Biddle
& Reath LLP, One Logan Square, Philadelphia, Pennsylvania 19103, serves as legal counsel to the Independent Trustees.
Independent
Registered Public Accounting Firm
KPMG
LLP serves
as the independent registered public accounting firm for the Trust.
Investment
Advisory and Other Services 105
Brokerage
Allocation
The
Adviser (or a Subadviser) is responsible for decisions to buy and sell securities and other investments for the Funds,
the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any.
In transactions on stock and commodity exchanges in the United States, these commissions are negotiated, whereas
on foreign stock and commodity exchanges these commissions are generally fixed and are generally higher than
brokerage commissions in the United States. In the case of securities traded on the OTC markets or for securities traded
on a principal basis, there is generally no commission, but the price includes a spread between the dealer’s purchase
and sale price. This spread is the dealer’s profit. In underwritten offerings, the price includes a disclosed, fixed commission
or discount. Most short term obligations are normally traded on a “principal” rather than agency basis. This may
be done through a dealer (e.g., a securities firm or bank) who buys or sells for its own account rather than as an agent
for another client, or directly with the issuer.
Except
as described below, the primary consideration in portfolio security transactions is best execution of the transaction
(i.e., execution at a favorable price and in the most effective manner possible). “Best execution” encompasses
many factors affecting the overall benefit obtained by the client account in the transaction including, but not
necessarily limited to, the price paid or received for a security, the commission charged, the promptness, available liquidity
and reliability of execution, the confidentiality and placement accorded the order, and customer service. Therefore,
“best execution” does not necessarily mean obtaining the best price alone but is evaluated in the context of all the
execution services provided. Both the Adviser and the Subadvisers (if applicable) have complete freedom as to the markets
in and the broker-dealers through which they seek this result.
Subject
to the primary consideration of seeking best execution and as discussed below, securities may be bought or sold
through broker-dealers who have furnished statistical, research, corporate access, and other information or services to
the Adviser or a Subadviser (if applicable). SEC regulations provide a “safe harbor” that allows an investment adviser to
pay for research and brokerage services with
commission dollars generated by client transactions. On September 12, 2017,
abrdn announced a change to the payment for research model, such that abrdn would absorb all research costs directly
(i.e., pays for research from its profits and losses) to coincide with the new MiFID II legislation which went into effect
on January 3, 2018. As a result, abrdn does not use soft dollars and has been paying “execution only” commission rates
since the start of 2017, paying for research for equities out of its assets.
There
may be occasions when portfolio transactions for a Fund are executed as part of concurrent authorizations to purchase
or sell the same security for trusts or other accounts (including other mutual funds) served by the Adviser or a Subadviser
(if applicable) or by an affiliated company thereof. Although such concurrent authorizations potentially could be
either advantageous or disadvantageous to a Fund, they are affected only when the Adviser or the Subadviser (if applicable)
believes that to do so is in the interest of the Fund. When such concurrent authorizations occur, the executions
will be allocated in an equitable manner.
In
purchasing and selling investments for the Funds, it is the policy of the Adviser and the Subadvisers (if applicable) to
seek best execution through responsible broker-dealers. The determination of what may constitute best execution in a securities
transaction by a broker involves a number of considerations, including the overall direct net economic result to the
Fund (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all when a large block is involved, the availability of the broker
to stand ready to execute possibly difficult transactions in the future, the professionalism of the broker, and the financial
strength and stability of the broker. These considerations are judgmental and are weighed by the Adviser and the
Subadvisers (if applicable) in determining the overall reasonableness of securities executions and commissions paid. In
selecting broker-dealers, the Adviser and the Subadvisers (if applicable) will consider various relevant factors, including,
but not limited to, the size and type of the transaction; the nature and character of the markets for the security or
asset to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker dealer’s
firm; the broker-dealer’s execution services, rendered on a continuing basis; and the reasonableness of any commissions.
As
discussed under “General Information about the Funds’ Portfolio Instruments and Investment Policies – Foreign Currencies”
above, with respect to FX transactions, different considerations or circumstances may apply, particularly with
respect to Restricted Market FX. FX transactions executed for the Funds are divided into two main categories: (1) Restricted
Market FX and (2) Unrestricted Market FX. Restricted Market FX are required to be executed by a local bank in the
applicable market. Unrestricted Market FX are not required to be executed by a local bank. The Adviser, Subadvisers (if
applicable) or third-party agent execute Unrestricted Market FX relating to trading decisions. The Funds’ custodian executes
all Restricted Market FX because it has local banks or relationships with local banks in each of the restricted markets
where custodial client accounts hold securities. Unrestricted Market FX relating to the repatriation of dividends and/or
income/expense items not directly relating to trading may be executed by the Adviser or Subadvisers or by the Funds’
custodian due to the small currency amount and lower volume of such transactions. The Funds, the Adviser and the
Subadvisers (if applicable) have limited ability to negotiate prices at which certain FX transactions are customarily executed
by the Funds’ custodian, i.e., transactions in Restricted Market FX and repatriation transactions.
The
Adviser and each Subadviser (if applicable) may cause a Fund to pay a broker-dealer a commission that is in excess
of the commission another broker-dealer would have received for executing the transaction if it is determined to be
consistent with the Adviser’s or Subadviser’s (if applicable) obligation to seek best-execution pursuant to the standards
described above.
Under
the 1940 Act, “affiliated persons” of a Fund are prohibited from dealing with it as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. However, each Fund
may purchase securities from underwriting syndicates of which a Subadviser (if applicable) or any of its affiliates, as
defined in the 1940 Act, is a member under certain conditions, in accordance with Rule 10f-3 under the 1940 Act.
Each
of the Funds contemplate that, consistent with the policy of seeking to obtain best execution, brokerage transactions
may be conducted through “affiliated brokers or dealers,” as defined in rules under the 1940 Act. Under the 1940
Act, commissions paid by a Fund to an “affiliated broker or dealer” in connection with a purchase or sale of securities
offered on a securities exchange may not exceed
the usual and customary broker’s commission. Accordingly, it is the Funds’
policy that the commissions to be paid to an affiliated broker-dealer must, in the judgment of the Adviser or the appropriate
Subadviser (if applicable), be (1) at least as favorable as those that would be charged by other brokers having
comparable execution capability and (2) at least as favorable as commissions contemporaneously charged by such
broker or dealer on comparable transactions for the broker’s or dealer’s unaffiliated customers. The Adviser and the Subadvisers
(if applicable) do not necessarily deem it practicable or in the Funds’ best interests to solicit competitive bids for
commissions on each transaction. However, consideration regularly is given to information concerning the prevailing level
of commissions charged on comparable transactions by other brokers during comparable periods of time.
Neither
the Funds nor the Adviser has an agreement or understanding with a broker-dealer, or other arrangements to
direct the Funds’ brokerage transactions to a broker-dealer because of the research services such broker provides to a Fund
or the Adviser. While the Adviser does not have arrangements with any broker-dealers to direct such brokerage transactions
to them because of research services provided, the Adviser may receive research services from such broker-dealers.
The dollar amount of transactions and related commissions for transactions paid to a broker from which the
Adviser and Subadvisers
also received research services for the fiscal year ended October 31, 2023
are summarized in the table below:
|
|
|
Fund
|
Total
Dollar Amount of Transactions^ |
Total
Commissions Paid on Such Transactions^
|
China
A Fund |
$28,270,512
|
$21,389
|
Dynamic
Dividend Fund |
$191,455,032
|
$51,081
|
Emerging
Markets Dividend Fund |
$91,437,522
|
$24,197
|
Emerging
Markets ex-China Fund |
$40,112,895
|
$20,705
|
Emerging
Markets Fund |
$1,945,692,590
|
$1,127,610
|
Emerging
Markets Sustainable Leaders Fund |
$96,922,150
|
$48,384
|
Focused
U.S. Small Cap Equity Fund |
$8,299,760
|
$2,826
|
Global
Equity Impact Fund |
$42,944,548
|
$17,281
|
Global
Infrastructure Fund |
$32,137,800
|
$11,311
|
International
Small Cap Fund |
$246,877,293
|
$104,286
|
Realty
Income & Growth Fund |
$22,596,828
|
$10,305
|
U.S.
Small Cap Equity Fund |
$694,159,153
|
$224,360
|
U.S.
Sustainable Leaders Fund |
$249,745,483
|
$118,639
|
During
the fiscal years ended October 31, 2023,
2022 and 2021, the following brokerage commissions
were paid by the Funds:
|
|
|
|
|
Year
ended October 31, |
Fund
|
2023*
|
2022*
|
2021*
|
China
A Fund |
$21,389
|
$48,554
|
$120,927
|
Dynamic
Dividend Fund |
$51,075
|
$67,421
|
$59,893
|
Emerging
Markets Dividend Fund |
$24,197
|
$49,683
|
$77,078
|
Emerging
Markets ex-China Fund |
$20,694
|
$24,714
|
$7,291
|
Emerging
Markets Fund |
$1,127,818
|
$2,145,595
|
$2,322,425
|
Emerging
Markets Sustainable Leaders Fund |
$48,383
|
$76,985
|
$184,906
|
Focused
U.S. Small Cap Equity Fund |
$2,823
|
$8,794
|
$15,302
|
Global
Equity Impact Fund |
$17,281
|
$26,843
|
$60,911
|
Global
Infrastructure Fund |
$11,311
|
$13,287
|
$17,502
|
High
Income Opportunities Fund |
$4,924
|
$15,754
|
$29,159
|
Infrastructure
Debt Fund |
$5,704
|
$7,172
|
$8,457
|
Intermediate
Municipal Income Fund |
$0
|
$0
|
$0
|
International
Small Cap Fund |
$104,282
|
$162,143
|
$131,417
|
Realty
Income & Growth Fund |
$10,283
|
$13,163
|
$18,621
|
Short
Duration High Yield Municipal Fund |
$0
|
$0
|
$0
|
U.S.
Small Cap Equity Fund |
$224,358
|
$481,020
|
$619,008
|
U.S.
Sustainable Leaders Fund |
$118,639
|
$189,326
|
$334,270
|
Ultra
Short Municipal Income Fund |
$0
|
$0
|
$0
|
* |
Any
material differences between the commissions paid during the past fiscal year and the two preceding fiscal years are due to a variety
of factors including, primarily, cash flows
into and out of the Funds. |
During
the fiscal year ended October 31, 2023,
the following Funds
held investments in securities of its
regular broker-dealers (as defined in Rule
10b-1 under the 1940 Act) as follows:
|
|
|
Fund
|
Approximate
Aggregate Value
of Issuer’s Securities Owned
by the Fund as of Fiscal
Year Ended October 31,
2023 |
Name
of Broker or Dealer |
abrdn
Dynamic Dividend Fund |
$1,092,996
|
Golman
Sachs & Co. LLC |
abrdn
Dynamic Dividend Fund |
$1,112,480
|
J.P.
Morgan Securities LLC |
abrdn
Emerging Markets ex-China Fund |
$2,161,442
|
Samsung
Securities Co., Ltd |
abrdn
Emerging Markets Fund |
$118,291,678
|
Samsung
Securities Co., Ltd |
abrdn
Emerging Markets Sustainable Leaders Fund |
$4,809,130
|
Samsung
Securities Co., Ltd |
abrdn
High Income Opportunities Fund |
$412,308
|
Deutsche
Bank Securities Inc. |
Additional
Information on Purchases and Sales
Shares
of the Funds have not been registered for sale outside of the United States and its territories. However, the Funds
may accept investments from non-U.S. affiliates of the Adviser.
Class
A and Class A1 Sales Charges
The
charts below show the Class A and Class A1 sales charges, which decrease as the amount of your investment increases.
Class
A Shares of the Funds (other than the Infrastructure
Debt Fund, High
Income Opportunities
Fund, Intermediate Municipal
Income Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund)
|
|
|
|
AMOUNT
OF PURCHASE |
SALES
CHARGE AS % OF OFFERING PRICE
|
SALES
CHARGE AS % OF AMOUNT INVESTED
|
DEALER
COMMISSION AS A %
O FOFFERING PRICE
|
less
than $50,000 |
5.75%
|
6.10%
|
5.00%
|
$50,000
up to $100,000 |
4.75
|
4.99
|
4.00
|
$100,000
up to $250,000 |
3.50
|
3.63
|
3.00
|
$250,000
up to $500,000 |
2.50
|
2.56
|
2.00
|
$500,000
up to $1 million |
2.00
|
2.04
|
1.75
|
$1
million or more |
None
|
None
|
None
|
Class
A Shares of the Infrastructure
Debt Fund and High
Income Opportunities
Fund
|
|
|
|
AMOUNT
OF PURCHASE |
SALES
CHARGE AS % OF OFFERING PRICE
|
SALES
CHARGE AS % OF AMOUNT INVESTED
|
DEALER
COMMISSION AS A %
OF OFFERING PRICE
|
less
than $100,000 |
3.00%
|
3.10%
|
2.50%
|
$100,000
up to $250,000 |
2.50
|
2.56
|
2.00
|
$250,000
up to $1 million |
2.00
|
2.04
|
1.75
|
$1
million or more |
None
|
None
|
None
|
Class
A Shares of the Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund
|
|
|
|
AMOUNT
OF PURCHASE |
SALES
CHARGE AS % OF OFFERING PRICE
|
SALES
CHARGE AS % OF AMOUNT INVESTED
|
DEALER
COMMISSIONAS A %
OF OFFERING PRICE
|
less
than $100,000 |
2.50%
|
2.56%
|
2.00%
|
$100,000
up to $250,000 |
2.00%
|
2.04
|
1.75
|
$250,000
or more |
None
|
None
|
None
|
Class
A1 Shares of the Ultra Short Municipal Income Fund
|
|
|
|
AMOUNT
OF PURCHASE |
SALES
CHARGE AS % OF OFFERING PRICE
|
SALES
CHARGE AS % OF AMOUNT INVESTED
|
DEALER
COMMISSIONAS A %
OF OFFERING PRICE
|
less
than $250,000 |
0.50%
|
0.50%
|
0.50%
|
$250,000
or more |
None
|
None
|
None
|
Using
the NAV per share as of October 31, 2023,
the maximum offering price of each Fund’s Class A or Class A1 shares
would be as follows:
Additional
Information on Purchases and Sales 109
|
|
|
|
Fund
Name |
Net
Asset Value |
Maximum
Sales Charge
|
Offering
Price to Public
|
China
A Fund |
$37.76
|
5.75%
|
$40.06
|
Dynamic
Dividend Fund |
$4.74
|
5.75%
|
$5.03
|
Emerging
Markets Fund |
$20.15
|
5.75%
|
$21.38
|
Emerging
Markets ex-China Fund |
$18.17
|
5.75%
|
$19.28
|
Emerging
Markets Sustainable Leaders Fund |
$18.83
|
5.75%
|
$19.98
|
Infrastructure
Debt Fund |
$10.29
|
3.00%
|
$10.61
|
Global
Equity Impact Fund |
$18.45
|
5.75%
|
$19.58
|
High
Income Opportunities Fund |
$8.84
|
3.00%
|
$9.11
|
Global
Infrastructure Fund |
$24.18
|
5.75%
|
$25.66
|
Intermediate
Municipal Income Fund |
$9.83
|
2.50%
|
$10.08
|
International
Small Cap Fund |
$42.73
|
5.75%
|
$45.34
|
Emerging
Markets Dividend Fund |
$34.93
|
5.75%
|
$37.06
|
Realty
Income & Growth Fund |
$15.68
|
5.75%
|
$16.64
|
Short
Duration High Yield Municipal Fund |
$10.26
|
2.50%
|
$10.52
|
Ultra
Short Municipal Income Fund |
$10.10
|
0.50%
|
$10.15
|
U.S.
Small Cap Equity Fund |
$49.57
|
5.75%
|
$52.59
|
U.S.
Sustainable Leaders Fund |
$17.32
|
5.75%
|
$18.38
|
Focused
U.S. Small Cap Equity Fund |
$11.09
|
5.75%
|
$11.77
|
Waiver
of Class A and Class A1 Sales Charges
You
may qualify for a reduced Class A and Class A1 sales charge if you own or are purchasing shares of the Funds. You
may also qualify for a waiver of the Class A and Class A1 sales charges. To receive the reduced or waived sales charge,
you must inform Customer Service or your broker or other financial intermediary at the time of your purchase that
you qualify for such a reduction or waiver. If you do not inform Customer Service or your financial intermediary that you
are eligible for a reduced or waived sales charge, you may not receive the discount or waiver that you are entitled to. You
may have to produce evidence that you qualify for a reduced sales charge or waiver before you will receive it.
The
sales charge applicable to Class A and Class A1 shares may be waived for shares sold to financial intermediaries
who have entered into an agreement with a Fund’s distributor to offer shares to self-directed investment brokerage
accounts that may or may not charge a transaction fee to its customers. Certain waivers and fee reductions may
be available to customers of certain financial intermediaries, as described under “Broker-Defined Sales Charge Waiver
Policies” in the Prospectus.
The
sales charge applicable to Class A and Class A1 shares may be waived for the following purchases:
1. |
shares
sold to other registered investment companies affiliated with abrdn; |
2. |
shares
sold to: a) any pension, profit sharing,
or other employee benefit plan for the employees of abrdn, any of its affiliated companies,
or investment advisory clients and their affiliates;
b)
401(a) plans, 401(k) plans, SIMPLE 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit-sharing and money
purchase pension plans, defined benefit plans, non-qualified deferred compensation plans, employer sponsored
benefit plans (including health savings accounts), other similar employer-sponsored retirement and benefit
plans.
(Individual retirement vehicles,
such as traditional and Roth IRAs, Coverdell education savings accounts, individual 401(k)
plans, individual 403(b)(7) custodial accounts, one person Keogh plans, SEPs, SARSEPs, SIMPLE IRAs or similar accounts
do not qualify for the waiver.)
c)
any life insurance company separate account registered as a unit investment trust;
d)
Trustees and retired Trustees of the Trust;
e)
directors, officers, full-time employees, sales representatives and their employees, and retired directors, officers, employees,
and sales representatives, their spouses (including domestic partners), children or immediate relatives (immediate
relatives include mother, father, brothers, sisters, grandparents, grandchildren (“Immediate Relatives”)), and
Immediate Relatives of deceased employees of any member of abrdn, or any investment advisory clients of the Adviser
and its affiliates; |
110 Additional
Information on Purchases and Sales
|
f)
directors, officers, and full-time employees, their spouses (including domestic partners), children or Immediate Relatives
and Immediate Relatives of deceased employees of any sponsor group which may be affiliated with abrdn;
g)
any directors, officers, full-time employees, sales representatives and their employees, their spouses (including domestic
partners), children or Immediate Relatives of a broker-dealer having a dealer/selling agreement with the distributor;
h)
investors purchasing on a periodic fee, asset-based fee or no transaction fee basis through a broker-dealer sponsored
mutual fund purchase program; and
i)
financial institutions as shareholders of record on behalf of investment advisers or financial planners for their clients,
and who charge a separate fee for their services. |
Reduction
of Sales Charges
Reduction
of Class A and Class A1 Sales Charges
Shareholders
can reduce or eliminate Class A and Class A1 shares’ initial sales charge through one or more of the discounts
described below:
● |
A
Larger Investment. The sales
charge decreases as the amount of your investment increases. |
● |
Rights
of Accumulation. You and members
of your family who live at the same address can add the current value of your
Class A, Class A1 and Class C investments in the abrdn Funds that you currently own or are currently purchasing to
the value of your abrdn Funds Class A and Class A1 purchase, possibly reducing the sales charge. |
● |
No
Sales Charge on a Repurchase.
If you sell Fund shares from your account, we allow you a one-time privilege to reinvest
some or all of the proceeds in shares of the same class. You will not pay a sales charge on Class A and Class A1
shares that you buy within 30 days of selling Class A and Class A1 shares of an equal or greater amount if you have already
paid a sales charge. Remember, if you realize a gain or a loss on your sale of shares, the transaction is taxable and
reinvestment will not affect the amount of capital gains tax that is due. If you realize a loss on your sale and you reinvest,
some or all of the loss may not be allowed as a tax deduction depending on the amount you reinvest. |
● |
Letter
of Intent Discount. State in
writing that during a 13-month period you or a group of family members who live at the
same address will purchase or hold at least $50,000 in Class A shares (at least $100,000 in Class A shares of the Infrastructure
Debt Fund, Intermediate Municipal Income Fund
and Short Duration High Yield Municipal Fund and at least
$250,000 in Class A1 shares of the Ultra Short Municipal Income Fund) and your sales charge will be based on the total
amount you intend to invest. You can also combine your purchase of Class A, Class A1 and Class C Shares in the abrdn
Funds to fulfill your Letter of Intent. Your Letter of Intent is not a binding obligation to buy shares of the Fund; it is merely
a statement of intent. You are not legally required to complete the purchases indicated in your Letter of Intent. However,
if you do not fulfill your Letter of Intent, additional sales charges may be due and shares in your account would
be liquidated to cover those sales charges. |
Class
A and Class A1 Finder’s Fee and Corresponding CDSC
There
are no front-end sales charges for purchases of Class A and Class A1 shares of the Funds of $1 million or more (or
$250,000 or more of Class A shares of the Intermediate Municipal Income Fund and Short Duration High Yield Municipal
Fund or $250,000 or more of Class A1 shares of the Ultra Short Municipal Income Fund). There are no front-end sales
charges for purchases of Class A shares of the Ultra Short Municipal Income Fund. An investor may purchase $1 million
or more (or $250,000 or more) of Class A or Class A1 shares in one or more of the abrdn Funds and avoid the front-end
sales charge. However, unless an investor is otherwise eligible to purchase Class A or Class A1 shares without a sales
charge, the investor will pay a CDSC (on all Funds except the Intermediate Municipal Income Fund, Short Duration High
Yield Municipal Fund and Ultra Short Municipal Income Fund) if he or she redeems such Class A and Class A1 shares within
18 months of the date of purchase (within 12 months of the date of purchase for the Intermediate Municipal Income
Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund). With respect to such purchases,
the distributor or the Funds’ Adviser may pay dealers a finders’ fee (as described below) on investments made
in Class A and Class A1 shares with no initial sales charge. The CDSC covers the finder’s fee paid by the distributor or
the Adviser to the selling dealer. For the selling dealer to be eligible for the finders’ fee, the following requirements apply:
● |
The
purchase can be made in any combination of the Funds of the Trust. The amount of the finder’s fee will be determined
based on the particular combination of the Funds purchased. The applicable finder’s fee will be determined
on a pro rata basis to the purchase of each particular Fund. |
● |
The
shareholder will be subject to a CDSC for shares redeemed in any redemption within the first 18 months of purchase
(within the first 12 months of purchase for the Intermediate Municipal Income Fund, Short Duration High Yield Municipal
Fund and Ultra Short Municipal Income Fund). |
Additional
Information on Purchases and Sales 111
The
CDSC will equal the amount of the finder’s fee paid out to the dealer as described in the chart below. The applicable
CDSC will be determined on a pro rata basis according to the amount of the redemption from each particular Fund.
The Class A and Class A1 CDSC will not exceed the aggregate amount of the finder’s fee the distributor or Adviser paid
to the selling dealer on all purchases of Class A shares of all Funds an investor made that were subject to the Class A or
Class A1 CDSC.
Amount
of Finder’s Fee/Contingent Deferred Sales Charge
Class
A Shares of the Funds (other than the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund
and Ultra Short Municipal Income Fund)
|
|
|
|
|
|
Amount
of Purchase |
|
Funds
Purchased |
$1
million up to $4 million
|
$4
million up to $25 million
|
$25
million or more |
China
A Fund, Dynamic Dividend Fund, Emerging Markets Fund, Emerging Markets ex-China
Fund, Emerging Markets Sustainable Leaders Fund, Infrastructure Debt Fund,
Global Equity Impact Fund, High Income Opportunities Fund, Global Infrastructure
Fund, International Small Cap Fund, Emerging Markets Dividend Fund, Realty
Income & Growth Fund, U.S. Small Cap Equity Fund, U.S. Sustainable Leaders Fund
and Focused U.S. Small Cap Equity Fund |
1.00%
|
0.50%
|
0.25%
|
Class
A Shares of the Intermediate Municipal Income Fund and Short Duration High Yield Municipal Fund
|
|
|
Amount
of Purchase |
$250,000
up to $4 million |
$4
million up to $25 million |
$25
million or more |
0.75%
|
0.50%
|
0.25%
|
Class
A1 Shares of the Ultra Short Municipal Income Fund
|
Amount
of Purchase |
$250,000
or more |
0.25%
|
CDSC
for Class C Shares
You
will pay a CDSC of 1.00% if you sell your Class C shares within the first year after you purchased the shares; however,
the CDSC shall not apply to redemptions of Class C shares that were purchased through a financial intermediary
that was not paid a commission by the Fund’s distributor or Adviser at the time of purchase. The distributor or
the Funds’ Adviser compensates broker-dealers and financial intermediaries for sales of Class C shares from its own resources
at the rate of 1.00% of sales of Class C shares of the Funds. The CDSC is never imposed on dividends, whether paid
in cash or reinvested, or on appreciation over the initial purchase price. The CDSC applies only to the lesser of the original
investment or current market value.
Other
Dealer Compensation
In
addition to the dealer commissions and payments under its 12b-1 Plan, from time to time, the Adviser and/or its affiliates
may make payments for distribution and/or shareholder servicing activities out of their past profits and other of their
own resources. The Adviser may also pay and/or reimburse sub-transfer agency expenses to certain broker-dealers
and financial intermediaries who provide administrative support services to beneficial shareholders on behalf
of the Funds, subject to certain limitations approved by the Board. Sub-transfer agency expenses generally include,
but are not limited to, costs associated with recordkeeping, networking or other administrative services. The Adviser
and/or its affiliates may make payments for marketing, promotional, or related services provided by dealers and other
financial intermediaries, and may be in exchange for factors that include, without limitation, differing levels or types of
services provided by the intermediary, the expected level of assets or sales of shares, the placing of some or all of the Funds
of the Trust on a preferred or recommended list, access to an intermediary’s personnel, and other factors. The amount
of these payments is determined by the Adviser.
In
addition to these payments described above, the Adviser or its affiliates may offer other sales incentives in the form
of sponsorship of educational or client seminars relating to current products and issues, assistance in training and educating
the intermediary’s personnel, and/or entertainment or meals. These payments also may include, at the direction
of a retirement plan’s named fiduciary, amounts to intermediaries for certain plan expenses or otherwise for the benefit
of plan participants and beneficiaries. As permitted by applicable law, the Adviser or its affiliates may pay or allow other
incentives or payments to intermediaries.
The
payments described above are often referred to as “revenue sharing payments.” The recipients of such payments
may include:
● |
the
distributor and other affiliates of the Adviser, |
112 Additional
Information on Purchases and Sales
● |
financial
institutions, and |
● |
other
financial intermediaries through which investors may purchase shares of a Fund. |
Payments
may be based on current or past sales; current or historical assets; one-time ticket charges or a flat fee for
specific services provided. In some circumstances, such payments may create an incentive for an intermediary or its employees
or associated persons to recommend or sell shares of a Fund to you instead of shares of funds offered by competing
fund families.
Class
R Shares
Class
R shares generally are available only to 401(a) plans, 401(k) plans, 457 plans, 403(b) plans, profit sharing and money
purchase pension plans, defined benefit plans, non-qualified deferred compensation plans and other retirement accounts
(collectively, “retirement plans”) whereby the retirement plan or the retirement plan’s financial service firm has
an agreement with the Funds’ distributor
to utilize Class R shares in certain investment products or programs. Class R shares
are generally available to small and mid-sized retirement plans having at least $1 million in assets. In addition, Class
R shares also are generally available only to retirement plans where Class R shares are held on the books of the Funds
through omnibus accounts (either at the plan level or at the level of the financial services firm) and where the plans
are introduced by an intermediary, such as a broker, third-party administrator, registered investment adviser or other
retirement plan service provider. Class R shares are not available to retail or institutional non-retirement accounts, traditional
and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, one person Keogh plans, SIMPLE IRAs, individual
403(b) plans, or through 529 Plan accounts.
A
retirement plan’s intermediaries can help determine which class is appropriate for that retirement plan. If a retirement
plan qualifies to purchase other shares of a Fund, one of these other classes may be more appropriate than Class
R shares. Specifically, if a retirement plan eligible to purchase Class R shares is otherwise qualified to purchase Class A
shares at NAV or at a reduced sales charge or to purchase Institutional Service Class or Institutional Class shares, one of these
classes may be selected where the retirement plan does not require the distribution and administrative support services
typically required by Class R share investors and/or the retirement plan’s intermediaries have elected to forgo the
level of compensation that Class R shares provide. Plan fiduciaries should consider their obligations under ERISA in determining
which class is an appropriate investment for a retirement plan. A retirement plan’s intermediaries may receive
different compensation depending upon which class is chosen.
Redemptions
Generally,
a Fund will pay you for shares that redeem one day after your redemption request is received, however, a Fund
may take three days in certain circumstances. A Fund may delay forwarding redemption proceeds for up to seven days
(i) if the investor redeeming shares is engaged in excessive trading, or (ii) if the amount of the redemption request otherwise
would be disruptive to efficient portfolio management or would adversely affect the Fund.
In-Kind
Redemptions
The
Funds generally plan to redeem their shares for cash with the following exceptions. As described in the Prospectus,
each Fund reserves the right, in circumstances where in its sole discretion it determines that cash redemption payments
would be undesirable, taking into account the best interests of all Fund shareholders, to honor any redemption request
by transferring some of the securities held by the Fund directly to you (an “in-kind redemption”). The Funds may process
a shareholder’s redemption request with an in-kind distribution at any time, subject to the conditions outlined below,
but may be more likely to do so under stressed conditions where a Fund is unable to distribute cash, or for redemptions
to large institutional investors that are equipped to receive the in-kind distribution in a way that does not adversely
affect either such shareholder, the Fund or the remaining shareholders.
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the specific Fund’s NAV during any 90-day period for any
one shareholder.
The
Trust’s Board of Trustees has adopted procedures for redemptions in-kind by a shareholder including affiliated and
unaffiliated persons of a Fund. Affiliated persons of a Fund include shareholders who are affiliates of the Adviser and shareholders
of a Fund owning 5% or more of the outstanding shares of that Fund. These procedures provide that a redemption
in-kind shall be effected at approximately the shareholder’s proportionate share of the distributing Fund’s current
net assets, so that redemptions will not result in the dilution of interests of the remaining shareholders. The procedures
also require that the distributed securities be valued in the same manner as they are valued for purposes of computing
the distributing Fund’s NAV and that any redemption in-kind made by an affiliated party does not favor such affiliate
to the detriment of any other shareholder. Use of the redemption in-kind procedures will allow a Fund to avoid having
to sell significant portfolio assets to raise cash to meet the shareholder’s redemption request - thus limiting the potential
adverse effect on the distributing Fund’s NAV.
Medallion
Signature Guarantee
A
medallion signature guarantee is required if: (1) the redemption check is made payable to anyone other than the registered
shareholder; (2) the redemption proceeds are mailed to an address other than the address of record; (3) your account
address has changed within the past 15 calendar days; (4) the redemption proceeds are being wired or sent by
Additional
Information on Purchases and Sales 113
ACH
to a bank for which instructions are currently not on your account; (5) the redemption proceeds are being wired or sent
by ACH to a bank account that has been added or changed within the past 15 calendar days; or (6) ownership is being
changed on your account. The distributor reserves the right to require a medallion signature guarantee in other circumstances,
without notice. Based on the circumstances of each transaction, the distributor reserves the right to require
that your signature be guaranteed by an authorized agent of an “eligible guarantor institution,” which includes, but
is not limited to, certain banks, credit unions, savings associations, and member firms of national securities exchanges.
A medallion signature guarantee is designed to protect the shareholder by helping to prevent an unauthorized
person from redeeming shares and obtaining the proceeds. A notary public is not an acceptable guarantor.
In certain special cases (such as corporate or fiduciary registrations), additional legal documents may be required
to ensure proper authorizations. If the distributor decides to require signature guarantees in all circumstances, shareholders
will be notified in writing prior to implementation of the policy. The distributor, at its discretion, may waive the
requirement for a signature guarantee.
Accounts
With Low Balances
If
the value of your account falls below $1,000 for any reason, including market fluctuation, you are generally subject to
a $5 quarterly fee (with an annual maximum of $20 per account), which is deposited into the applicable Fund to offset the
expenses of small accounts. We will sell shares from your account quarterly to cover the fee.
Listed
below are certain cases in which the Funds have elected, in their discretion, not to assess the Minimum Balance
Fee. These exceptions are subject to change:
● |
Accounts
of shareholders that are held by intermediaries under the NSCC Fund/SERV system in Networking Level 0 (Trust)
and Level 3 accounts; |
● |
Individual
Retirement Accounts; |
● |
Retirement
Plans including but not limited to 401(k) plans, 457 plans, 403(b) plans, profit sharing and money purchase pension
plans, defined benefit plans, nonqualified deferred compensation plans; |
● |
Coverdell
Educational Savings Accounts; and |
● |
Class
A share accounts established pursuant to the Class C to Class A conversion feature |
We
reserve the right to sell the rest of your shares and close your account if you make a sale that reduces the value of
your account to less than $1,000. Before the account is closed, we will give you notice and allow you 60 days to purchase
additional shares to avoid this action. We do this because of the high cost of maintaining small accounts.
114 Additional
Information on Purchases and Sales
Valuation
of Shares
Under
normal circumstances, the NAV per share for each Fund is determined as of the close of regular trading on the
New York Stock Exchange (the “Exchange”) (usually 4 p.m. Eastern Time) on each day that the Exchange is open (a
“Business
Day”) and on such other days as the Board of Trustees determines (together, the “Valuation Time”). However,
to the extent that a Fund’s investments are traded in markets that are open when the Exchange is closed, the value
of the Fund’s investments may change on days when shares cannot be purchased or redeemed.
The
Funds will not compute NAV on customary business holidays, including New Year’s Day, Martin Luther King, Jr. Day,
Presidents’ Day, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, or the days when such holidays are observed and other days when the Exchange
is regularly closed. Fixed income Fund shares may be priced on days that the Exchange is closed if the Securities
Industry and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all
or part of the day. On any business day when the SIFMA recommends that the bond markets close early, a fixed income
Fund reserves the right to close at or prior to the SIFMA recommended closing time. If a fixed income Fund does so,
it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time
and credit will be given to the next business day.
Each
Fund reserves the right not to determine its NAV when: (i) a Fund has not received any orders to purchase, sell or
exchange shares and (ii) changes in the value of that Fund’s portfolio do not affect that Fund’s NAV.
Under
normal circumstances, the offering price for orders received in good form before the close of the Exchange, on
each business day the Exchange is open for trading, will be based upon calculation of the NAV at the close of regular trading
on the Exchange. For orders received in good form after the close of regular trading on the Exchange, or on a
day on which the Exchange is not open for trading, the offering price is based upon NAV at the close of the Exchange on
the next day thereafter on which the Exchange is open for trading. The NAV of a share of a Fund on which offering and redemption
prices are based is the Total Net Assets (“TNA”) of the Fund, divided by the number of shares outstanding, with
the result adjusted to the nearer cent. The TNA of the Funds is determined by subtracting the liabilities of the Funds from
the value of its assets (chiefly composed of investment securities). The NAV per share of a class is computed by adding
the value of all securities and other assets in a Fund’s portfolio allocable to such class, deducting any liabilities allocable
to such class and any other liabilities charged directly to that class and dividing by the number of shares outstanding
in such class.
The
Funds value their securities at current market value or fair value, consistent with regulatory requirements. “Fair value”
is defined in the Funds’ Valuation and Liquidity Procedures as the price that could be received to sell an asset or paid
to transfer a liability in an orderly transaction between willing market participants without a compulsion to transact at
the measurement date. Pursuant to Rule 2a-5 under the 1940 Act, the Board of Trustees (the “Board”) designated the Adviser
as the valuation designee (“Valuation Designee”) for the Funds to perform the fair value determinations relating to Fund
investments for which market quotations are not readily available or deemed unreliable.
Equity
securities that are traded on an exchange are valued at the last quoted sale price or
the official close price on the
principal exchange on which the security is traded at the “Valuation Time”
subject to application, when appropriate, of
the valuation factors described in the paragraph below. Under
normal circumstances, the Valuation Time is
as of the close of regular trading on the
New York Stock Exchange (”NYSE”)
(usually 4:00 p.m. Eastern Time). In the absence
of a sale price, the security is valued at
the mean of the bid/ask price
quoted at the close on the principal exchange
on which the security is traded. Securities
traded on NASDAQ are valued at the NASDAQ official closing price. Open-end mutual funds
are valued at the respective NAV
as reported by such company. The prospectuses for the registered open-end management
investment companies in which a Fund invests explain the circumstances under which those companies will
use fair value pricing and the effects of using fair value pricing. Closed-end funds and ETFs are valued at the market price
of the security at the Valuation Time.
Foreign
equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying
valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent
pricing service provider. These valuation factors are used when pricing a Fund’s portfolio holdings to estimate
market movements between the time foreign markets close and the time a Fund values such foreign securities. These
valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange
rates, and local exchange opening and closing prices of each security. When prices with the application of valuation
factors
are utilized, the value assigned to the foreign
securities may not be the same as quoted or published prices
of the securities on their primary markets. Valuation factors are not utilized if the independent pricing service provider
is unable to provide a valuation factor or if the valuation factor falls below a predetermined threshold.
Long-term
debt and other fixed
income securities are valued at the last quoted or evaluated bid price on the valuation
date provided by an independent pricing service provider.
If there are no current day bids, the security is valued at
the previously applied bid. Pricing services generally price debt securities assuming orderly transactions of an institutional
“round lot” size, and the strategies employed by the Adviser as
Valuation Designee generally trade in round
lot sizes. In certain circumstances, fixed
income securities may be held or transactions may be conducted in smaller, “odd lot”
sizes. Odd lots may trade at lower or occasionally higher prices than institutional round lot trades. Short-term debt
securities
(such as commercial paper and U.S. treasury bills) having a remaining maturity of 60 days or less are valued at the
last quoted or evaluated bid price on the valuation date provided by an independent pricing service, or on the basis of amortized
cost if it represents the best approximation for fair value.
Derivative instruments are generally valued according
to the following procedures.
Derivative
instruments are generally valued according to the following procedures. Forward currency exchange contracts
are generally valued based on the current spot exchange rates and the forward exchange rate points (ex. 1-month,
3-month) that are obtained from an approved pricing agent. Based on the actual settlement dates of the forward
contracts held, an interpolated value of the forward points is combined with the spot exchange rate to derive the valuation.
Futures contracts are generally valued at the most recent settlement price as of NAV determination. Swap agreements
are generally valued by an approved pricing agent based on the terms of the swap agreement (including future
cash flows). When market quotations or exchange rates are not readily available, or if the Adviser as
Valuation Designee concludes
that such market quotations do not accurately reflect fair value, the fair value of a Fund’s assets are determined
in good faith in accordance with the Valuation Procedures.
The
time at which transactions and Fund shares are priced and the time by which orders must be received may be changed
in case of an emergency or if regular trading on the Exchange and/or the bond markets are stopped at a time other
than their regularly scheduled closing time. In the event the Exchange and/or the bond markets do not open for
business, the Trust may, but is not required to, open one or more Funds for purchase, redemption and exchange transactions
if the Federal Reserve wire payment system is open.
The
Trust may suspend the right of redemption for such periods as are permitted under the 1940 Act and under the following
unusual circumstances: (a) when the New York Stock Exchange is closed (other than weekends and holidays) or
trading is restricted; (b) when an emergency exists, making disposal of portfolio securities or the valuation of net assets
not reasonably practicable; or (c) during any period when the SEC has by order permitted a suspension of redemption
for the protection of shareholders.
Systematic
Investment Strategies
Depending
on the policies and procedures of your financial intermediary, some or all of the systematic investment strategies
described below may not be available to you. Please contact your financial intermediary for more information.
Automatic
Investment Plan - This is
a systematic investment strategy which combines automatic monthly transfers from
your personal checking account to your mutual fund account with the concept of Dollar Cost Averaging. With this strategy,
you invest a fixed amount monthly over an extended period of time, during both market highs and lows. Dollar Cost
Averaging can allow you to achieve a favorable average share cost over time since your fixed monthly investment buys
more shares when share prices fall during low markets, and fewer shares at higher prices during market highs. However,
no formula can assure a profit or protect against loss in a declining market. Once you have opened an account with
at least $1,000, you can contribute to an Automatic Investment Plan for as little as $50 a month in a Fund.
Systematic
Exchange Plan and Dividend Moves
- This plan allows you to transfer $50 or more to one Fund from another
Fund systematically, monthly or quarterly. Accounts participating in a systematic exchange plan have a minimum
balance requirement of $5,000. The money is transferred on the 25th day of the month as selected or on the preceding
business day. Dividends of any amount can be moved automatically from one Fund to another at the time they
are paid. This strategy can provide investors with the benefits of Dollar Cost Averaging through an opportunity to achieve
a favorable average share cost over time. With this plan, your fixed monthly or quarterly transfer from the Fund to
any other Fund you select buys more shares when share prices fall during low markets and fewer shares at higher prices
during market highs. However, no formula can assure a profit or protect against loss in a declining market.
Systematic
Withdrawal Plan (“SWP”) ($50 or More)
- You may have checks for any fixed amount of $50 or more automatically
sent bi-monthly, monthly, quarterly, semi-annually or annually, to you (or anyone you designate) from your account.
Complete the appropriate section of the New Account Form or contact your financial intermediary or the Fund. Your
account value must meet the minimum initial investment amount at the time the program is established. This program
may reduce and eventually deplete your account. Generally, it is not advisable to continue to purchase Class A, Class
A1 or Class C shares subject to a sales charge while simultaneously redeeming shares under the program. The $50 minimum
is waived for required minimum distributions from individual retirement accounts.
NOTE:
If you are withdrawing more shares than your account receives in dividends, you will be decreasing your total shares
owned, which will reduce your future dividend potential.
Systematic
Investment Strategies 117
Investor
Privileges
The
Funds offer the following privileges to shareholders. Additional information may be obtained by calling toll–free 866-667-9231.
However, the following privileges may not be permitted by the policies and procedures of a financial intermediary
through which you may purchase shares of the Funds. Please contact your financial intermediary for more information.
No
Sales Charge On Reinvestments
- All dividends and capital gains will be automatically reinvested free of charge in the
form of additional shares within the same Fund and class or another specifically requested Fund (but the same class) unless
you have chosen to receive them in cash on your application. Unless requested in writing by the shareholder, the Trust
will not mail checks for dividends and capital gains of less than $5 but instead they will automatically be reinvested in the
form of additional shares.
Exchange
Privilege - With respect
to other Classes of the Funds, the exchange privilege is a convenient way to exchange
shares from one Fund to another Fund in order to respond to changes in your goals or in market conditions. The
registration of the account to which you are making an exchange must be exactly the same as that of the Fund account
from which the exchange is made, and the amount you exchange must meet the applicable minimum investment
of the Fund being purchased. The exchange privilege may be limited due to excessive trading or market timing
of Fund shares.
Exchanges
Among Funds - Exchanges
may be made among any of the funds of the Trust within the same class of shares
(except for any other Fund not currently accepting purchase orders), so long as both accounts have the same registration,
and your first purchase in the new Fund meets the new Fund’s minimum investment requirement.
Because
Class R shares of the Funds are held within retirement plans, exchange privileges with other Class R shares of the abrdn Funds may not
be available unless the Class R shares of the other abrdn Funds are also available within a plan. Please contact your retirement plan
administrator for information on how to exchange your Class R shares within your retirement plan.
Generally,
you may exchange all or part of your shares for shares of the same class of another abrdn Fund without paying
a front-end sales charge or CDSC at the time of the exchange. If you exchange your Class A shares of a Fund that are
subject to a CDSC into another abrdn Fund and then redeem those Class A shares within 18 months of the original purchase
(within 12 months of the original purchase of the Intermediate Municipal Income Fund, Short Duration High Yield Municipal Fund and
Ultra Short Municipal Income Fund), the applicable CDSC will be the CDSC
for the original Fund.
If
you wish to purchase shares of a Fund or class for which the exchange privilege does not apply, you will pay any applicable
CDSC at the time you redeem your shares and pay any applicable front-end load on the new Fund you are purchasing
unless a sales charge waiver otherwise applies.
Exchanges
May Be Made in the Following Ways:
By
Telephone
Automated
Voice Response System - You can automatically
process exchanges for the Funds by calling 866-667- 9231,
24 hours a day, seven days a week. However, if you declined the option on the application, you will not have this automatic
exchange privilege. This system also gives you quick, easy access to mutual fund information. Select from a menu
of choices to conduct transactions and hear fund price information, mailing and wiring instructions as well as other mutual
fund information. You must call our toll-free number by the Valuation Time to receive that day’s closing share price.
The Valuation Time is the close of regular trading of the Exchange, which is usually 4:00 p.m. Eastern Time.
Customer
Service Line - By calling 866-667-9231,
you may exchange shares by telephone. Requests may be made only
by the account owner(s). You must call our toll-free number by the Valuation Time to receive that day’s closing share price.
The
Funds may record all instructions to exchange shares. The Funds reserve the right at any time without prior notice
to suspend, limit or terminate the telephone exchange privilege or its use in any manner by any person or class.
The
Funds will employ the same procedure described under “Buying, Selling and Exchanging Fund Shares” in the Prospectus
to confirm that the instructions are genuine.
The
Funds will not be liable for any loss, injury, damage, or expense as a result of acting upon instructions communicated
by telephone reasonably believed to be genuine, and the Funds will be held harmless from any loss, claims
or liability arising from its compliance with such instructions. These options are subject to the terms and conditions set
forth in the Prospectus and all telephone transaction calls may be recorded. The Funds reserve the right to revoke this privilege
at any time without notice to shareholders and request the redemption in writing, signed by all shareholders.
By
Mail or Fax - Write by regular mail to
abrdn Funds, P.O. Box 219534, Kansas City MO 64121-9534 or by overnight mail
to abrdn Funds c/o SS&C GIDS, Inc., 430 W. 7th Street, Ste. 219534, Kansas City, MO 64105-1407 02021or fax to 866-923-4269.
Please be sure that your letter or facsimile is signed exactly as your account is registered and that your account
number and the Fund from which you wish to make the exchange are included. For example, if your account is registered
“John Doe and Mary Doe,” “Joint Tenants With Right of Survivorship,” then both John Doe and Mary Doe must
sign the exchange request. The exchange will
be processed effective the date the signed letter or fax is received. Fax requests
received after the Valuation Time will be processed as of the next business day. The Funds reserve the right to require
the original document if you use the fax method.
By
Online Access - Log on to our website,
https://www.abrdn.com/us-online-access,
24 hours a day, seven days a week, for easy
access to your mutual fund accounts. Once you have reached the website, you will be instructed on how to
select a password and perform transactions. You can choose to receive information on all Funds as well as your own personal
accounts. You may also perform transactions, such as purchases, redemptions and exchanges. The Funds may terminate
the ability to buy Fund shares on its website at any time, in which case you may continue to exchange shares by
mail, wire or telephone pursuant to the Prospectus.
Investor
Services
Automated
Voice Response System –
Our toll-free number 866-667-9231 will connect you 24 hours a day, seven days
a week to the system. Through a selection of menu options, you can conduct transactions, hear fund price information,
mailing and wiring instructions and other mutual fund information.
Toll
Free Information and Assistance -
Customer service representatives are available to answer questions regarding the
Funds and your account(s) between the hours of 8 a.m. and 6 p.m. Eastern Time (Monday through Friday).
Retirement
Plans (Not available with the Intermediate Municipal Income Fund and Ultra Short Municipal Income
Fund) – Shares of the Funds may be
purchased for Self-Employed Retirement Plans, Individual Retirement Accounts (IRAs), Roth IRAs, Coverdell Education Savings Accounts,
IRAs, Simplified Employee Pension Plans, Corporate Pension Plans, Profit Sharing Plans and Money Purchase Plans.
Shareholder
Confirmations - You will
receive a confirmation statement each time a requested transaction is processed.
However, no confirmations are mailed on certain pre-authorized, systematic transactions, or IRAs. Instead, these
will appear on your next consolidated statement.
Consolidated
Statements - Shareholders
of the Funds receive quarterly statements as of the end of March, June, September
and December. Please review your statement carefully and notify us immediately if there is a discrepancy or error
in your account.
For
shareholders with multiple accounts, your consolidated statement will reflect all your current holdings in the Funds.
Your accounts are consolidated by social security number and zip code. Accounts in your household under other social
security numbers may be added to your statement at your request. Only transactions during the reporting period will
be reflected on the statements. An annual summary statement reflecting all calendar-year transactions in all your Funds
will be sent after year-end.
Average
Cost Statement - This statement
may aid you in preparing your tax return and in reporting capital gains and losses
to the IRS. If you redeemed any shares during the calendar year, a statement reflecting your taxable gain or loss for the
calendar year (based on the average cost you paid for the redeemed shares) will be mailed to you following each year-end.
Average cost can only be calculated on accounts opened on or after January 1, 1984. Fiduciary accounts and accounts
with shares acquired by gift, inheritance, transfer, or by any means other than a purchase cannot be calculated.
Average
cost is one of the IRS approved methods available to compute gains or losses. You may wish to consult a tax advisor
on the other methods available.
Shareholder
Reports - All shareholders
will receive reports semi-annually detailing the financial operations of the Funds.
Summary
Prospectus - An updated
summary prospectus will be mailed to you at least annually.
Undeliverable
Mail - If mail from the
Funds to a shareholder is returned as undeliverable on two or more consecutive occasions,
the Funds will not send any future mail to the shareholder unless it receives notification of a correct mailing address
for the shareholder. With respect to any redemption checks or dividend/capital gains distribution checks that are
returned as undeliverable or not presented for payment within six months, the Trust reserves the right to reinvest the check
proceeds and any future distributions in shares of the particular Fund at the then-current NAV of such Fund until the
Funds receive further instructions from the shareholder.
Additional
Information
Description
of Shares
The
Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest
of each Fund and to divide or combine such shares into a greater or lesser number of shares without thereby exchanging
the proportionate beneficial interests in the Trust. Each share of a Fund represents an equal proportionate interest
in that Fund with each other share. The Trust reserves the right to create and issue a number of different funds. Shares
of each Fund would participate equally in the earnings, dividends, and assets of that particular fund. Upon liquidation
of a Fund, shareholders are entitled to share pro rata in the net assets of such Fund available for distribution to shareholders.
The
Trust presently consists of the following 19 series of shares of beneficial interest, without par value and with the various
classes listed:
|
|
FUND
|
SHARE
CLASS |
abrdn
China A Share Equity Fund |
Class
A, Class C, Class R, Institutional Service Class, Institutional Class |
abrdn
Dynamic Dividend Fund |
Class
A, Institutional Class |
abrdn
EM SMA Completion Fund |
Institutional
Class |
abrdn
Emerging Markets Dividend Fund |
Class
A, Institutional Class |
abrdn
Emerging Markets Fund |
Class
A, Class C, Class R, Institutional Service Class, Institutional Class |
abrdn
Emerging Markets ex-China Fund |
Class
A, Class C, Class R, Institutional Service Class, Institutional Class |
abrdn
Emerging Markets Sustainable Leaders Fund |
Class
A, Class C, Class R, Institutional Service Class, Institutional Class |
abrdn
Focused U.S. Small Cap Equity Fund |
Class
A, Class R, Institutional Service Class, Institutional Class |
abrdn
Global Equity Impact Fund |
Class
A, Institutional Class |
abrdn
Global Infrastructure Fund |
Class
A, Institutional Class |
abrdn
High Income Opportunities Fund |
Class
A, Institutional Class |
abrdn
Infrastructure Debt Fund |
Class
A, Institutional Service Class, Institutional Class |
abrdn
Intermediate Municipal Income Fund |
Class
A, Institutional Service Class, Institutional Class |
abrdn
International Small Cap Fund |
Class
A, Class C, Class R, Institutional Class |
abrdn
Realty Income & Growth Fund |
Class
A, Institutional Class |
abrdn
Short Duration High Yield Municipal Fund |
Class
A, Class C, Institutional Class |
abrdn
Ultra Short Municipal Income Fund |
Class
A, Class A1, Institutional Class |
abrdn
U.S. Small Cap Equity Fund |
Class
A, Class C, Class R, Institutional Service Class, Institutional Class |
abrdn
U.S. Sustainable Leaders Fund |
Class
A, Class C, Institutional Service Class, Institutional Class |
You
have an interest only in the assets of the Fund whose shares you own. Shares of a particular class are equal in all respects
to other shares of that class. In the event of liquidation of a Fund, shares of the same class will share pro rata in the
distribution of the net assets of the Fund with all other shares of that class. All shares are without par value and when issued
and paid for, are fully paid and nonassessable by the Trust. Shares may be exchanged or converted as described in
this Statement of Additional Information and in the Prospectus but will have no other preference, conversion, exchange or
preemptive rights.
Voting
Rights
Shareholders
of each class of shares have one vote for each share held and a proportionate fractional vote for any fractional
share held. An annual or special meeting of shareholders to conduct necessary business is not required by the Declaration
of Trust, the 1940 Act or other authority except, under certain circumstances, to amend the Declaration of Trust,
the Investment Advisory Agreement, fundamental investment objectives, fundamental investment policies and fundamental
investment restrictions, to elect and remove Trustees, to reorganize the Trust or any series or class thereof and
to act upon certain other business matters. In regard to sale of assets; the change of fundamental investment objectives,
policies and restrictions; the approval of an Investment Advisory Agreement; or any other matter for which a shareholder
vote is sought, the right to vote is limited to the holders of shares of the particular Fund affected by the proposal.
In addition, holders of shares subject to a Rule 12b-1 fee will vote as a class and not with holders of any other class
with respect to the approval of the Distribution Plan.
To
the extent that such a meeting is not required, the Trust does not intend to have an annual or special meeting of shareholders.
Additional
Information 121
Additional
General Tax Information for all Funds
The
information discussed in this section applies generally to all of the Funds that are described in this SAI, but is supplemented
or modified in additional separate sections that are provided below for abrdn Intermediate Municipal Income
Fund, abrdn Short Duration High Yield Municipal Fund and abrdn Ultra Short Municipal Income Fund.
Buying
a Dividend
If
you are a taxable investor and invest in a Fund shortly before the record date of a taxable distribution, the distribution
will lower the value of the Fund’s shares by the amount of the distribution, and you will in effect receive some of
your investment back, but in the form of a taxable distribution.
Dividends
from Taxable Income
The
Fund may earn taxable income from many sources, including income from temporary investments, discount from
stripped obligations or their coupons, income from securities loans or other taxable transactions, and ordinary income
from the sale of market discount bonds. If you are a taxable investor, any distributions by the Fund from this income
will be taxable to you as ordinary income, whether you receive them in cash or in additional shares.
Distribution
of Net Investment Income
Each
Fund receives income generally in the form of dividends and interest on its investments. This income, less expenses
incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to you.
If you are a taxable investor, any distributions by a Fund from such income (other than qualified dividend income received
by individuals) will be taxable to you at ordinary income tax rates, whether you receive them in cash or in additional
shares. Distributions from qualified dividend income will be taxable to individuals at long-term capital gain rates,
provided certain holding period requirements are met by you and the Fund. See the discussion below under the heading,
“Qualified Dividend Income for Individuals.”
Distributions
of Capital Gains
A
Fund may realize a capital gain or loss in connection with sales or other dispositions of its portfolio securities. Distributions
derived from the excess of net short-term capital gain over net long-term capital loss will be taxable to you as
ordinary income. Distributions paid from the excess of net long-term capital gain over net short-term capital loss will be
taxable to you as long-term capital gain, regardless of how long you have held your shares in a Fund. Any net short-term
or long-term capital gain realized by a Fund (net of any capital loss carryovers) generally will be distributed once
each year, and may be distributed more frequently, if necessary, in order to reduce or eliminate federal excise or income
taxes on the Fund.
For
U.S. federal income tax purposes, each Fund is generally permitted to carry forward a net capital loss in any taxable
year to offset its own capital gains. These amounts are available to be carried forward to offset future capital gains
to extent permitted by the Code and applicable tax regulations. Any such loss carryforwards will retain their character
as short-term or long-term. In the event that the Fund were to experience an ownership change as defined for federal
income tax purposes, the Fund’s loss carryforwards may be subject to limitation.
As
of October 31, 2023,
for U.S. federal income tax purposes, the following Funds have capital loss carryforwards available
to offset capital gains, if any, to the extent provided by the Treasury regulations, which do not expire:
122 Additional
General Tax Information for all Funds
Fund |
Amount |
Expires |
China
A Share Equity Fund |
$2,040,441 |
Unlimited
(Short-Term) |
China
A Share Equity Fund |
$15,075,782 |
Unlimited
(Long-Term) |
Dynamic
Dividend Fund |
$883,587 |
Unlimited
(Short-Term) |
Emerging
Markets Dividend Fund |
$8,439,399 |
Unlimited
(Short-Term) |
Emerging
Markets Dividend Fund |
$393,886,133 |
Unlimited
(Long-Term) |
Emerging
Markets ex-China Fund |
$298,533 |
Unlimited
(Short-Term) |
Emerging
Markets ex-China Fund |
$3,343,209 |
Unlimited
(Long-Term) |
Emerging
Markets Fund |
$29,644,707 |
Unlimited
(Short-Term) |
Emerging
Markets Sustainable Leaders Fund |
$7,686,508 |
Unlimited
(Short-Term) |
Emerging
Markets Sustainable Leaders Fund |
$24,603,388 |
Unlimited
(Long-Term) |
Focused
U.S. Small Cap Equity Fund |
$726,410 |
Unlimited
(Short-Term) |
Focused
U.S. Small Cap Equity Fund |
$1,165,621 |
Unlimited
(Long-Term) |
Global
Equity Impact Fund |
$1,176,930 |
Unlimited
(Short-Term) |
Global
Equity Impact Fund |
$10,425,345 |
Unlimited
(Long-Term) |
International
Small Cap Fund |
$26,718,013 |
Unlimited
(Short-Term) |
International
Small Cap Fund |
$22,106,105 |
Unlimited
(Long-Term) |
U.S.
Small Cap Equity Fund |
$14,683,852 |
Unlimited
(Short-Term) |
U.S.
Small Cap Equity Fund |
$48,802,658 |
Unlimited
(Long-Term) |
U.S.
Sustainable Leaders Fund |
$7,416,855 |
Unlimited
(Short-Term) |
U.S.
Sustainable Leaders Fund |
$24,472,895 |
Unlimited
(Long-Term) |
Post-October
Losses
In
determining its net capital gain, including also in connection with determining the amount available to support a capital gain
dividend, its taxable income and its earnings and profits, a Fund generally may also elect to treat part or all of any post-October
capital loss (defined as any net capital loss attributable to the portion, if any, of the taxable year after October
31 or, if there is no such loss, the net long-term capital loss or net short-term capital loss attributable to any such portion
of the taxable year) or late-year ordinary loss (generally, the sum of its (i) net ordinary loss, if any, from the sale, exchange
or other taxable disposition of property, attributable to the portion, if any, of the taxable year after October 31, and
its (ii) other net ordinary loss, if any, attributable to the portion, if any, of the taxable year after December 31) as if incurred
in the succeeding taxable year.
Medicare
Contribution Tax
A
3.8 percent Medicare contribution tax will be imposed on net investment income, among other things, including interest,
dividends, and net gain from investments, of U.S. individuals with income exceeding $200,000 (or $250,000 if married
filing jointly), and of estates and trusts.
Returns
of Capital
If
a Fund’s distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the
distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of
capital distribution generally will not be taxable, but will reduce each shareholder’s cost basis in a Fund and result in a higher
reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.
Any return of capital in excess of your basis, however, is taxable as a capital gain.
Investments
in Foreign Securities
The
next three paragraphs describe tax considerations that are applicable to Funds that invest in foreign securities.
Effect
of foreign withholding taxes.
A Fund may be subject to foreign withholding taxes on income from certain foreign
securities. This, in turn, could reduce a Fund’s distributions paid to you. Tax conventions between certain countries and
the United States may reduce or eliminate those foreign taxes in some cases.
Effect
of foreign debt investments on distributions.
Realized gains and losses from the sale of debt securities are treated
as ordinary income or loss for federal income tax purposes by a Fund, to the extent attributable to foreign exchange
gains or losses. These gains when distributed are taxable to you as ordinary income, and any losses reduce a Fund’s
ordinary income otherwise available for distribution to you. This treatment could increase or decrease a Fund’s ordinary
income distributions to you and may cause some or all of a Fund’s previously distributed income to be classified as
a return of capital.
Pass-through
of foreign tax credits. If more
than 50% of a Fund’s total assets at the end of a fiscal year is invested in foreign
securities or, at the close of each quarter, is at least 50% invested in other regulated investment companies, the Fund
may elect to pass through to you your pro rata share of foreign taxes paid by the Fund. If this election is made, a
Additional
General Tax Information for all Funds 123
Fund
may report more taxable income to you than it actually distributes. You will then be entitled either to deduct your share
of these taxes in computing your taxable income (if you itemize your income tax deductions) or to claim a foreign tax
credit for these taxes against your U.S. federal income tax (subject to limitations for certain shareholders). A Fund will provide
you with the information necessary to complete your personal income tax return if it makes this election. The amount
of any foreign tax credits available to you (as a result of the pass-through to you of your pro rata share of foreign taxes
paid by a Fund) will be reduced if you receive foreign dividends from a Fund reported as qualified dividend income
subject to taxation at long-term capital gain rates. Shareholders in these circumstances should talk with their personal
tax advisors about their foreign tax credits and the procedures that they should follow to claim these credits on their
personal income tax returns. A Fund engaging in securities lending with respect to a security paying income subject to
foreign taxes may not be able to pass through to its shareholders the ability to take a foreign tax credit for those taxes. In
addition, a shareholder of a Fund may lose the ability to use foreign tax credits passed through by the Fund if the Fund shares
are loaned pursuant to a securities lending agreement.
PFIC
securities. A Fund may invest
in securities of foreign entities that could be deemed for tax purposes to be passive
foreign investment companies (“PFICs”). In general, a PFIC is any foreign corporation if 75% or more of its gross income
for its taxable year is passive income, or 50% or more of its average assets (by value) are held for the production of
passive income. When investing in PFIC securities, each Fund intends to mark-to-market these securities and recognize
any unrealized gains as ordinary income at the end of the Fund’s fiscal and excise (described below) tax years.
Deductions for losses are allowable only to the extent of any current or previously recognized gains. These gains (reduced
by allowable losses) are treated as ordinary income that a Fund is required to distribute, even though it has not sold
or received dividends from these securities. You should also be aware that the designation of a foreign security as a PFIC
security would cause its income dividends to fall outside of the definition of qualified foreign corporation dividends. These
dividends generally will not qualify for the reduced rate of taxation on qualified dividends for individuals when distributed
to you by a Fund. In addition, if a Fund is unable to identify an investment as a PFIC and thus does not make a mark-to-market
election, the Fund may be subject to U.S. federal income tax (the effect of which could be mitigated by making
a mark-to-market election in a year prior to the sale) on a portion of any “excess distribution” or gain from the disposition
of such shares even if such income is distributed as a taxable dividend by the Fund 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.
Information
on the Amount and Tax Character of Distributions
Each
Fund will inform you of the amount of your ordinary income and capital gain dividends at the time they are paid
and will advise you of their tax status for federal income tax purposes shortly after the end of each calendar year, including
the portion of the distributions that on average are comprised of exempt-interest income, taxable income and the
portion of exempt-interest income that is a tax preference item when determining the alternative minimum tax. If you have
not held Fund shares for a full year, a Fund may report and distribute to you, as exempt-interest income, taxable income,
or capital gains a percentage of income that may not be equal to the actual amount of this type of income earned
during the period of your investment in the Fund. Taxable distributions declared by a Fund in October, November or December to shareholders
of record in such a month but paid in January are taxable to you as if they were paid in December.
Election
to be Taxed as a Regulated Investment Company
Each
Fund intends to elect or has elected to be treated as a regulated investment company under Subchapter M of the
Code. Each Fund has qualified as a regulated investment company for its most recent fiscal year and intends to continue
to qualify during the current fiscal year. As a regulated investment company, a Fund generally is not subject to entity-level
federal income tax on the income and gains it distributes to you. The Board of Trustees reserves the right not to
distribute a Fund’s net long-term capital gain or not to maintain the qualification of a Fund as a regulated investment company
if it determines such a course of action to be beneficial to shareholders. If net long-term capital gain is retained, a
Fund would be taxed on the gain at the highest corporate tax rate, and the shareholders of the Fund would be notified that
they are entitled to a credit or refund for the tax paid by the Fund. If a Fund fails to qualify as a regulated investment company,
the Fund would be subject to federal and possibly state corporate taxes on its taxable income and gain, and distributions
to you would be taxed as dividend income to the extent of the Fund’s earnings and profits.
In
order to qualify as a regulated investment company for federal income tax purposes, each Fund must meet certain
asset diversification, income, and distribution specific requirements, including:
1. |
a
Fund must derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of stock or securities or foreign currencies, other
income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies and net income derived from interests in “qualified publicly
traded partnerships” (i.e., partnerships that are traded on an established securities market or tradable on a secondary
market, other than partnerships that derive 90% of their income from interest, dividends, capital gains, and
other traditionally permitted mutual fund income); |
2. |
a
Fund must diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (a) at least 50% of the
market value of the Fund’s assets is represented by cash, securities of other regulated investment companies, U.S.
Government securities and other securities, with such other securities limited, in respect of any one issuer, to an |
124 Additional
General Tax Information for all Funds
|
amount
not greater than 5% of the Fund’s assets and not greater than 10% of the outstanding voting securities of such
issuer and (b) not more than 25% of the value of its assets is invested in the securities (other than U.S. Government
securities or securities of other regulated investment companies) of any one issuer, any two or more issuers
of which 20% or more of the voting stock is held by the Fund and that are determined to be engaged in the same
or similar trades or businesses or related trades or businesses or in the securities of one or more qualified publicly
traded partnerships; and |
3. |
a
Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income” (i.e.,
income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus
certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. The Fund will be subject to
income tax at regular corporation rates on any taxable income or gains that it does not distribute to its shareholders. |
Excise
Tax Distribution Requirements
To
avoid a 4% federal excise tax, the Code requires a Fund to distribute to you by December 31 of each year, at a minimum,
the following amounts: 98% of its taxable ordinary income earned during the calendar year; 98.2% of its capital gain
net income earned during the twelve-month period ending October 31; and 100% of any undistributed amounts from
the prior year. Each Fund intends to declare and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes.
Sales,
Exchanges and Redemption of Fund Shares
Sales,
exchanges, and redemptions (including redemptions in kind) of Fund shares are taxable transactions for federal
and state income tax purposes. If you sell your Fund shares, whether you receive cash or exchange them for shares
of a different Fund, the IRS requires you to report any gain or loss on your sale or exchange. If you owned your shares
as a capital asset, any gain or loss that you realize generally is a capital gain or loss, and is long-term or short-term,
depending on how long you owned your shares. Any redemption/exchange fees you incur on shares redeemed
or exchanged within 90 days after the date they were purchased will decrease the amount of any capital gain
(or increase any capital loss) you realize on the sale or exchange.
Redemption
at a Loss Within Six Months of Purchase.
Any loss incurred on the sale or exchange of Fund shares owned
for six months or less will be disallowed to the extent of any exempt-interest dividends paid to you with respect to your
Fund shares, and any remaining loss will be treated as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares.
Wash
Sales. All or a portion of any
loss that you realize on the sale of your Fund shares is disallowed to the extent that you
buy other shares in the Fund (through reinvestment of dividends or otherwise) within 30 days before or after your sale.
Any loss disallowed under these rules is added to your tax basis in the new shares.
Deferral
of Basis – Class A shares
only. In reporting gain or loss on the sale of your Fund shares, you may be required to
adjust your basis in the shares you sell under the following circumstances:
If:
● |
In
your original purchase of Fund shares, you received a reinvestment right (the right to reinvest your sales proceeds at a
reduced or with no sales charge), and |
● |
You
sell some or all of your original shares within 90 days of their purchase, and |
● |
You
reinvest the sales proceeds in the Fund or in another Fund on or before January 31 of the following year, and the sales
charge that would otherwise apply is reduced or eliminated; |
Then:
In
reporting any gain or loss on your sale, all or a portion of the sales charge that you paid for your original shares is excluded
from your tax basis in the shares sold and added to your tax basis in the new shares.
Cost
Basis Reporting. A Fund’s
administrative agent will be required to provide you with cost basis information on the sale
of any of your shares in a Fund, subject to certain exceptions.
This
cost basis reporting requirement is effective for shares purchased in a Fund on or after January 1, 2012.
U.S.
Government Securities
The
income earned on certain U.S. Government securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to dividends paid to you from interest earned on these securities, subject
in some states to minimum investment or reporting requirements that must be met by a Fund. The income on Fund
investments in certain securities, such as repurchase agreements collateralized by U.S. Government obligations, commercial
paper and federal agency-backed obligations (e.g., Ginnie Mae or Fannie Mae securities), generally does not
qualify for tax-free treatment. The rules on exclusion of this income are different for corporations.
Additional
General Tax Information for all Funds 125
Qualified
Dividend Income for Individuals
For
individual shareholders, a portion of the dividends paid by a Fund may be qualified dividends eligible for taxation at
long-term capital gain rates. This reduced rate generally is available for dividends paid by a Fund out of dividends earned
on the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. Dividends from PFICs
are not eligible to be treated as qualified dividend income. Either none or only a nominal portion of the dividends paid
by certain Funds will be qualified dividend income because they invest primarily in non-qualified foreign securities. Income
dividends earned by the Funds on non-qualified foreign securities will continue to be taxed at the higher ordinary income
tax rate. A Fund’s entry into securities lending transactions may cause the replacement income earned on the loaned
securities to fall outside the definition of qualified dividend income. In addition, if a Fund’s shares are loaned pursuant
to a securities lending arrangement, dividends paid while the shares are held by the borrower may not be qualified
dividend income.
Both
a Fund and the investor must meet certain holding period requirements to qualify Fund dividends for this treatment.
Specifically, a Fund must hold the stock for at least 61 days during the 121-day period beginning 60 days before
the stock becomes ex-dividend (or, in the case of certain preferred stock, for at least 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). Similarly, investors must hold their Fund shares for at least 61 days during the 121-day
period beginning 60 days before the Fund distribution goes ex-dividend (or, in the case of certain preferred stock dividends paid by the Fund, for at least 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). The ex-dividend date is the first date following
the declaration of a dividend on which the purchaser of stock is not entitled to receive the dividend payment. When
counting the number of days you held your Fund shares, include the day you sold your shares but not the day you acquired
these shares.
While
the income received in the form of a qualified dividend is taxed at the same rates as long-term capital gains, such
income will not be considered as a long-term capital gain for other federal income tax purposes. For example, you will
not be allowed to offset your long-term capital losses against qualified dividend income on your federal income tax return.
Any qualified dividend income that you elect to be taxed at these reduced rates also cannot be used as investment
income in determining your allowable investment interest expense. For other limitations on the amount of or use
of qualified dividend income on your income tax return, please contact your personal tax advisor.
After
the close of its fiscal year, a Fund will report the portion of its ordinary dividend income that meets the definition of
qualified dividend income taxable at reduced rates. If 95% or more of a Fund’s income is from qualified sources, it will be
allowed to report 100% of its ordinary income distributions as qualified dividend income.
Dividends-Received
Deduction for Corporations
For
corporate shareholders, a portion of the dividends paid by a Fund may qualify for the dividends-received deduction.
The portion of dividends paid by a Fund that qualifies for the corporate dividends-received deduction will be reported
each year in a notice mailed to the Fund’s shareholders, and cannot exceed the gross amount of dividends received
by the Fund from domestic (U.S.) corporations that would have qualified for the dividends-received deduction in the
hands of the Fund if the Fund was a regular corporation. Either none or only a nominal portion of the dividends paid by
certain Funds will be eligible for the corporate dividends-received deduction because they invest primarily in foreign securities.
A Fund’s entry into securities lending transactions may cause the replacement income earned on the loaned securities
to fail to qualify for the dividends received deduction.
In
addition, if a Fund’s shares are loaned pursuant to a securities lending arrangement, dividends paid while the shares
are held by the borrower may not qualify for the dividends received deduction. The availability of the dividends-received
deduction is subject to certain holding period and debt financing restrictions imposed under the Code
on the corporation claiming the deduction. The amount that a Fund may report as eligible for the dividends-received
deduction will be reduced or eliminated if the shares on which the dividends earned by the Fund were
debt-financed or held by the Fund for less than a minimum period of time, generally 46 days during a 91-day period
beginning 45 days before the stock becomes ex-dividend (or, in the case of certain preferred stock, for at least 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). Similarly, if your Fund shares are debt-financed or held by
you for less than a 46-day period (or, in the case of certain preferred stock dividend paid by the Fund, a 91-days period) then the dividends-received deduction for Fund dividends on your shares may also be
reduced or eliminated.
Section
199A Dividends for Individuals
For
tax years beginning before January 1, 2026, a Fund may report “section 199A dividends” eligible for a 20% “qualified
business income” deduction for non-corporate US shareholders to the extent the Fund’s income is derived from ordinary
REIT dividends, reduced by allocable Fund expenses. In order for a Fund’s dividends to be eligible for the qualified business
income deduction, the Fund must meet certain holding period requirements with respect to the shares on which the
Fund received the eligible dividends, and the shareholder must meet certain holding period requirements with respect
to the Fund shares.
163(j)
Interest Dividends
Certain
distributions reported by a Fund as Section 163(j) interest dividends may be treated as interest income by shareholders
for purposes of the tax rules applicable to interest expense limitations under Code section 163(j). Such treatment
by the shareholder is generally subject to holding period requirements and other potential limitations, although the
holding period requirements are generally not applicable to dividends declared by money market funds and certain other
funds that declare dividends daily and pay such dividends on a monthly or more frequent basis. The amount that a
126 Additional
General Tax Information for all Funds
Fund
is eligible to report as a Section 163(j) dividend for a tax year is generally limited to the excess of the Fund’s business interest
income over the sum of the Fund’s (i) business interest expense and (ii) other deductions properly allocable to the
Fund’s business interest income.
Alternative
Minimum Tax
Interest
on certain private activity bonds, while exempt from regular U.S. federal income tax, is a preference item for you
when determining your alternative minimum tax under the Code and under the income tax provisions of several states.
Private activity bond interest could subject you to or increase your liability under the federal and state alternative minimum
taxes, depending on your personal or corporate tax position. If you are a person defined in the Code as a substantial
user (or person related to a user) of a facility financed by private activity bonds, you should consult with your tax
adviser before buying shares of the Fund.
Treatment
of Interest on Debt Incurred to Hold Fund Shares
Interest
on debt you incur to buy or hold Fund shares may not be deductible for U.S. federal income tax purposes. Indebtedness
may be allocated to shares of a Fund even though not directly traceable to the purchase of such shares.
Loss
of Status of Securities as Tax-Exempt
Failure
of the issuer of a tax-exempt security to comply with certain legal or contractual requirements relating to the security
could cause interest on the security, as well as Fund distributions derived from this interest, to become taxable, perhaps
retroactively to the date the security was issued. In such a case, the Fund may be required to report to the IRS and
send to shareholders amended Forms 1099 for a prior taxable year in order to report additional taxable income. This, in
turn, could require shareholders to file amended federal and state income tax returns for such prior year to report and pay
tax and interest on their pro rata share of the additional amount of taxable income.
Investment
in Complex Securities
Each
Fund may invest in complex securities (e.g., futures, options, forward currency contracts, short-sales, PFICs, etc.)
that may be subject to numerous special and complex tax rules. These rules could affect whether gain or loss recognized
by a Fund is treated as ordinary or capital, or as interest or dividend income. These rules could also accelerate
the recognition of income to a Fund (possibly causing the Fund to sell securities to raise the cash for necessary
distributions). These rules could defer a Fund’s ability to recognize a loss, and, in limited cases, subject a Fund to
U.S. federal income tax on income from certain foreign securities. These rules could, therefore, affect the amount, timing,
or character of the income distributed to you by a Fund. For example:
Derivatives.
A Fund may be permitted to invest in certain options, futures or forward currency contracts to hedge a Fund’s
portfolio or for any other permissible purposes consistent with that Fund’s investment objective. If a Fund makes these
investments, it could be required to mark-to-market these contracts and realize any unrealized gains and losses at its
fiscal year end even though it continues to hold the contracts. Under these rules, gains or losses on the contracts generally
would be treated as 60% long-term and 40% short-term gains or losses, but gains or losses on certain foreign currency
contracts would be treated as ordinary income or losses. In determining its net income for excise tax purposes, a
Fund also would be required to mark-to-market these contracts annually as of October 31 (for capital gain net income and
ordinary income arising from certain foreign currency contracts), and to realize and distribute any resulting income and
gains.
Tax
straddles. A Fund’s investment
in options, futures, forwards, or foreign currency contracts (or in substantially similar
or related property) in connection with certain hedging transactions could cause it to hold offsetting positions in securities.
If a Fund’s risk of loss with respect to specific securities in its portfolio is substantially diminished by the fact that it
holds other securities, the Fund could be deemed to have entered into a tax “straddle” or to hold a “successor position”
that would require any loss realized by it
to be deferred for tax purposes.
Short
sales and securities lending transactions.
A Fund’s entry into a short sale transaction or an option or other contract
could be treated as the “constructive sale” of an “appreciated financial position,” causing it to realize
gain, but not loss, on the position. Additionally,
a Fund’s entry into securities lending transactions may cause the replacement income
earned on the loaned securities to fall outside of the definition of qualified dividend income and to fail to qualify for
the dividends received deduction. This replacement income generally will not be eligible for reduced rates of taxation on
qualified dividend income, and, to the extent that debt securities are loaned, will generally not qualify as qualified interest
income for foreign withholding tax purposes.
Convertible
debt. Convertible debt is ordinarily
treated as a “single property” consisting of a pure debt interest until conversion,
after which the investment becomes an equity interest. If the security is issued at a premium (i.e., for cash in excess
of the face amount payable on retirement), the creditor-holder may amortize the premium over the life of the bond.
If the security is issued for cash at a price below its face amount, the creditor-holder must accrue original issue discount
in income over the life of the debt.
Additional
General Tax Information for all Funds 127
Securities
purchased at discount. Certain
Funds may be permitted to invest in securities issued or purchased at a discount
such as zero coupon, deferred interest or payment-in-kind (PIK) bonds that could require it to accrue and distribute
income not yet received. Similar requirements may apply to securities purchased with market discount. If it invests
in these securities, a Fund could be required to sell securities in its portfolio that it otherwise might have continued to
hold in order to generate sufficient cash to make these distributions.
Credit
default swap agreements. A Fund
may be permitted to enter into credit default swap agreements. The rules governing
the tax aspects of swap agreements that provide for contingent nonperiodic payments of this type are in a developing
stage and are not entirely clear in certain aspects. Accordingly, while a Fund intends to account for such transactions
in a manner deemed to be appropriate, the IRS might not accept such treatment. The Funds intend to monitor
developments in this area. Certain requirements that must be met under the Code in order for a Fund to qualify as
a regulated investment company may limit the extent to which a Fund will be able to engage in credit default swap agreements.
Investment
in taxable mortgage pools (excess inclusion income).
The Funds may invest in U.S.-REITs that hold residual
interests in real estate mortgage investment conduits (REMICs) or which are, or have certain wholly-owned subsidiaries
that are, “taxable mortgage pools.” A portion of a Fund’s income from a U.S.-REIT that is attributable to the REIT’s
residual interest in a REMIC or equity interests in a taxable mortgage pool (referred to in the Code as an excess inclusion)
will be subject to federal income tax in all events. The excess inclusion income of a regulated investment company,
such as a Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends
received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual
interest or, if applicable, taxable mortgage pool directly. In general, excess inclusion income allocated to shareholders
(i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will
constitute unrelated business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring
such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to
file a tax return and pay tax on such income, and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction
in U.S. federal withholding tax. In addition, if at any time during any taxable year a “disqualified organization” (which
generally includes certain cooperatives, governmental entities and tax-exempt organizations that are not subject to
tax on UBTI) is a record holder of a share in a regulated investment company, then the regulated investment company will
be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified
organization, multiplied by the highest federal income tax rate imposed on corporations.
The
rules concerning excess inclusion income are complex and unduly burdensome in their current form, and the Funds
are awaiting further guidance from the IRS on how these rules are to be implemented. Shareholders should talk to their
tax advisors about whether an investment in a Fund is a suitable investment given the potential tax consequences of the
Fund’s receipt and distribution of excess inclusion income.
Investments
in securities of uncertain tax character.
A Fund may invest in securities the U.S. federal income tax treatment
of which may not be clear or may be subject to recharacterization by the IRS. To the extent the tax treatment of
such securities or the income from such securities differs from the tax treatment expected by a Fund, it could affect the
timing or character of income recognized by the Fund, requiring the Fund to purchase or sell securities, or otherwise change
its portfolio, in order to comply with the tax rules applicable to regulated investment companies under the Code.
Backup
Withholding
By
law, each Fund must withhold 24% of your taxable distributions and redemption proceeds unless you provide your
correct social security or taxpayer identification number, certify that this number is correct, certify that you are not subject
to backup withholding and certify that you are a U.S. person (including a U.S. resident alien). A Fund also must withhold
if the IRS instructs it to do so. The special U.S. tax certification requirements applicable to non-U.S. investors are described
under the “Non-U.S. Investors” heading below.
Non-U.S.
Investors
Non-U.S.
investors (shareholders who, as to the United States, are nonresident alien individuals, foreign trusts or estates,
foreign corporations, or foreign partnerships) may be subject to U.S. withholding and estate tax and are subject to
special U.S. tax certification requirements. Non-U.S. investors should consult their tax advisors about the applicability of U.S.
tax withholding and the use of the appropriate forms to certify their status. In addition, non-U.S. investors may also be subject
to U.S. federal withholding tax on deemed income resulting from any election by a Fund to treat qualified foreign taxes
it pays as passed through to shareholders (as described above), but may not be able to claim a U.S. tax credit or deduction
with respect to such taxes.
In
general. The United States imposes
a flat 30% withholding tax (or a withholding tax at a lower treaty rate) on U.S. source
dividends, including on income dividends paid to you by a Fund, but not on capital gain dividends. However, notwithstanding
such exemptions from U.S. withholding at the source, any dividends and distributions of income and capital
gains, including the proceeds from the sale of your Fund shares, will be subject to backup withholding if you fail to properly
certify that you are not a U.S. person.
128 Additional
General Tax Information for all Funds
Exempt-interest
dividends. In general, exempt-interest
dividends reported by the Fund and paid from net tax-exempt
income are not subject to U.S. withholding tax.
Capital
gain dividends. In general,
a capital gain dividend reported by a Fund and paid from its net long-term capital gains,
other than long- or short-term capital gains realized on disposition of U.S. real property interests (see the discussion below),
are not subject to U.S. withholding tax unless you are a nonresident alien individual present in the United States for a
period or periods aggregating 183 days or more during the calendar year.
Investment
in U.S. real property. A Fund
may invest in equity securities of corporations that invest in U.S. real property, including
U.S. Real Estate Investment Trusts (“U.S.-REITs”). The sale of a U.S. real property interest (“USRPI”) by
a Fund, or by a U.S.-REIT in which the Fund
invests, may trigger special tax consequences to the Fund’s non-U.S. shareholders.
In
general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect
of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, or
upon the sale or other disposition of Fund shares.
Distributions
that a Fund reports as “short-term capital gain dividends” or “long-term capital gain dividends” will not
be treated as such to a recipient foreign
shareholder if the distribution is attributable to gain received from the sale or exchange
of U.S. real property or an interest in a U.S. real property holding corporation and a Fund’s direct or indirect interests
in U.S. real property exceeded certain levels. Instead, if the foreign shareholder has not owned more than 5% of the
outstanding shares of a Fund at any time during the one year period ending on the date of distribution, such distributions
will be subject to 30% withholding by a Fund and will be treated as ordinary dividends to the foreign shareholder;
if the foreign shareholder owned more than 5% of the outstanding shares of a Fund at any time during the one
year period ending on the date of the distribution, such distribution will be treated as real property gain subject to 21%
withholding tax and could subject the foreign shareholder to U.S. filing requirements. Additionally, if a Fund’s direct or indirect
interests in U.S. real property were to exceed certain levels, a foreign shareholder realizing gains upon redemption from
a Fund could be subject to the 21% withholding tax and U.S. filing requirements unless more than 50% of a Fund’s shares
were owned by U.S. persons at such time or unless the foreign person had not held more than 5% of a Fund’s outstanding
shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five
years.
In
addition, the same rules apply with respect to distributions to a foreign shareholder from a Fund and redemptions of
a foreign shareholder’s interest in a Fund attributable to gain from the sale or exchange of U.S. real property or an interest
in a U.S. real property holding corporation, if a Fund’s direct or indirect interests in U.S. real property were to exceed
certain levels.
The
rules laid out in the previous two paragraphs, other than the withholding rules, will apply notwithstanding a Fund’s
participation in a wash sale transaction or its payment of a substitute dividend.
Provided
that 50% or more of the value of a Fund’s stock is held by U.S. shareholders, distributions in kind of U.S. real property
interests (including securities in a U.S. real property holding corporation, unless such corporation is regularly traded
on an established securities market and the Fund has held 5% or less of the outstanding shares of the corporation during
the five-year period ending on the date of distribution), in redemption of a foreign shareholder’s shares of the Fund will
cause the Fund to recognize gain. If the Fund is required to recognize gain, the amount of gain recognized will equal to
the fair market value of such interests over the Fund’s adjusted bases to the extent of the greatest foreign ownership percentage
of the Fund during the five-year period ending on the date of redemption.
Shares
of a Fund held by a non-U.S. shareholder at death will be considered situated within the United States and subject
to the U.S. estate tax, if applicable.
Because
each Fund expects to invest less than 50% of its assets at all times, directly or indirectly, in U.S. real property interests,
the Funds expect that neither gain on the sale or redemption of Fund shares nor Fund dividends and distributions
would be subject to the reporting and tax withholding rules described above.
U.S
tax certification rules. Special
U.S. tax certification requirements apply to non-U.S. shareholders both to avoid U.S. backup
withholding and to obtain the benefits of any treaty between the United States and the shareholder’s country of residence.
In general, a non-U.S. shareholder must provide a Form W-8BEN (or other applicable Form W-8) to establish that
you are not a U.S. person, to claim that you are the beneficial owner of the income and, if applicable, to claim a reduced
rate of, or exemption from, withholding as a resident of a country with which the United States has an income tax treaty.
A Form W-8BEN provided without a U.S. taxpayer identification number will remain in effect for a period beginning on
the date signed and ending on the last day of the third succeeding calendar year unless an earlier change of circumstances
makes the information on the form incorrect.
Withholding.
A 30% withholding tax is currently imposed on dividends and certain other types of income paid to (i) foreign
financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the IRS information
regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities, unless they certify
certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions
will need to (i) enter into agreements with the IRS that state that they will provide the IRS information, including the
names, addresses and taxpayer identification numbers of direct and indirect U.S. account holders, comply with due
Additional
General Tax Information for all Funds 129
diligence
procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to
U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial institutions
or to account holders who fail to provide the required information, and determine certain other information as to
their account holders, or (ii) in the event that an intergovernmental agreement and implementing legislation is adopted,
provide local revenue authorities with similar account holder information. Other foreign entities will need to either
provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no
substantial U.S. ownership unless certain exceptions apply.
The
tax consequences to a non-U.S. shareholder entitled to claim the benefits of an applicable tax treaty may be different
from those described herein. Non-U.S. shareholders are urged to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in a Fund, including the applicability of foreign tax.
Reporting
If
a shareholder recognizes a loss with respect to the Fund’s shares of $2 million or more for an individual shareholder or
$10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct owners of portfolio securities are in many cases exempted from this reporting requirement, but under current
guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders
should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Effect
of Future Legislation; Local Tax Considerations
The
foregoing general discussion of U.S. federal income tax consequences is based on the Code and the regulations issued
thereunder as in effect on the date of this Statement of Additional Information. In addition, future legislative or administrative
changes or court decisions may significantly change the conclusions expressed herein, and any such changes
or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and
local taxation of ordinary income, qualified dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending
on each shareholder’s particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. Shareholders are urged to consult their tax advisors as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
This discussion of “ADDITIONAL GENERAL TAX INFORMATION FOR THE
FUNDS” is not intended or written to be used as tax advice and does not purport to deal with all U.S. federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules. You should consult your own tax advisor regarding your
particular circumstances before making an investment in a Fund.
Additional Tax Information with respect to Intermediate Municipal Income
Fund, Short Duration High Yield Municipal Fund and Ultra Short Municipal Income Fund
The tax information described in “Additional
General Tax Information for All Funds” above applies to the Intermediate Municipal Income Fund, the Short Duration High Yield Municipal
Fund and the Ultra Short Municipal Income Fund, except as noted in this section.
Exempt-Interest
Dividends
By
meeting certain requirements of the Code, each Fund qualifies to pay exempt-interest dividends to you. These dividends
are derived from interest income exempt from regular federal income tax and are not subject to regular U.S. federal
income tax when they are paid to you. Exempt-interest dividends that are excluded from federal taxable income may
still be subject to the federal alternative minimum tax. See the discussion below under the heading “Alternative Minimum
Tax.”
In
addition, to the extent that exempt-interest dividends are derived from interest on obligations of a state or its political
subdivisions, or from interest on qualifying U.S. territorial obligations (including qualifying obligations of Puerto Rico,
the U.S. Virgin Islands and Guam), they also may be exempt from that state’s personal income taxes. Most states, however,
do not grant tax-free treatment to interest on state and municipal securities of other states. Because of these tax
exemptions, a tax-free fund may not be a suitable investment for retirement plans and other tax-exempt investors. Corporate
shareholders should note that these dividends may be fully taxable in states that impose corporate franchise taxes,
and they should consult with their tax advisors about the taxability of this income before investing in a Fund. Derivatives
on municipal securities generally produce taxable income or taxable loss, with certain exceptions.
Exempt-interest
dividends are taken into account when determining the taxable portion of your social security or railroad
retirement benefits. A Fund may invest a portion of its assets in private activity bonds. The income from private activity
bonds is a tax preference item when determining your U.S. federal alternative minimum tax. From time to time, legislation
may be introduced or litigation may arise that may restrict or eliminate the federal income tax exemption for interest
on debt obligations issued by states and their political subdivisions.
As
a result of entering into swap contracts, a Fund may make or receive net periodic payments. The Fund may also
make or receive a net periodic payment when a swap is terminated prior to maturity through an assignment of the swap
or other closing transaction. Periodic net payments received by the Fund will generally constitute taxable ordinary income
or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital
gain or loss if the Fund has been a party to the swap for more than one year). With respect to certain types of swaps,
the Fund may be required to currently recognize income or loss with respect to future payments on such swaps or
may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or
loss. Periodic net payments paid by the Fund that would otherwise constitute ordinary deductions but are allocable under
the Code to exempt interest income will not be allowed as a deduction but instead will reduce net tax-exempt income.
130 Additional
General Tax Information for all Funds
Dividends
from Taxable Income
A
Fund may earn taxable income from many sources, including income from temporary investments, discount from
stripped obligations or their coupons, income from securities loans or other taxable transactions, and ordinary income
from the sale of market discount bonds. If you are a taxable investor, any distributions by the Fund from this income
will be taxable to you as ordinary income, whether you receive them in cash or in additional shares.
Distributions
of Capital Gains and Gain or Loss on Sale or Exchange of Your Fund Shares
A
Fund may realize a capital gain or loss on sale of portfolio securities. Distributions of capital gains are taxable to you.
Distributions from net short-term capital gain will be taxable to you as ordinary income. Distributions from net long-term
capital gain will be taxable to you as long-term capital gain, regardless of how long you have held your shares in
the Fund.
When
you sell your shares in a Fund, you may realize a capital gain or loss, which is subject to federal income tax. For
tax purposes, an exchange of your Fund shares for shares of a different abrdn Fund is the same as a sale.
For
federal income tax purposes, each Fund is generally permitted to carry forward a net capital loss in any taxable year
to offset its own capital gains. These amounts are available to be carried forward to offset future capital gains to extent
permitted by the Code and applicable tax regulations. Any such loss carryforwards will retain their character as short-term
or long-term. In the event that a Fund were to experience an ownership change as defined for federal income
tax purposes, the Fund’s loss carryforwards may be subject to limitation.
Information
on the Amount and Tax Character of Distributions
Each
Fund will inform you of the amount of your taxable ordinary income and capital gain dividends at the time they are
paid, and will advise you of their tax status for U.S. federal income tax purposes shortly after the end of each calendar year,
including the portion of the distributions that on average are comprised of exempt-interest income, taxable income and
the portion of exempt-interest income that is a tax preference item when determining the alternative minimum tax. If you
have not held Fund shares for a full year, the Fund may report and distribute to you, as exempt-interest income, taxable
income, or capital gains, and in the case of non-U.S. shareholders, the Fund may further report and distribute as interest-related
dividends and short-term capital gain dividends, a percentage of income that may not be equal to the actual
amount of this type of income earned during the period of your investment in the Fund. Taxable distributions declared
by the Fund in December to shareholders of record in such month but paid in January are taxed to you as if made
in December.
Redemption
at a Loss Within Six Months of Purchase
Any
loss incurred on the redemption or exchange of shares held for six months or less will be disallowed to the extent of
any exempt-interest dividends paid to you with respect to your Fund shares, and any remaining loss will be treated as a long-term
capital loss to the extent of any long-term capital gain distributed to you by the Fund on those shares.
Qualified
Dividend Income for Individuals
Because
each Fund’s income is derived primarily from interest rather than dividends, none of its distributions are expected
to be qualified dividends eligible for taxation by individuals at long-term capital gain rates.
Dividends-Received
Deduction for Corporations
Because
each Fund’s income is derived primarily from interest rather than dividends, none of its distributions are expected
to qualify for the corporate dividends-received deduction.
Section
199A Dividends for Individuals
Because
each Fund’s income is derived primarily from interest rather than dividends, none of its distributions are expected
to be section 199A dividends, eligible for a 20% qualified business income deduction.
Alternative
Minimum Tax
Interest
on certain private activity bonds, while exempt from regular U.S. federal income tax, is a preference item for you
when determining your alternative minimum tax under the Code and under the income tax provisions of several states.
Private activity bond interest could subject you to or increase your liability under the federal and state alternative minimum
taxes, depending on your personal or corporate tax position. If you are a person defined in the Code as a substantial
user (or person related to a user) of a facility financed by private activity bonds, you should consult with your tax
adviser before buying shares of a Fund.
Treatment
of Interest on Debt Incurred to Hold Fund Shares
Interest
on debt you incur to buy or hold Fund shares may not be deductible for U.S. federal income tax purposes. Indebtedness
may be allocated to shares of a Fund even though not directly traceable to the purchase of such shares.
Loss
of Status of Securities as Tax-Exempt
Failure
of the issuer of a tax-exempt security to comply with certain legal or contractual requirements relating to the security
could cause interest on the security, as well as Fund distributions derived from this interest, to become taxable, perhaps
retroactively to the date the security was issued. In such a case, a Fund may be required to report to the IRS
Additional
General Tax Information for all Funds 131
and
send to shareholders amended Forms 1099 for a prior taxable year in order to report additional taxable income. This, in
turn, could require shareholders to file amended federal and state income tax returns for such prior year to report and pay
tax and interest on their pro rata share of the additional amount of taxable income.
Non-U.S.
Investors
In
general, exempt-interest dividends reported by a Fund and paid from net tax-exempt income are not subject to U.S.
withholding tax.
This
discussion of “Additional General Tax Information” is not intended or written to be used as tax advice and does not purport
to deal with all U.S. federal tax consequences applicable to all categories of investors, some of which may be subject to
special rules. You should consult your own tax advisor regarding your particular circumstances before making an investment
in any of the Funds.
132 Additional
General Tax Information for all Funds
Major
Shareholders
Persons
or organizations beneficially owning more than 25% of the outstanding shares of a Fund are presumed to “control”
the Fund within the meaning of the 1940 Act. 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 January 31, 2024, the following
shareholders were shown in the Trust’s records as owning more than 25% of each Fund’s shares. The Trust does not
know of any other person who owns beneficially more than 25% of each Fund’s shares except as set forth below.
|
|
|
|
|
|
|
Fund
|
Shareholder
|
Percent
of the Fund
Total Assets
Held by the Shareholder
|
abrdn
Emerging Markets Dividend
Fund |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA
94105-1901
|
52.25%
|
abrdn
Intermediate Municipal
Income Fund |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
45.87%
|
abrdn
China A Share Equity
Fund |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
32.97%
|
abrdn
International Small Cap
Fund |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS |
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA
94105-1901
|
32.38%
|
abrdn
Realty Income & Growth
Fund |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMERS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
29.65%
|
abrdn
Emerging Markets Fund
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
26.28%
|
As
of January 31, 2024,
the following shareholders were shown in the Trust’s records as owning 5% or more of any class
of each Fund’s shares. The Trust does not know of any other person who owns of record or beneficially 5% or more of
any class of each Fund’s shares except as set forth below.
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
China A Share
Equity Fund
Class A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
14.88%
|
abrdn
China A Share
Equity Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
9.92%
|
abrdn
China A Share
Equity Fund
Class A |
MLPFS
|
FOR
SOLE BENEFIT OF ITS CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
9.58%
|
abrdn
China A Share
Equity Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
7.93%
|
abrdn
China A Share
Equity Fund
Class A |
VANGUARD
BROKERAGE SERVICES
|
100
VANGUARD BLVD
|
MALVERN
PA 19355-2331
|
|
|
5.17%
|
abrdn
China A Share
Equity Fund
Class C |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
80.76%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
China A Share
Equity Fund
Class C |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
13.50%
|
abrdn
China A Share
Equity Fund
Class R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
83.55%
|
abrdn
China A Share
Equity Fund
Class R |
ASCENSUS
TRUST COMPANY
FBO |
P.O.
BOX 10758 |
FARGO
ND 58106-0758
|
|
|
6.70%
|
abrdn
China A Share
Equity Fund
Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
65.03%
|
abrdn
China A Share
Equity Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
|
|
5.97%
|
abrdn
China A Share
Equity Fund
Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
5.32%
|
abrdn
China A Share
Equity Fund
Institutional
Class
|
RBC
CAPITAL MARKETS LLC
|
1216
OLD GULPH RD
|
ROSEMONT
PA 19010-1650
|
|
|
5.05%
|
abrdn
China A Share
Equity Fund
Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
73.37%
|
abrdn
China A Share
Equity Fund
Institutional
Service
Class |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
11.60%
|
abrdn
China A Share
Equity Fund
Institutional
Service
Class |
ASCENSUS
TRUST COMPANY
FBO |
PO
BOX 10758 |
FARGO
ND 58106-0758
|
|
|
5.04%
|
abrdn
Dynamic
Dividend
Fund Class
A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
35.04%
|
abrdn
Dynamic
Dividend
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
10.94%
|
abrdn
Dynamic
Dividend
Fund Class
A |
UBS
WM USA |
OMNI
ACCOUNT M/F SPEC CDY
A/C |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
10.74%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Dynamic
Dividend
Fund Class
A |
MERRILL
LYNCH PIERCE FENNER &
SMITH |
FOR
SOLE BENEFIT OF IT CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
8.11%
|
abrdn
Dynamic
Dividend
Fund Class
A |
NATIONAL
FINANCIAL SERVICES
LLC |
499
WASHINGTON BLVD
|
JERSEY
CITY NJ 07310-1995
|
|
|
7.42%
|
abrdn
Dynamic
Dividend
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SEPCIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMER
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
6.00%
|
abrdn
Dynamic
Dividend
Fund Class
A |
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
5.21%
|
abrdn
Dynamic
Dividend
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMERS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
21.88%
|
abrdn
Dynamic
Dividend
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
9.72%
|
abrdn
Dynamic
Dividend
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
8.29%
|
abrdn
Dynamic
Dividend
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
5.94%
|
abrdn
Emerging
Markets
ex-China
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
28.66%
|
abrdn
Emerging
Markets
ex-China
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
6.70%
|
abrdn
Emerging
Markets
ex-China
Fund Class
C |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
37.35%
|
abrdn
Emerging
Markets
ex-China
Fund Class
C |
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
29.69%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
ex-China
Fund Class
C |
NATIONAL
FINANCIAL SERVICES
LLC |
499
WASHINGTON BLVD
|
JERSEY
CITY NJ 07310-1995
|
|
|
6.47%
|
abrdn
Emerging
Markets
ex-China
Fund Class
C |
NATIONAL
FINANCIAL SERVICES
LLC |
499
WASHINGTON BLVD
|
JERSEY
CITY NJ 07310-1995
|
|
|
6.13%
|
abrdn
Emerging
Markets
ex-China
Fund Class
C |
LPL
FINANCIAL |
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
|
|
5.28%
|
abrdn
Emerging
Markets
ex-China
Fund Class
R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
59.06%
|
abrdn
Emerging
Markets
ex-China
Fund Class
R |
ASCENSUS
TRUST COMPANY
FBO |
P.O.
BOX 10758 |
FARGO
ND 58106-0758
|
|
|
8.54%
|
abrdn
Emerging
Markets
ex-China
Fund Class
R |
EMPOWER
TRUST FBO
|
8515
E ORCHARD RD 2T2
|
GREENWOOD
VILLAGE CO 80111-5002
|
|
|
7.96%
|
abrdn
Emerging
Markets
ex-China
Fund Class
R |
ASCENSUS
TRUST COMPANY
FBO |
P.O.
BOX 10758 |
FARGO
ND 58106-0758
|
|
|
6.46%
|
abrdn
Emerging
Markets
ex-China
Fund Class
R |
MATRIX
TRUST COMPANY
|
AS
AGENT FOR ADVISOR TRUST,
INC. |
717
17TH ST STE 1300
|
DENVER
CO 80202-3304
|
|
6.08%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Class
|
LPL
FINANCIAL |
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
|
|
40.87%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
20.67%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
16.82%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Class
|
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
12.72%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
5.06%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ATTN
MUTUAL FUNDS DEPARTMENT
|
499
WASHINGTONBLVD FL
4 |
JERSEY
CITY NJ 07310-2010
|
90.44%
|
abrdn
Emerging
Markets
ex-China
Fund Institutional
Service
Class |
ASCENSUS
TRUST COMPANY
FBO |
ASCENSUS
TRUST COMPANY
|
PO
BOX 10577 |
FARGO
ND 58106-0577
|
|
7.81%
|
abrdn
Emerging
Markets
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
|
27.72%
|
abrdn
Emerging
Markets
Fund Class
A |
MLPFS
INC |
FOR
THE SOLE BENEFIT OF ITS
CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
12.95%
|
abrdn
Emerging
Markets
Fund Class
A |
EMPOWER
TRUST FBO
|
8515
E ORCHARD RD 2T2
|
GREENWOOD
VILLAGE CO 80111-5002
|
|
|
12.39%
|
abrdn
Emerging
Markets
Fund Class
A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL12
|
NEW
YORK NY 10004-1965
|
|
10.37%
|
abrdn
Emerging
Markets
Fund Class
A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
5.36%
|
abrdn
Emerging
Markets
Fund Class
C |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
49.82%
|
abrdn
Emerging
Markets
Fund Class
C |
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
26.23%
|
abrdn
Emerging
Markets
Fund Class
C |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
9.20%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
Fund Class
R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
93.31%
|
abrdn
Emerging
Markets
Fund Class
R |
VOYA
INSTITUTIONAL TRUST
COMPANY
|
ONE
ORANGE WAY
|
WINDSOR
CT 06095-4773
|
|
|
5.51%
|
abrdn
Emerging
Markets
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
21.18%
|
abrdn
Emerging
Markets
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
13.53%
|
abrdn
Emerging
Markets
Fund Institutional
Class
|
WELLS
FARGO BANK NA FBO
|
OMNIBUS
ACCOUNT CASH/CASH
|
PO
BOX 1533 |
MINNEAPOLIS
MN 55480-1533
|
|
11.64%
|
abrdn
Emerging
Markets
Fund Institutional
Class
|
MERRILL
LYNCH PIERCE FENNER &
|
SMITH
INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
|
4800
DEER LAKE DRIVE EAST
|
JACKSONVILLE
FL 32246-6484
|
|
10.10%
|
abrdn
Emerging
Markets
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
9.36%
|
abrdn
Emerging
Markets
Fund Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
95.62%
|
abrdn
Emerging Markets
Sustainable Leaders
Fund Class A
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
24.50%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
A |
MLPF
& S |
THE
SOLE BENEFIT OF ITS CUSTOMER
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
10.41%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
7.88%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
7.68%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
A |
STATE
STREET BANK & TRUST
|
AS
TRUSTEE AND/OR CUSTODIAN
|
1
LINCOLN ST |
BOSTON
MA 02111-2901
|
|
7.06%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
6.99%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
C |
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
53.02%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
C |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
21.33%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
C |
UMB
BANK NA |
CUST
IRA FBO |
16564
THUNDERHEAD CANYON
CT |
WILDWOOD
MO 63011-1853
|
|
12.46%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
C |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
|
9.42%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
R |
PIMS/PRUDENTIAL
RETIREMENT
|
AS
NOMINEE FOR THE TTEE/CUST
|
204
E 23RD ST - 3RD FL
|
NEW
YORK NY 10010-4628
|
|
41.75%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Class
R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
35.40%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
20.04%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
|
14.08%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
12.62%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
7.72%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
CITIBANK
PBG |
1
COURT SQ |
LONG
IS CITY NY 11101
|
|
|
6.59%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
UBS
WM USA |
OMNI
ACCOUNT M/F
|
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
5.86%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
NATIONWIDE
TRUST COMPANY
FSB |
PO
BOX 182029 |
COLUMBUS
OH 43218-2029
|
|
|
5.76%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
5.21%
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Service
Class |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
21.67%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Emerging
Markets
Sustainable
Leaders
Fund Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
11.93%
|
abrdn
Global Equity
Impact Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
31.15%
|
abrdn
Global Equity
Impact Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
5.77%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMERS
|
2801
MARKET ST |
SAINT
LOUIS MO 63103-2523
|
|
16.13%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FEBO
OUR CUSTOMERS
|
499
WASHINGTON BLVD
FL 5 |
JERSEY
CITY NJ 07310-2010
|
|
13.35%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
12.73%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
J
P MORGAN SECURITIES LLC
OMNIBUS
|
A/C
EXCLUSIVE BENEFIT OF
CUSTOMERS
|
4
CHASE METROTECH CTR
3RD FL MFD |
BROOKLYN
NY 11245-0003
|
|
11.75%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
11.35%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
RELIANCE
TRUST CO FBO
|
PO
BOX 78446 |
ATLANTA
GA 30357
|
|
|
7.18%
|
abrdn
Global Equity
Impact Fund
Institutional
Class
|
LPL
FINANCIAL |
OMNIBUS
CUSTOMER ACCOUNT
|
ATTN
MUTUAL FUND TRADING
|
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
7.12%
|
abrdn
Global Infrastructure
Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
24.27%
|
abrdn
Global Infrastructure
Fund
Class A |
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
20.48%
|
abrdn
Global Infrastructure
Fund
Class A |
MERRILL
LYNCH PIERCE FENNER &
SMITH |
FOR
SOLE BENEFIT OF IT CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
11.59%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Global Infrastructure
Fund
Class A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
7.95%
|
abrdn
Global Infrastructure
Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SEPCIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMER
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
7.16%
|
abrdn
Global Infrastructure
Fund
Class A |
LPL
FINANCIAL |
OMNIBUS
CUSTOMER ACCOUNT
|
ATTN
MUTUAL FUND TRADING
|
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
5.90%
|
abrdn
Global Infrastructure
Fund
Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
20.45%
|
abrdn
Global Infrastructure
Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
18.92%
|
abrdn
Global Infrastructure
Fund
Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
18.16%
|
abrdn
Global Infrastructure
Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMERS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
13.03%
|
abrdn
High Income
Opportunities
Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
20.23%
|
abrdn
High Income
Opportunities
Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
17.73%
|
abrdn
High Income
Opportunities
Fund
Institutional
Class
|
NABANK
& CO. |
PO
BOX 2180 |
TULSA
OK 74101-2180
|
|
|
37.18%
|
abrdn
High Income
Opportunities
Fund
Institutional
Class
|
LPL
FINANCIAL |
OMNIBUS
CUSTOMER ACCOUNT
|
ATTN
MUTUAL FUND TRADING
|
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
12.77%
|
abrdn
High Income
Opportunities
Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FEBO
OUR CUSTOMERS
|
499
WASHINGTON BLVD
FL 5 |
JERSEY
CITY NJ 07310-2010
|
|
11.99%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
High Income
Opportunities
Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
8.84%
|
abrdn
High Income
Opportunities
Fund
Institutional
Class
|
MLPF
& S |
FOR
THE SOLE BENEFIT OF ITS
CUSTOMERS
|
4800
DEER LAKE DR E FL 97HC3
|
JACKSONVILLE
FL 32246-6484
|
|
5.71%
|
abrdn
Infrastructure
Debt
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
17.97%
|
abrdn
Infrastructure
Debt
Fund Class
A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
8.49%
|
abrdn
Infrastructure
Debt
Fund Class
A |
KENNETH
KAROLS & MARGRIETA
KAROLS JTWROS
|
1903
E LA RUA ST |
PENSACOLA
FL 32501-3544
|
|
|
6.08%
|
abrdn
Infrastructure
Debt
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
29.30%
|
abrdn
Infrastructure
Debt
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
18.21%
|
abrdn
Infrastructure
Debt
Fund Institutional
Class
|
LPL
FINANCIAL |
FBO
CUSTOMER ACCOUNTS
|
PO
BOX 509046 |
SAN
DIEGO CA 92150-9046
|
|
10.77%
|
abrdn
Infrastructure
Debt
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ATTN
MUTUAL FUNDS DEPARTM
4TH FLOOR
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
10.26%
|
abrdn
Infrastructure
Debt
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
6.63%
|
abrdn
Infrastructure
Debt
Fund Institutional
Service
Class |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
43.69%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Infrastructure
Debt
Fund Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
17.65%
|
abrdn
Infrastructure
Debt
Fund Institutional
Service
Class |
NATIONWIDE
LIFE INSURANCE COMPANY
|
NATIONWIDE
VARIABLE ACCOUNT
|
C
O IPO PROTFOLIO ACCOUNTING
|
PO
BOX 182029 |
COLUMBUS
OH 43218-2029
|
7.46%
|
abrdn
Intermediate
Municipal
Income
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
63.77%
|
abrdn
Intermediate
Municipal
Income
Fund Class
A |
RUTH
ANN HALLOW
|
4925
S ROUTE 44 HWY
|
JERSEY
SHORE PA 17740-9022
|
|
|
5.49%
|
abrdn
Intermediate
Municipal
Income
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
50.67%
|
abrdn
Intermediate
Municipal
Income
Fund Institutional
Service
Class |
ABRDN
INC |
SEED
ACCOUNT |
1900
MARKET ST FL 2
|
PHILADELPHIA
PA 19103-3510
|
|
60.83%
|
abrdn
Intermediate
Municipal
Income
Fund Institutional
Service
Class |
UMB
BANK NA |
2117
N 10TH ST |
TERRE
HAUTE IN 47804-2306
|
|
|
39.17%
|
abrdn
International
Small
Cap Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
37.97%
|
abrdn
International
Small
Cap Fund
Class A |
NATIONAL
FINANCIAL SERVICES
LLC |
499
WASHINGTON BLVD
|
JERSEY
CITY NJ 07310-1995
|
|
|
9.24%
|
abrdn
International
Small
Cap Fund
Class C |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
43.95%
|
abrdn
International
Small
Cap Fund
Class C |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
32.21%
|
abrdn
International
Small
Cap Fund
Class C |
LPL
FINANCIAL |
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
|
|
9.02%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
International
Small
Cap Fund
Class C |
SEI
PRIVATE TRUST COMPANY
|
ONE
FREEDOM VALLEY DRIVE
|
OAKS
PA 19456-9989
|
|
|
9.01%
|
abrdn
International
Small
Cap Fund
Class R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
69.74%
|
abrdn
International
Small
Cap Fund
Class R |
EMPOWER
TRUST FBO
|
8515
E ORCHARD RD 2T2
|
GREENWOOD
VILLAGE CO 80111-5002
|
|
|
5.34%
|
abrdn
International
Small
Cap Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
56.91%
|
abrdn
International
Small
Cap Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
15.13%
|
abrdn
Emerging Markets Dividend
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
58.24%
|
abrdn
Emerging Markets Dividend
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
BENEFIT OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
25.69%
|
abrdn
Emerging Markets Dividend
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FEBO
OUR CUSTOMERS
|
499
WASHINGTON BLVD
FL 5 |
JERSEY
CITY NJ 07310-2010
|
|
21.22%
|
abrdn
Emerging Markets Dividend
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMERS
|
2801
MARKET ST |
SAINT
LOUIS MO 63103-2523
|
|
14.75%
|
abrdn
Emerging Markets Dividend
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0002
|
|
|
5.06%
|
abrdn
Realty Income
& Growth
Fund Class
A |
MERRILL
LYNCH PIERCE FENNER &
SMITH |
FOR
SOLE BENEFIT OF IT CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
23.15%
|
abrdn
Realty Income
& Growth
Fund Class
A |
RAYMOND
JAMES OMNIBUS FOR
MUTUAL |
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
|
16.26%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Realty Income
& Growth
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
15.60%
|
abrdn
Realty Income
& Growth
Fund Class
A |
MID
ATLANTIC TRUST COMPANY
FBO |
1251
WATERFRONT PL STE
525 |
PITTSBURGH
PA 15222-4228
|
|
|
8.39%
|
abrdn
Realty Income
& Growth
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
8.35%
|
abrdn
Realty Income
& Growth
Fund Class
A |
JOYCE
K PERRY |
4410
GREGG TEX RD
|
LONGVIEW
TX 75604-9476
|
|
|
6.89%
|
abrdn
Realty Income
& Growth
Fund Class
A |
SHOTA
T FLETCHER
|
1392
BONITA AVE
|
MOUNTAIN
VIEW CA 94040-3141
|
|
|
6.58%
|
abrdn
Realty Income
& Growth
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMERS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
29.92%
|
abrdn
Realty Income
& Growth
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
23.56%
|
abrdn
Realty Income
& Growth
Fund Institutional
Class
|
RELIANCE
TRUST CO FBO
|
PO
BOX 570788 |
ATLANTA
GA 30357-3114
|
|
|
5.40%
|
abrdn
Short Duration
High Yield
Municipal Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
60.34%
|
abrdn
Short Duration
High Yield
Municipal Fund
Class A |
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
21.40%
|
abrdn
Short Duration
High Yield
Municipal Fund
Class A |
CHARLES
SCHWAB & CO INC
|
ATTN
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
7.11%
|
abrdn
Short Duration
High Yield
Municipal Fund
Class C |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
56.27%
|
abrdn
Short Duration
High Yield
Municipal Fund
Class C |
ABRDN
INC |
SEED
ACCOUNT |
1900
MARKET ST FL 2
|
PHILADELPHIA
PA 19103-3510
|
|
43.73%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Short Duration
High Yield
Municipal Fund
Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
15.09%
|
abrdn
Short Duration
High Yield
Municipal Fund
Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
15.02%
|
abrdn
Short Duration
High Yield
Municipal Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
ATTN
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
8.86%
|
abrdn
Short Duration
High Yield
Municipal Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
7.39%
|
abrdn
U.S. Small
Cap Equity
Fund Class
A |
MLPF
& SMITH INC
|
FOR
THE SOLE BENEFIT OF ITS
CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
15.86%
|
abrdn
U.S. Small
Cap Equity
Fund Class
A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
12.42%
|
abrdn
U.S. Small
Cap Equity
Fund Class
A |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
10.09%
|
abrdn
U.S. Small
Cap Equity
Fund Class
A |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
7.28%
|
abrdn
U.S. Small
Cap Equity
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
7.27%
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
24.62%
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
|
16.73%
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
AMERICAN
ENTERPRISE INVESTMENT
SVC |
707
2ND AVE S |
MINNEAPOLIS
MN 55402-2405
|
|
|
10.12%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
8.90%
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
6.72%
|
abrdn
U.S. Small
Cap Equity
Fund Class
C |
LPL
FINANCIAL |
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
|
|
6.02%
|
abrdn
U.S. Small
Cap Equity
Fund Class
R |
MATRIX
TRUST COMPANY
|
AS
AGENT FOR ADVISOR TRUST,
INC. |
717
17TH STREET, SUITE 1300
|
DENVER
CO 80202-3304
|
|
7.07%
|
abrdn
U.S. Small
Cap Equity
Fund Class
R |
ASCENSUS
TRUST COMPANY
FBO |
P.O.
BOX 10758 |
FARGO
ND 58106-0758
|
|
|
6.34%
|
abrdn
U.S. Small
Cap Equity
Fund Class
R |
MLPF&S
|
THE
SOLE BENEFIT OF ITS CUSTOMER
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
5.44%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
19.02%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
14.52%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
11.02%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
SEI
PRIVATE TRUST COMPANY
|
ONE
FREEDOM VALLEY DRIVE
|
OAKS
PA 19456-9989
|
|
|
8.24%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
7.75%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
MLPFS
INC FOR |
THE
SOLE BENEFIT OF ITS CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
6.83%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
LPL
FINANCIAL |
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
|
|
5.96%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
5.34%
|
abrdn
U.S. Small
Cap Equity
Fund Institutional
Service
Class |
EMPOWER
TRUST FBO
|
8515
E ORCHARD RD 2T2
|
GREENWOOD
VILLAGE CO 80111-5002
|
|
|
80.80%
|
abrdn
U.S. Sustainable
Leaders
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCOUNT
FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
9.25%
|
abrdn
U.S. Sustainable
Leaders
Fund Class
C |
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
53.90%
|
abrdn
U.S. Sustainable
Leaders
Fund Class
C |
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
19.45%
|
abrdn
U.S. Sustainable
Leaders
Fund Class
C |
NATIONAL
FINANCIAL SERVICES
LLC |
499
WASHINGTON BLVD
|
JERSEY
CITY NJ 07310-1995
|
|
|
9.20%
|
abrdn
U.S. Sustainable
Leaders
Fund Class
C |
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
8.34%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
19.53%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
NATIONWIDE
TRUST COMPANY
FSB |
PO
BOX 182029 |
COLUMBUS
OH 43218-2029
|
|
|
12.20%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
11.70%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
LPL
FINANCIAL |
FBO
CUSTOMER ACCOUNTS
|
ATTN
MUTUAL FUND OPERATIONS
|
PO
BOX 509046 |
SAN
DIEGO CA 92150-9046
|
9.24%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
|
9.18%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
7.96%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMER |
ATTN:
MUTUAL FUNDS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
7.74%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Service
Class |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCOUNT
FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
|
ATTN:
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
23.68%
|
abrdn
U.S. Sustainable
Leaders
Fund Institutional
Service
Class |
NAT’L
FINANCIAL SVCS CORP
|
FBO
CUSTOMERS
|
499
WASHINGTON BLVD
FL 5 |
JERSEY
CITY NJ 07310-2010
|
|
10.86%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Class A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
20.68%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Class A |
MLPFS
|
FOR
THE SOLE BENEFIT OF ITS
CUST |
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
7.30%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Class A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
6.05%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Class R |
SAMMONS
FINANCIAL NETWORK
LLC |
4546
CORPORATE DR STE
100 |
WDM
IA 50266-5911
|
|
|
60.89%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Class R |
VOYA
INSTITUTIONAL TRUST
COMPANY
|
ONE
ORANGE WAY
|
WINDSOR
CT 06095-4773
|
|
|
37.25%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
33.78%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
PERSHING
LLC |
1
PERSHING PLZ |
JERSEY
CITY NJ 07399-0001
|
|
|
14.82%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
DCGT
AS TTEE AND/OR CUST
|
FBO
PLIC VARIOUS RETIREMENT
PLANS OMNIBUS
|
ATTN
NPIO TRADE DESK
|
711
HIGH ST |
DES
MOINES IA 50392-0001
|
12.51%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
10.32%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY ACCT FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
8.81%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
5.23%
|
abrdn
Focused U.S. Small Cap Equity
Fund
Institutional
Service
Class |
NATIONAL
FINANCIAL SERVICES
LLC |
FOR
THE EXCLUSIVE BENEFIT
OF OUR CUSTOMERS
|
ONE
WORLD FINANCIAL CENTER
|
499
WASHINGTON BLVD
FL 5 FL 4 |
JERSEY
CITY NJ 07310-1995
|
99.13%
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A |
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
42.55%
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A |
J
P MORGAN SECURITIES LLC
OMNIBUS
|
A/C
EXCLUSIVE BENEFIT OF
CUSTOMERS
|
4
CHASE METROTECH CTR
3RD FL MFD |
BROOKLYN
NY 11245-0003
|
|
17.89%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A |
RAYMOND
JAMES OMNIBUS
|
FOR
MUTUAL FUNDS HOUSE
|
880
CARILLON PKWY
|
ST
PETERSBURG FL 33716-1100
|
|
10.28%
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A |
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
9.25%
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A |
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUSTODY A/C FBO
CUSTOMERS
|
ATTN
MUTUAL FUNDS
|
211
MAIN STREET
|
SAN
FRANCISCO CA 94105-1901
|
7.10%
|
abrdn
Ultra Short
Municipal
Income
Fund Class
A1 |
WELLS
FARGO CLEARRING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE EXCLUSIVE BENEFIT
OF CUSTOMER
|
2801
MARKET ST |
SAINT
LOUIS MO 63103-2523
|
|
96.09%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
J
P MORGAN SECURITIES LLC
OMNIBUS
|
A/C
EXCLUSIVE BENEFIT OF
CUSTOMERS
|
4
CHASE METROTECH CTR
3RD FL MFD |
BROOKLYN
NY 11245-0003
|
|
20.85%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
MORGAN
STANLEY SMITH BARNEY
LLC |
FOR
THE EXCLUSIVE BENE OF
ITS CUST |
1
NEW YORK PLZ FL 12
|
NEW
YORK NY 10004-1965
|
|
17.60%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
CHARLES
SCHWAB & CO INC
|
SPECIAL
CUST ACCOUNT FOR BENEFIT
OF CUSTOMERS
|
211
MAIN ST |
SAN
FRANCISCO CA 94105-1901
|
|
16.96%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
MERRILL
LYNCH PIERCE FENNER &
SMITH |
FOR
SOLE BENEFIT OF IT CUSTOMERS
|
4800
DEER LAKE DR E
|
JACKSONVILLE
FL 32246-6484
|
|
10.66%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
UBS
WM USA |
1000
HARBOR BLVD
|
WEEHAWKEN
NJ 07086-6761
|
|
|
9.33%
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
LPL
FINANCIAL |
OMNIBUS
CUSTOMER ACCOUNT
|
ATTN
MUTUAL FUND TRADING
|
4707
EXECUTIVE DR
|
SAN
DIEGO CA 92121-3091
|
7.49%
|
|
|
|
|
|
|
|
Fund/Class
|
Shareholder
|
Percent
of the Class
Total Assets
Held by the Shareholder
|
abrdn
Ultra Short
Municipal
Income
Fund Institutional
Class
|
WELLS
FARGO CLEARING SERVICES
LLC |
SPECIAL
CUSTODY ACCT FOR
THE |
EXCLUSIVE
BENEFIT OF CUSTOMER
|
2801
MARKET STREET
|
ST
LOUIS MO 63103-2523
|
5.15%
|
Financial
Statements
KPMG
is
the Funds’ independent registered public accounting firm. KPMG audits the Funds’ annual financial statements.
The audited financial statements and financial highlights of the Funds for their fiscal year ended October 31, 2023,
as set forth in the Funds’ annual
report to shareholders, including
the report of KPMG, are incorporated by reference
into this SAI. No other parts of the annual report are incorporated by reference herein. A copy of the annual reports
may be obtained upon request and without charge by writing to abrdn Funds c/o SS&C GIDS, Inc. at 430 W. 7th Street,
Ste. 219534, Kansas City, MO 64105-1407 or by calling 866-667-9231.
Appendix
A - Portfolio Managers
DESCRIPTION
OF COMPENSATION STRUCTURE
As
used in this Appendix, abrdn Inc. (“Adviser”), abrdn Investments Limited (“aIL”) and abrdn Asia Limited (“aAL”)
(collectively referred
to as “abrdn”)
abrdn’s
remuneration policies are designed to support its business strategy as a leading international asset manager.
The objective is to attract, retain and reward talented individuals for the delivery of sustained, superior returns for
abrdn’s clients and shareholders. abrdn operates in a highly competitive international employment market, and aims to
maintain its strong track record of success in developing and retaining talent.
abrdn’s
policy is to recognize corporate and individual achievements each year through an appropriate annual bonus
scheme. The bonus is a single, fully discretionary variable pay award. The aggregate value of awards in any year is dependent
on the group’s overall performance and profitability. Consideration is also given to the levels of bonuses paid in
the market. Individual awards, which are payable to all members of staff, are determined by a rigorous assessment of achievement
against defined objectives.
The
variable pay award comprises a mixture of cash and a deferred award based on the size of the award. Deferred awards
are by default abrdn plc shares, with an option to put up to 50% of deferral into funds. Overall compensation packages
are designed to be competitive relative to the investment management industry.
Base
Salary
abrdn’s
policy is to pay a fair salary commensurate with the individual’s role, responsibilities and experience, and having
regard to the market rates being offered for similar roles in the asset management sector and other comparable companies.
Any increase is generally to reflect inflation and is applied in a manner consistent with other abrdn employees;
any other increases must be justified by reference to promotion or changes in responsibilities.
Annual
Bonus
The
Remuneration Committee determines the key performance indicators that will be applied in considering the overall
size of the bonus pool. In line with practices amongst other asset management companies, individual bonuses are not
subject to an absolute cap. However, the aggregate size of the bonus pool is dependent on the group’s overall performance
and profitability. Consideration is also given to the levels of bonuses paid in the market. Individual awards are
determined by a rigorous assessment of achievement against defined objectives, and are reviewed and approved by the
Remuneration Committee.
abrdn
has a deferral policy which is intended to assist in the retention of talent and to create additional alignment of executives’
interests with abrdn’s sustained performance and, in respect of the deferral into funds, managed by abrdn, to align
the interest of asset managers with our clients.
Staff
performance is reviewed formally at least once a year. The review process evaluates the various aspects that the
individual has contributed to abrdn, and specifically, in the case of portfolio managers, to the relevant investment team.
Discretionary bonuses are based on client service, asset growth and the performance of the respective portfolio manager.
Overall participation in team meetings, generation of original research ideas and contribution to presenting the
team externally are also evaluated.
In
the calculation of a portfolio management team’s bonus, abrdn takes into consideration investment matters (which
include the performance of funds, adherence to the company investment process, and quality of company meetings)
as well as more subjective issues such as team participation and effectiveness at client presentations through KPI
scorecards. To the extent performance is factored in, such performance is not judged against any specific benchmark
and is evaluated over the period of a year - January to December. The pre- or after-tax performance of an individual
account is not considered in the determination of a portfolio manager’s discretionary bonus; rather the review process
evaluates the overall performance of the team for all of the accounts the team manages.
Portfolio
manager performance on investment matters is judged over all of the accounts the portfolio manager contributes
to and is documented in the appraisal process. A combination of the team’s and individual’s performance is considered
and evaluated.
Although
performance is not a substantial portion of a portfolio manager’s compensation, abrdn also recognizes that
fund performance can often be driven by factors outside one’s control, such as (irrational) markets, and as such pays
attention to the effort by portfolio managers to ensure integrity of our core process by sticking to disciplines and processes
set, regardless of momentum and ‘hot’ themes. Short-terming is thus discouraged and trading-oriented managers
will thus find it difficult to thrive in the abrdn environment. Additionally, if any of the aforementioned undue risks were
to be taken by a portfolio manager, such trend would be identified via abrdn’s dynamic compliance monitoring system.
Appendix
A - Portfolio Managers 155
In
rendering investment management services, the Adviser may use the resources of additional investment adviser subsidiaries
of abrdn plc. These affiliates have entered into a memorandum of understanding (“MOU”) pursuant to which investment
professionals from each affiliate may render portfolio management, research or trading services to abrdn clients.
Each investment professional who renders portfolio management, research or trading services under a MOU or personnel
sharing arrangement (“Participating Affiliate”) must comply with the provisions of the Advisers Act, the 1940 Act,
the Securities Act, the Exchange Act, and the Employee Retirement Income Security Act of 1974, and the laws of states
or countries in which the Adviser does business or has clients. No remuneration is paid by the Fund with respect to the
MOU/personnel sharing arrangements.
OTHER
MANAGED ACCOUNTS
The
following chart summarizes the “Other Accounts Managed” by each portfolio manager. “Other Accounts Managed”
represents the accounts managed by the teams of which the portfolio manager is a member. Accounts are grouped
into the following three categories: (1) registered investment companies; (2) other pooled investment vehicles; and
(3) other accounts. To the extent that any of these accounts pay advisory fees that are based on account performance
(“performance-based fees”), information on those accounts is provided separately. The figures in the chart below
for the category of “registered investment companies” include the Funds listed under each portfolio manager’s name
in the opposite column.
The “Other Accounts Managed” represents the accounts managed by the teams of which the
portfolio manager is a member.
|
|
Name
of Portfolio Manager |
Number
of Other Accounts Managed by Each Portfolio Manager and
Total Assets (in millions) by Category (as of October 31, 2023) |
Chris
Colarik |
Registered
Investment Companies: 4 accounts, $721.90 total assets |
Focused
U.S. Small Cap Equity Fund |
Other
Pooled Investment Vehicles: 10 accounts, $2,829.60 total assets |
U.S.
Small Cap Equity Fund |
Other
Accounts: 9 accounts, $12,468.47 total assets |
Scott
Eun |
Registered
Investment Companies: 4 accounts, $721.90 total assets |
Focused
U.S. Small Cap Equity Fund |
Other
Pooled Investment Vehicles: 10 accounts, $2,829.60 total assets |
U.S.
Small Cap Equity Fund |
Other
Accounts: 9 accounts, $12,468.47 total assets |
Chris
Haimendorf |
Registered
Investment Companies: 4 accounts, $721.90 total assets |
U.S.
Sustainable Leaders Fund |
Other
Pooled Investment Vehicles: 10 accounts, $2,829.60 total assets |
|
Other
Accounts: 9 accounts, $12,468.47 total assets |
Joanna
McIntyre |
Registered
Investment Companies: 4 accounts, $721.90 total assets |
U.S.
Sustainable Leaders Fund |
Other
Pooled Investment Vehicles: 10 accounts, $2,829.60 total assets |
|
Other
Accounts: 9 accounts, $12,468.47 total assets |
Jamie
Mills O’Brien |
Registered
Investment Companies: 4 accounts, $721.90 total assets |
U.S.
Sustainable Leaders Fund |
Other
Pooled Investment Vehicles: 10 accounts, $2,829.60 total assets |
|
Other
Accounts: 9 accounts, $12,468.47 total assets |
Pruksa
Iamthongthong |
Registered
Investment Companies: 4 accounts, $740.29 total assets |
China
A Fund |
Other
Pooled Investment Vehicles: 43 accounts, $14,722.17 total assets |
|
Other
Accounts: 39 accounts, $11,126.91 total assets |
Jim
Jiang |
Registered
Investment Companies: 4 accounts, $740.29 total assets |
China
A Fund |
Other
Pooled Investment Vehicles: 43 accounts, $14,722.17 total assets |
|
Other
Accounts: 39 accounts, $11,126.91 total assets |
Elizabeth
Kwik |
Registered
Investment Companies: 4 accounts, $740.29 total assets |
China
A Fund |
Other
Pooled Investment Vehicles: 43 accounts, $14,722.17 total assets |
|
Other
Accounts: 39 accounts, $11,126.91 total assets |
Nicholas
Yeo |
Registered
Investment Companies: 4 accounts, $740.29 total assets |
China
A Fund |
Other
Pooled Investment Vehicles: 43 accounts, $14,722.17 total assets |
|
Other
Accounts: 39 accounts, $11,126.91 total assets |
Kristy
Fong |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
Emerging
Markets ex-China Fund |
Other
Accounts: 16 accounts, $5,492.72 total assets |
Emerging
Markets Sustainable Leaders Fund |
|
Devan
Kaloo |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
156 Appendix
A - Portfolio Managers
|
|
Name
of Portfolio Manager |
Number
of Other Accounts Managed by Each Portfolio Manager and
Total Assets (in millions) by Category (as of October 31, 2023) |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Joanne
Irvine |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Nick
Robinson |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets ex-China Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
Emerging
Markets Fund |
Other
Accounts: 16 accounts, $5,492.72 total assets |
Emerging
Markets Sustainable Leaders Fund |
|
Matt
Williams |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Dividend Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Gabriel
Sacks |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Dividend Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Nina
Petry |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
Emerging
Markets Sustainable Leaders Fund |
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Kirsty
Desson |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
International
Small Cap Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
|
Other
Accounts: 9 accounts, $2,706.72 total assets |
Liam
Patel |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
International
Small Cap Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
|
Other
Accounts: 9 accounts, $2,706.72 total assets |
Dominic
Byrne |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Global
Equity Impact Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
U.S.
Sustainable Leaders Fund |
Other
Accounts: 9 accounts, $2,706.72 total assets |
Martin
Connaghan |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Dynamic
Dividend Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
|
Other
Accounts: 9 accounts, $2,706.72 total assets |
Josh
Duitz |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Dynamic
Dividend Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
Global
Infrastructure Fund |
Other
Accounts: 9 accounts, $2,706.72 total assets |
Ruairidh
Finlayson |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Dynamic
Dividend Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
International
Sustainable Leaders Fund |
Other
Accounts: 9 accounts, $2,706.72 total assets |
Sarah
Norris |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Global
Equity Impact Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
|
Other
Accounts: 9 accounts, $2,706.72 total assets |
Donal
Reynolds |
Registered
Investment Companies: 5 accounts, $1,398.40 total assets |
Global
Infrastructure Fund |
Other
Pooled Investment Vehicles: 24 accounts, $4,445.49 total assets |
|
Other
Accounts: 9 accounts, $2,706.72 total assets |
Miguel
Laranjeiro |
Registered
Investment Companies: 3 accounts, $789.27 total assets |
Intermediate
Municipal Income Fund |
Other
Pooled Investment Vehicles: 1 account, $67.09 total assets |
Short
Duration High Yield Municipal Fund |
Other
Accounts: 6 accounts, $1,248.38 total assets |
Ultra
Short Municipal Income Fund |
|
Jonathan
Mondillo |
Registered
Investment Companies: 4 accounts, $815.45 total assets |
Infrastructure
Debt Fund |
Other
Pooled Investment Vehicles: 1 account, $67.09 total assets |
Intermediate
Municipal Income Fund |
Other
Accounts: 6 accounts, $1,248.38 total assets |
Appendix
A - Portfolio Managers 157
|
|
Name
of Portfolio Manager |
Number
of Other Accounts Managed by Each Portfolio Manager and
Total Assets (in millions) by Category (as of October 31, 2023) |
Short
Duration High Yield Municipal Fund |
|
Ultra
Short Municipal Income Fund |
|
Ben
Pakenham |
Registered
Investment Companies: 2 accounts, $559.12 total assets |
High
Income Opportunities Fund |
Other
Pooled Investment Vehicles: 1 account, $357.36 total assets |
|
Other
Accounts: 2 accounts, $141.75 total assets |
George
Westervelt |
Registered
Investment Companies: 2 accounts, $559.12 total assets |
High
Income Opportunities Fund |
Other
Pooled Investment Vehicles: 1 account, $357.36 total assets |
|
Other
Accounts: 2 accounts, $141.75 total assets |
Matthew
Kence |
Registered
Investment Companies: 3 accounts, $585.30 total assets |
High
Income Opportunities Fund |
Other
Pooled Investment Vehicles: 1 account, $357.36 total assets |
Infrastructure
Debt Fund |
Other
Accounts: 2 accounts, $141.75 total assets |
Adam
Tabor |
Registered
Investment Companies: 2 accounts, $559.12 total assets |
High
Income Opportunities Fund |
Other
Pooled Investment Vehicles: 1 account, $357.36 total assets |
|
Other
Accounts: 2 accounts, $141.75 total assets |
Jay
Carlington |
Registered
Investment Companies: 2 accounts, $414.52 total assets |
Realty
Income & Growth Fund |
Other
Pooled Investment Vehicles: 4 accounts, $1,111.69 total assets (1 account,
$156.94 total assets of which the advisory fee is based on performance)
|
|
Other
Accounts: 1 account, $3,121.64 total assets |
Svitlana
Gubriy |
Registered
Investment Companies: 2 accounts, $414.52 total assets |
Realty
Income & Growth Fund |
Other
Pooled Investment Vehicles: 4 accounts, $1,111.69 total assets (1 account,
$156.94 total assets of which the advisory fee is based on performance)
|
|
Other
Accounts: 1 account, $3,121.64 total assets |
Bill
Pekowitz |
Registered
Investment Companies: 2 accounts, $414.52 total assets |
Realty
Income & Growth Fund |
Other
Pooled Investment Vehicles: 4 accounts, $1,111.69 total assets (1 account,
$156.94 total assets of which the advisory fee is based on performance)
|
|
Other
Accounts: 1 account, $3,121.64 total assets |
POTENTIAL
CONFLICTS OF INTEREST
abrdn
(abrdn Inc., abrdn
Investments Limited and abrdn Asia Limited)
The
portfolio managers’ management of “other accounts” may give rise to potential conflicts of interest in connection
with their management of a Fund’s investments, on the one hand, and the investments of the other accounts, on
the other. The other accounts may have the same investment objective as the Fund. Therefore, a potential conflict of interest
may arise as a result of the identical investment objectives, whereby the portfolio manager could favor one account
over another. However, the Adviser believes that these risks are mitigated by the fact that: (i) accounts with like investment
strategies managed by a particular portfolio manager are generally managed in a similar fashion, subject to exceptions
to account for particular investment restrictions or policies applicable only to certain accounts, differences in cash
flows and account sizes, and similar factors; and (ii) portfolio manager personal trading is monitored to avoid potential
conflicts. In addition, the Adviser has adopted trade allocation procedures that require equitable allocation of trade
orders for a particular security among participating accounts.
In
some cases, another account managed by the same portfolio manager may compensate abrdn based on the performance
of the portfolio held by that account. The existence of such a performance-based fee may create additional
conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities.
Another
potential conflict could include instances in which securities considered as investments for the Fund also may
be appropriate for other investment accounts managed by the Adviser or its affiliates. Whenever decisions are made
to buy or sell securities by the Fund and one or more of the other accounts simultaneously, the Adviser may aggregate
the purchases and sales of the securities and will allocate the securities transactions in a manner that it believes
to be equitable under the circumstances. As a result of the allocations, there may be instances where the Fund will
not participate in a transaction that is allocated among other accounts. While these aggregation and allocation policies
could have a detrimental effect on the price or amount of the securities available to the Fund from time to time, it is
the opinion of the Adviser that the benefits from the policies outweigh any disadvantage that may arise from exposure
158 Appendix
A - Portfolio Managers
to
simultaneous transactions. The Trust has adopted policies that are designed to eliminate or minimize conflicts of interest,
although there is no guarantee that procedures adopted under such policies will detect each and every situation in
which a conflict arises.
With
respect to non-discretionary model delivery accounts and discretionary SMA acounts, abrdn will utilize a third-party
service provider to deliver model portfolio recommendations and model changes to the Sponsors. abrdn seeks
to treat clients fairly and equitably over time, by delivering model changes to our service provider and investment instructions
for our other discretionary accounts to our trading desk, where possible, simultaneously or approximately at the
same time. For certain strategies, delivery to our service provider will occur at end of day. The service provider will then
deliver the model changes to each Sponsor on a when-traded, randomized full rotation schedule. All Sponsors will be
included in the rotation schedule, including SMA and UMA.
While UMA accounts are invested in the same strategies as, and
may perform similarly to, SMA accounts, there are expected to be performance differences between them. There will
be performance dispersions between UMAs and other types of accounts because abrdn does not have discretion over
trading and there may be client specific restrictions for SMA accounts.
Certain
operational differences in the trade execution process and timing of cash flows for mutual funds may result in
abrdn having already commenced trading for its discretionary client accounts before the model delivery and SMA accounts
have executed abrdn’s recommendations. In this event, trades placed for the model delivery and SMA clients may
be subject to price movements, particularly with large orders or where securities are thinly traded, that may result in model
delivery and SMA clients receiving less favorable prices than our other discretionary clients. abrdn has no discretion
over transactions executed by model delivery clients and is unable to control the market impact of those transactions.
These timing delays or other operational factors
associated with the implementation of trades may result in non-discretionary
and model delivery and
SMA clients receiving materially different
prices relative to other client accounts.
In addition, the constitution
and weights of stocks within model portfolios may not always be exactly aligned with
similar discretionary accounts. This may create
performance dispersions within accounts with the same or similar investment
mandate.
Appendix
A - Portfolio Managers 159
Appendix
B – Debt Ratings
Standard
& Poor’s Global Ratings Debt Ratings
A.
Issue Credit Ratings
An
Standard & Poor’s Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor
with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program
(including ratings on medium-term note programs and commercial paper programs). It takes into consideration
the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes
into account the currency in which the obligation is denominated. The opinion reflects Standard & Poor’s Global Ratings’
view of the obligor’s capacity and willingness to meet its financial commitments as they come due, and this opinion
may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event
of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations
considered short-term in the relevant market. Short-term ratings are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term obligations. Medium-term notes are assigned long-term
ratings.
1.
Long-Term Issue Credit Ratings
Issue
credit ratings are based, in varying degrees, on Standard & Poor’s Global Ratings’ analysis of the following considerations:
● |
The
likelihood of payment--the capacity and willingness of the obligor to meet its financial commitments on an obligation
in accordance with the terms of the obligation; |
● |
The
nature and provisions of the financial obligation, and the promise we impute; and |
● |
The
protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights. |
Issue
ratings are an assessment of default risk but may incorporate an assessment of relative seniority or ultimate recovery
in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations,
secured and unsecured obligations, or operating company and holding company obligations.)
Long-Term
Issue Credit Ratings*
AAA
- An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest
issuer credit rating assigned by Standard
& Poor’s Global Ratings.
AA
- An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest
rated
obligors only to a small degree.
A
- An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBB
- An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
Obligors
rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative
characteristics. ‘BB’ indicates the
least degree of speculation and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposure to adverse conditions.
BB
- An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing
uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the obligor’s
inadequate capacity to meet its financial commitments.
B
- An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the
capacity to meet its financial commitments.
Adverse business, financial, or economic conditions will likely impair the obligor’s capacity
or willingness to meet its financial commitments.
CCC
- An obligor rated ‘CCC’ is currently vulnerable and is dependent upon favorable business, financial, and economic
conditions to meet its financial commitments.
CC
- An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default
has not yet occurred but Standard & Poor’s
Global Ratings expects default to be a virtual certainty, regardless of the anticipated
time to default.
160 Appendix
B - Debt Ratings
SD
and D - An obligor is rated ‘SD’ (selective default) or ‘D’ if Standard & Poor’s Global Ratings
considers there to be a default on one or
more of its financial obligations, whether long- or short-term, including rated and unrated obligations but
excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. A ‘D’ rating is assigned
when Standard & Poor’s Global Ratings believes that the default will be a general default and that the obligor will
fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when Standard &
Poor’s Global Ratings believes that
the obligor has selectively defaulted on a specific issue or class of obligations but it will continue
to meet its payment obligations on other issues or classes of obligations in a timely manner. A rating on an obligor
is lowered to ‘D’ or ‘SD’ if it is conducting a distressed debt
restructuring.
* |
The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. |
2.
Short-Term Issue Credit Ratings
Short-Term
Issue Credit Ratings
A-1
- An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category by
Standard & Poor’s Global Ratings. Within this category, certain obligors are designated with a plus sign (+). This indicates
that the obligor’s capacity to meet its financial commitments is extremely strong.
A-2
- An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest
rating category.
A-3
- An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
B
- An obligor rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties that could lead to the obligor’s
inadequate capacity to meet its financial commitments.
C
- An obligor rated ‘C’ is currently vulnerable to nonpayment that would result in an ‘SD’ or ‘D’
issuer rating and is dependent upon favorable
business, financial, and economic conditions to meet its financial commitments.
SD
and D - An obligor is rated ‘SD’ (selective default) or ‘D’ if Standard & Poor’s Global Ratings
considers there to be a default on one or
more of its financial obligations, whether long- or short-term, including rated and unrated obligations but
excluding hybrid instruments classified as regulatory capital or in nonpayment according to terms. A ‘D’ rating is assigned
when Standard & Poor’s Global Ratings believes that the default will be a general default and that the obligor will
fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when Standard &
Poor’s Global Ratings believes that
the obligor has selectively defaulted on a specific issue or class of obligations but it will continue
to meet its payment obligations on other issues or classes of obligations in a timely manner. A rating on an obligor
is lowered to ‘D’ or ‘SD’ if it is conducting a distressed debt
restructuring.
B.
Municipal Short-Term Note Ratings
An
Standard & Poor’s Global Ratings U.S. municipal note rating reflects Standard & Poor’s Global Ratings’ opinion
about the liquidity factors and market access
risks unique to the notes. Notes due in three years or less will likely receive a note
rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining
which type of rating, if any, to assign, Standard & Poor’s Global Ratings’ analysis will review the following considerations:
● |
Amortization
schedule--the larger the final maturity relative to other maturities, the more likely it will be treated as a note;
and |
● |
Source
of payment--the more dependent the issue is on the market for its refinancing, the more likely it will be treated as
a note. |
Municipal
Short-Term Note Ratings
SP-1
- Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
SP-2
- Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
SP-3
- Speculative capacity to pay principal and interest.
D
- ‘D’ is assigned upon failure to pay the note when due, completion of a distressed debt
restructuring, or the filing of a
bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions.
MOODY’S
INVESTORS SERVICE INC. (“Moody’s”) LONG-TERM DEBT RATINGS*
Appendix
B - Debt Ratings 161
Aaa
– Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa
–Obligations rated Aa are judged to be of high quality and are subject to very low credit risk
A
– Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa
– Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess
certain speculative characteristics.
Ba
– Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B
– Obligations rated B are considered speculative and are subject to high credit risk.
Caa
– Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca
– Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery
of principal and interest.
C
– Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal and
interest.
* |
Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of that generic rating category. |
STATE
AND MUNICIPAL NOTES
Excerpts
from Moody’s description of state and municipal note ratings:
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly
reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding
group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins
of protection.
FITCH,
INC. BOND RATINGS
Fitch
publishes credit ratings that
are forward looking opinions on the relative
ability of an entity or
obligation to meet financial
commitments.
Issue level ratings are also assigned and often include an expectation of recovery which may be notched
above or below the issuer-level rating. Credit
ratings are indications
of the likelihood of receiving repayment
in accordance with the terms of
the issuance. ‘AAA’ ratings
denote the lowest expectation of default risk. They are assigned only
in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong
capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. ‘A’
ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for
higher ratings. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of
financial commitments is considered adequate,
but adverse business or economic conditions are more likely to impair this
capacity. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes
in business or economic conditions over time;
however, business or financial flexibility exists that supports the servicing of financial
commitments. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in
the business and economic environment. CCC –
Very low margin for safety. Default is a real
possibility. CC - Default of some kind appears
probable.
C
- A default or default-like process has begun, or for
a closed funding vehicle, payment capacity is irrevocably impaired.
‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced: a) an uncured payment default or distressed
debt exchange on a bond, loan or other material financial obligation, but b) has not entered into bankruptcy filings,
administration, receivership, liquidation, or other formal winding-up procedure, and c) has not otherwise ceased operating.
‘D’
ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedure or that has otherwise ceased business
and debt is still outstanding.
MOODY’S
162 Appendix
B - Debt Ratings
Ratings
assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative
credit risks of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles,
project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an
original maturity of eleven
months or more and reflect both on the likelihood
of a default on contractually promised payments
and the expected financial loss suffered in the event of default. Short-term ratings are assigned to obligations with
an original maturity of thirteen months or less and reflect both on the likelihood of a default or
impairment on contractual
financial obligations and the expected financial
loss suffered in the event of default
or impairment.
Moody’s
differentiates structured finance ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial
institution, and public sector entities) on the global long-term scale by adding (sf ) to all structured finance ratings.
The addition of (sf ) to structured finance ratings should eliminate any presumption that such ratings and fundamental
ratings at the same letter grade level will behave the same. The (sf ) indicator for structured finance security
ratings indicates that otherwise similarly rated structured finance and fundamental securities may have different
risk characteristics. Through its current methodologies, however, Moody’s aspires to achieve broad expected equivalence
in structured finance and fundamental rating performance when measured over a long period of time.
GLOBAL
SHORT-TERM RATING SCALE
P-1
Ratings
of Prime-1 reflect
a superior ability to repay short-term obligations.
P-2
Ratings
of Prime-2 reflect
a strong ability to repay short-term obligations.
P-3
Ratings
of Prime-3 reflect
an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
U.S.
MUNICIPAL SHORT-TERM DEBT AND DEMAND OBLIGATION RATINGS
SHORT-TERM
OBLIGATION RATINGS
While
the global short-term ‘prime’ rating scale is applied to US municipal tax-exempt commercial paper, these programs
are typically backed by external letters of credit or liquidity facilities and their short-term prime ratings usually map
to the long-term rating of the enhancing bank or financial institution and not to the municipality’s rating. Other short-term
municipal obligations, which generally have different funding sources for repayment, are rated using two additional
short-term rating scales (i.e., the MIG and VMIG scales discussed below).
The
Municipal Investment Grade (MIG) scale is used to rate US municipal bond anticipation notes of up to three years
maturity. Municipal notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out
financing received prior to note maturity. MIG ratings expire at the maturity of the obligation, and the issuer’s long-term
rating is only one consideration in assigning the MIG rating. MIG ratings are divided into three levels—MIG 1 through
MIG 3—while speculative grade short-term obligations are designated SG.
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly
reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding
group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins
of protection.
FITCH’S
SHORT-TERM RATINGS
A
short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity
and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant
obligation. Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings are assigned to obligations
whose initial maturity is viewed as “short term” based on market convention
(a long-term rating can also be used
to rate an issue with short maturity). Typically,
this means a time frame
of up to 13 months for corporate, sovereign,
and structured obligations and up to 36 months
for obligations in U.S. public finance markets.
F1
- Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to
denote any exceptionally strong credit feature.
F2
- Good intrinsic capacity for timely payment of financial commitments.
F3
- The intrinsic capacity for timely payment of financial commitments is adequate.
B
- Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.
C
– Default is a real possibility.
Appendix
B - Debt Ratings 163
RD
– Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet
other financial obligations. Typically applicable to entity ratings only.
D
– Indicates a broad-based default event for an entity, or the default of a short-term obligation.
164 Appendix
B - Debt Ratings
Appendix
C - Proxy Voting Policies and Procedures
U.S.
Registered Advisers
Summary of
Proxy Voting Guidelines
as of
October 26, 2022
Where
clients appoint abrdn Inc. to vote proxies on their behalf, policies have been established to vote these proxies in the best
interests of our clients.
We
employ ISS as a service provider to facilitate electronic voting. We require ISS to provide recommendations based on our
own set of parameters tailored to abrdn’s assessment and approach, but remain conscious that all voting decisions are
our own on behalf of our clients. We consider ISS’s recommendations and those based on our custom parameters as input
to our voting decisions. We make use of the ISS standard research and recommendations and those based on our own
custom policy as input to our voting decisions. Where our analysts make a voting decision that is different from the recommendations
based on our custom policy they will provide a rationale for such a decisions which will be made publicly
available in our voting disclosures.
In
order to make proxy voting decisions, an abrdn analyst assesses the resolutions at general meetings in our active investment
portfolios. This analysis will be based on our knowledge of the company, but will also make use of the custom and
standard recommendations provided by ISS as described above. The product of this analysis will be a final voting decision
instructed through ISS and applied to all funds for which abrdn have been appointed to vote. For funds managed by
a sub-adviser, we may delegate to the sub-adviser the authority to vote proxies; however, the sub-adviser will be required
to either follow our policies and procedures or to demonstrate that their policies and procedures are consistent with
ours, or otherwise implemented in the best interest of clients.
There
may be certain circumstances where abrdn Inc. may take a more limited role in voting proxies. We will not vote proxies
for client accounts in which the client contract specifies that abrdn Inc. will not vote. We may abstain from voting a client
proxy if the voting is uneconomic or otherwise not in clients’ best interests. For companies held only in passively managed
portfolios, abrdn Inc. custom recommendations provided by ISS will be used to automatically apply our voting approach;
we have scope to intervene to test that this delivers appropriate results, and will on occasions intrude to apply a
vote more fully in clients’ best interests. If voting securities are part of a securities lending program, we may be unable to
vote while the securities are on loan. However,
we have the ability to recall shares on loan or to restrict lending when required,
in order to ensure all shares have voted. In addition, certain jurisdictions may impose share-blocking restrictions at
various times which may prevent abrdn Inc. from exercising our voting authority.
We
recognize that there may be situations in which we vote at a company meeting where we encounter a conflict of interest.
Such situations include:
● |
Where
a portfolio manager owns the holding in a personal account. |
● |
An
investee company that is also a segregated client. |
● |
An
investee company where an Executive Director or Officer of our company or that of abrdn plc or another affiliate is also
a Director of that company. |
● |
An
investee company where an employee of abrdn plc or an affiliate or subsidiary is a Director of that company. |
● |
A
significant distributor of our products. |
● |
Any
other companies which may be relevant from time to time. |
We
have adopted procedures within our proxy voting process to identify where a conflict exists. These procedures are designed
to ensure that our voting decisions are based on our client’s best interests and are not impacted by any conflict.
The
implementation of this policy, along with conflicts of interest, will be reviewed periodically by the Active Ownership team.
abrdn’s Global ESG Principles & Voting Policies are published on our website.
Clients
may obtain a free copy of abrdn Inc.’s proxy voting policies and procedures and/or proxy voting records for their account
by contacting us at (215) 405-5700. abrdn publishes ESG Principles & Voting Policies, which describe our approach
to investment analysis, shareholder engagement and proxy voting across companies worldwide. There are published
on our website.
Clients
that have not granted abrdn Inc. voting authority over securities held in their accounts will receive their proxies in accordance
with the arrangements they have made with their service providers.
Listed
Company ESG Principles & Voting Policies
February
2023
Active
Ownership and Environmental, Social & Governance (ESG) considerations are a driver of our investment process, our
investment activity, our client journey and our corporate influence.
Appendix
C - Proxy Voting Policies and Procedures 165
Through
engagement with the companies in which we invest, and by exercising votes on behalf of our clients, we seek to improve
the financial resilience and performance of our clients’ investments. Where we believe change is needed, we endeavour
to catalyse this through our stewardship capabilities.
Our
expectations
As
global investors, we are particularly aware that ESG structures and frameworks vary across regions. Furthermore, what
we expect of the companies in which we invest varies between different stages of business development and the underlying
history and nature of the company in question. We seek to understand each company’s individual circumstances
and so evaluate how it can best be governed and overseen. As such, we strive to apply the principles and policies
set out on these pages in response to the needs of that individual company at that particular time. Our heritage as
a predominantly active fund manager helps drive this bespoke approach to understanding good governance and risk management.
We
have a clear perception of what we consider to be best practice globally – as set out in this document. However we will
reflect the nature of the business, our close understanding of individual companies and regional considerations, where
appropriate, in our approach to applying these policies, which are not exhaustive.
This
document has received approval from the Head of Public Markets and the Investment Vector’s Chief Sustainability Officer
following consultation with various internal stakeholders.
Our
approach to stewardship
We
seek to integrate and appraise environmental, social and governance factors in our investment process. Our aim is to generate
the best long-term outcomes for our clients and we will actively take steps as stewards and owners to protect and
enhance the value of our clients’ assets.
Stewardship
is a reflection of this bespoke approach to good governance and risk management. We seek to understand each
company’s specific approach to governance, how value is created through business success and how investors’ interests
are protected through the management of risks that materially impact business success. This requires us to play our
part in the governance process by being active stewards of companies, involved in dialogue with management and non-executive
directors where appropriate, understanding the material risks and opportunities – including those relating to
environmental and social factors and helping to shape the future success of the business.
We
will:
● |
Take
into consideration, in our investment process, the policies and practices on environmental, social and governance matters
of the companies in which we invest. |
● |
Seek
to enhance long-term shareholder value through constructive engagement with the companies in which we invest.
|
● |
Actively
engage with the companies and assets in which we invest where we believe we can influence or gain insight. |
● |
Seek
to exercise voting
rights, where held, in a manner consistent
with our
clients’ long-term best interests. |
● |
Seek
to influence the development of high standards of corporate governance and corporate responsibility in relation to
environmental and social factors for the benefit of our clients. |
● |
Communicate
our Listed Company ESG Principles and Voting Policies to clients, companies and other interested parties.
|
● |
Be
accountable to clients within the constraints of professional confidentiality and legislative and regulatory requirements.
|
● |
Be
transparent in reporting our engagement and voting activities. |
abrdn
is committed to exercising responsible ownership with a conviction that companies adopting improving practices in
corporate governance and risk management will be more successful in their core activities and deliver enhanced returns
to shareholders. As owners of companies, the process of stewardship is a natural part of our investment approach
as we seek to benefit from their long-term success on our clients’ behalf.
Engagement
It
is a central tenet of our active investment approach that we strive to meet with the management and directors of our investee
companies on a regular basis. The discussions we have cover a wide range of topics, including: strategic, operational,
and ESG issues and consider the long-term drivers of value. Engagement with companies on ESG risks and opportunities
is a fundamental part of our investment process. It is a process by which we can discuss how a company identifies,
prioritises and mitigates its key risks and optimises its most significant opportunities. As such, we regard engagement
as:
● |
Important
to understanding investee companies as a whole. |
● |
Helpful
when conducting proper ESG analysis. |
● |
Useful
to maintaining open dialogue and solid relationships with companies. |
166 Appendix
C - Proxy Voting Policies and Procedures
● |
An
opportunity to inflect positive change on a company’s holistic risk management programme – be active with our holdings
rather than activist. |
Proxy
Voting
Proxy
voting is an integral part of our active stewardship approach and we seek to exercise voting rights in a manner in line
with our clients’ best interests. We seek to ensure that voting reflects our understanding of the companies in which we invest
on behalf of our clients. We believe that voting is a vital mechanism for holding boards and management teams to account,
and is an important tool for escalation and shareholder action.
This
document includes our process and overarching policy guidelines which we apply when voting at
general meetings. These
policies are not exhaustive and we evaluate our voting on a case by case basis. As a global investment firm we recognise
the importance of adopting a regional approach, taking into account differing and developing market practices.
Where a policy is specific to one region this is denoted.
We
endeavour to engage with companies regarding our voting decisions to maintain a dialogue on matters of concern.
Voting
Process
In
line with our active ownership approach, we review the majority of general meeting agendas convened by companies which
are held in our active equity portfolios. Analysis is undertaken by a member of our regional investment teams or our
Active Ownership team and votes instructed following consideration of our policies, our views of the company and our
investment insights. To enhance our analysis we may engage with a company prior to voting to understand additional
context and explanations, particularly where there is deviation from what we believe to be best practice.
To
supplement our own analysis we make use of the benchmark research and recommendations provided by ISS, a provider
of proxy voting services. In the UK we also make use of the Investment Association’s (IA) Institutional Voting Information
Service. We have implemented regional voting policy guidelines with ISS which ISS applies to all meetings in order
to produce customised vote recommendations. These custom recommendations help identify resolutions which deviate
from our expectations. They are also used to determine votes where a company is held only in passive funds. Within
our custom policies, however, we do specify numerous resolutions which should be referred to us for active review. For
example we will analyse all proposals marked by ISS as environmental or social proposals.
While
it is most common for us to vote in line with a board’s voting recommendation we will vote our clients’ shares against
resolutions which are not consistent with their best interests. We may also vote against resolutions which conflict with
local governance guidelines, such as the IA in the UK. Although we seek to vote either in favour or against a resolution we
do make use of an abstain vote where this is considered appropriate. For example we may use an abstention to acknowledge
some improvement, but as a means to reserve our position in expectation that further improvement is needed
before we can vote in favour. Where we vote against a resolution we endeavour to inform companies of our rationale.
In
exceptional circumstances we may attend and speak at a shareholder meeting to reinforce our views to the company’s
board.
We
endeavour to vote all shares for which we have voting authority. We may not vote when there are obstacles to do so, for
example those impacting liquidity, such as share- blocking, or where there is a significant conflict of interest. We use the
voting platform of ISS to instruct our votes. Where we lend stock on behalf of clients, and subject to the terms of client agreements,
we hold the right to recall shares where it is in clients’ interests and we take the view that it will impact the final
vote to maintain full voting weight on a particular meeting or resolution.
Our
votes are disclosed publicly on our website one day after a general meeting has taken place.
Strategy
We
invest in companies to create the best outcome for our clients. Companies must be clear about the drivers of their business
success and their strategy for maintaining and enhancing it. Investment is a forward-looking process; we seek to understand
the opportunity for a business and its scope for future value-creation over the long term. In order to do this, we
need clarity on past business delivery and its drivers, and on the effective track record of management; we require honest
and open reporting to build confidence in that track record. We seek confidence that companies and their management
can maintain their competitive positioning and operational performance and subsequently enhance returns
for investors. A clear strategy and clarity about the drivers of operational success provides the lens through which we
will consider most corporate issues, not least assessing performance and risk management.
● |
We
will consider voting against executive or non-executive directors if we have serious concerns regarding the oversight
or implementation of strategy. |
Appendix
C - Proxy Voting Policies and Procedures 167
Board
of Directors
We
believe effective board governance promotes the long-term success and value creation of the company. The board should
be responsible for establishing the company’s purpose and strategy, overseeing management in their implementation
of strategy and performance against objectives. The board should ensure a strong framework of control and
risk oversight, including material ESG risks. The board should assess and monitor culture and be engaged with the workforce,
shareholders and wider society.
Board
Composition
Effective
decision making requires a mix of skills around the table and constructive debate between diverse and different-minded
individuals. A range of skills, experience and perspectives should be drawn together on the board. These
include industry knowledge, experience from other sectors and relevant geographical knowledge. Independence of
thought plays a crucial role in the ability of a board to generate the debate and discussion that will challenge management,
help enhance business performance and improve decision-making. Board assessments will help the board
ensure it has the necessary mix of skills, diversity and quality of individuals to address the current risks and opportunities
the company faces. Unitary boards should comprise an appropriate combination of executive and non- executive
directors such that no group of individuals dominates decision-making. We expect the size of the board to reflect
the size, nature and complexity of the business. We also expect regular internal and external board evaluations which
include an assessment of board composition and effectiveness.
Leadership
Running
businesses effectively for the long term requires effective collaboration and cooperation, with no individual or small
group having unfettered powers. Nor should they have dominant influence over the way a business is run or over major
decisions about its operations or future. There should be a division of responsibility between board leadership and executive
leadership of the business. We believe that there should be a division of roles at the top of the organisation, typically
between a Chief Executive Officer (CEO) and an independent Chair.
● |
We
will consider supporting the re-election of an existing Chair & CEO role combination, recognising that this remains common
in certain geographies. In reviewing on a case by case basis we will take account of the particular circumstances
of the company and consider what checks and balances are in place, such as the presence of a strong Senior
Independent Director with a clear scope of responsibility. |
● |
We
will generally oppose any re-combination of the roles of CEO and Chair, unless the move is on a temporary basis due
to exceptional circumstances or other mitigating factors. |
● |
We
will generally oppose any move of a retiring CEO to the role of Chair. |
Independence
Companies
should be led and overseen by genuinely independent boards. When looking at board composition we generally
expect to see a majority of independent directors, with boards identifying their independence classifications in the
Annual Report. It is preferable to see an identified Senior Independent Director (SID) on the board, who will lead the appraisal
of and succession planning for the Chair. We expect SIDs to meet with investors and be a point of contact for escalating
concerns if required.
In
assessing a director’s independence we will have due regard for whether a director:
i. |
Has
been an employee of the company within the last five years. |
ii. |
Has
had within the last three years a material business relationship with the company. |
iii. |
Has
received remuneration in addition to director fees or participates in the company’s option or variable incentive schemes,
or is a member of the company’s pension scheme. |
iv. |
Has
close family ties with any of the company’s advisers, directors or senior employees. |
v. |
Holds
cross-directorships or has significant links with other directors through involvement in other companies or bodies. |
vi. |
Represents
a significant shareholder. |
vii. |
Has
served on the board for more than 12 years (or 9 for UK companies). |
● |
We
will consider voting against the re-election of non-independent directors if the board is not majority independent (excluding
employee representatives). In doing so we will have regard for whether a company is controlled and the nature
of the non-independence – for example, we are unlikely to vote against shareholder representatives unless their
representation is disproportionate to their shareholding. |
Succession
Planning & Refreshment
Regular
refreshment of the non-executive portion of a board helps draw in fresh perspectives, not least in the context of changes
to business and emerging opportunities and risks. It also helps limit the danger of group-think. Thoughtful and proactive
succession planning is therefore needed for board continuity, to ensure that a board is populated by individuals with
an appropriate mix of skills, experience and perspective. We expect the board to implement a formal process for the recruitment
and appointment of new directors, and to provide transparency of this in the Annual Report.
168 Appendix
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● |
We
will vote against non-executive directors where there are concerns regarding board refreshment or excessive tenure.
Where there are directors who have served for over 12 years on a board which has seen no refreshment in 3 years
(2 in UK), we will generally vote against their re-election. If a director has served for over 15 years we will generally
vote against their re-election. We will, however, consider the impact on board continuity and the company’s succession
planning efforts prior to doing so. We may not apply the tenure limit to directors who are founders or shareholder
representatives. |
Diversity
We
believe that companies that make progress in diversity and inclusion (D&I) are better positioned for long-term sustainability
and outperformance. Diversity of thought, paired with a culture of inclusion, can help companies to tackle increasingly
complex challenges and markets. We expect boards to report on how they promote D&I throughout the business
and believe that setting targets is important to addressing imbalances. We recognise the importance of adopting
a regional approach to diversity and inclusion, allowing us to press for progress with appropriate consideration for
the starting point. We have for several years, actively encouraged progress in gender diversity at all levels, and have expanded
our scope in relation to diversity and inclusion across geographies. In respect of ethnic diversity, this is coming increasingly
into focus as we encourage boards to progress in ensuring that their composition reflects their employee and
customer bases.
Our
regional specific policies are below. In determining our votes we will take account of mitigating factors, such as the sudden
departure of a female board member. We will also consider any clear progress being made by the company on diversity
and any assurance that diversity shortfalls will soon be addressed.
Gender
Diversity
● |
UK:
We will generally vote against the Nomination Committee Chair of FTSE 350 companies if the board is not comprised
of at least one third female directors. For smaller companies, we will take this action if the board does not include
at least one female director. |
● |
Europe:
We will generally vote against the Nomination Committee Chair of LargeCap companies if the supervisory board
is not comprised of at least 30% female directors, or is not in line with the local standard if higher. For smaller companies,
we will take this action if the supervisory board does not include at least one female director. |
● |
Australia:
We will generally vote against the Nomination Committee Chair of ASX300 companies if the board is not comprised
of at least 30% female directors. |
● |
North
America: We will generally vote against the Nomination Committee Chair of LargeCap companies if the board is
not comprised of at least 30%
female directors. For smaller companies, we will take this action if the board does not include
at least one female director |
Ethnic
Diversity
● |
UK:
We will generally vote against the Nomination Committee Chair at the boards of FTSE 100 companies, if the board does
not include at least one member from an ethnic minority background. This is in line with targets set up by the Parker
Review. |
● |
US:
We will generally vote against the Nomination Committee Chair at the boards of S&P 1500 & Russell 3000 companies
if the board does not include at least one member from a racial or ethnic minority background. |
Directors’
Time Commitment
Individual
directors need sufficient time to carry out their role effectively and therefore we seek to ensure that all directors maintain
an appropriate level of overall commitments such that allows them to be properly diligent.
● |
We
will consider opposing the election or re-election of any director where there is a concern regarding their ability to dedicate
sufficient time to the role. In making this assessment we will have regard for the ISS classification of ‘overboarding’.
|
● |
We
will generally oppose the re-election of any director who has attended fewer than 75% of board meetings in two consecutive
years. |
Board
Committees
Boards
should establish committees, populated by independent and appropriately skilled non-executive directors, to oversee
(as a minimum) the nomination, audit and remuneration processes. It may also be appropriate for additional committees
to be established, such as a risk or sustainability committee. These committees should report openly on an annual
basis about their activities and key decisions taken.
● |
We
will consider voting against committee members if we have concerns regarding the composition of a committee. |
Nomination
Committee
This
committee has responsibility for leading the process for orderly non-executive and senior management succession planning
and recruitment, and for overseeing the composition of the board including skillset, experience and diversity. We
expect the committee to be comprised of a majority of independent directors with an independent Chair.
Appendix
C - Proxy Voting Policies and Procedures 169
● |
We
will consider voting against the re-election of the Nomination Committee Chair if we have concerns regarding the composition
of the board or concerns regarding poor succession planning. |
Audit
Committee
This
committee has responsibility for monitoring the integrity of the financial statements, reviewing the company’s internal
financial controls and risk management systems, reviewing the effectiveness of the company’s internal audit function
and appointing auditors. While we prefer the committee to be wholly independent, at minimum we expect the committee
to be comprised of a majority of independent directors with an independent Chair and at least one member having
recent and relevant financial experience.
● |
We
will generally vote against the re-election of the Audit Committee Chair if at least one member of the Committee does
not have recent and relevant financial experience. |
Remuneration
Committee
This
committee is responsible for determining the policy and setting remuneration for executive and non-executive directors.
The committee should ensure that remuneration is aligned with strategy and company performance and should
clearly demonstrate regard for the company’s employees, for wider society and be cognisant of the company’s licence
to operate when considering policy and the overall level of remuneration. We expect remuneration committees to
be robust in their approach to developing and implementing remuneration policies, with formal and transparent procedures
for developing policies and for determining remuneration packages. Remuneration committees should be comprised
of a majority of independent directors with an independent Chair and we expect members to have appropriate
experience and knowledge of the business. No executive should be involved in setting their own remuneration.
● |
Where
we have significant concerns regarding the company’s remuneration policy or reward outcomes we may escalate
these concerns through a vote against the Chair or members of the Remuneration Committee. |
Director
Accountability
We
expect to be able to hold boards to account through engagement and regular director re-elections and directors should
feel that they are accountable to investors. We encourage individual, rather than bundled, director elections. While
our preference is for directors to be subject to re-election annually, we expect re-elections to take place at least every
three years. Lengthier board mandates, while not uncommon in some markets, risk divorcing directors from an appropriate
sense of accountability. Directors and management should make themselves available for discussions with major
shareholders as we expect to have open dialogue to share our perspectives and gain confidence that the individuals
are carrying out their roles with appropriate vigour and diligence. A further important element of director accountability
to shareholders is that investors should have the right, both formal and informal, to propose and promote individual
directors to be considered for election to the board by all shareholders.
● |
We
will generally oppose the re-election of non- independent NEDs who are proposed for a term exceeding three years.
We may not apply this to directors who are shareholder representatives. |
● |
Where
we have significant concerns regarding a board member’s performance, actions or inaction to address issues raised
we may vote against their re-election. |
● |
We
may vote against directors who decline appropriate requests for meeting without a clear justification. |
● |
Where
a director has held a position of responsibility at a company which has suffered a material governance failure, we
will consider whether we are comfortable to support their re-election at other listed companies. |
● |
We
will generally support resolutions to discharge the supervisory board or management board members unless we have
serious concerns regarding actions taken during the year under review. Where there is insufficient information regarding
allegations of misconduct, we may prefer to abstain. In exceptional circumstances we may vote against the discharge
resolution to reflect serious ESG concerns if there is not another appropriate resolution. |
● |
We
will not support the election of directors who are not personally identified but are proposed as corporations. |
Reporting
A
company’s board should present a fair, balanced and understandable assessment of the company’s position and prospects
– financial and non-financial – and of how it has fulfilled its responsibilities. We support the principle of full disclosure
of relevant and useful information, subject to issues of commercial confidentiality and prejudice. Boilerplate disclosure
should be avoided. We encourage companies to consider using the appropriate globally developed standards and
would particularly encourage the use of those created by the Taskforce for Climate related Financial Disclosure (TCFD),
the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and the
Global Reporting Initiative (GRI). Audited reporting and financial numbers should be published ahead of any relevant shareholder
meetings. We continue to monitor the evolving reporting landscape and consider new reporting developments
as they emerge, either voluntary or regulatory.
● |
We
may consider voting against a company’s Annual Report & Accounts if we have concerns regarding timely provision
or disclosure. |
170 Appendix
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Political
Donations & Lobbying
Companies
should be consistent in their public statements and not undermine these in private commentary to market participants
or to politicians and regulators. We welcome transparency from companies about their lobbying activities and
believe that good companies have nothing to hide in this respect. Similarly we encourage transparency of any political
donations that companies deem appropriate – and we expect a clear explanation of why such donations are an appropriate
use of corporate funds.
Risk
& Audit
The
board is responsible for determining the company’s risk appetite, establishing procedures to manage risk and for monitoring
the company’s internal controls. We expect boards to conduct robust assessments of the company’s material risks
and report to shareholders on risks, controls and effectiveness. The introduction of global accounting standards has led
to much greater investor confidence in the accounts produced by companies around the world. It has also assisted in creating
consistency of reporting across companies, enabling fairer comparisons between different operating businesses.
We therefore encourage companies seeking international investment to report under International Financial Reporting
Standards (IFRS) or US GAAP. As a firm abrdn supports the continued development of high quality global accounting
standards.
An
independent audit, delivered by a respected audit firm, is a required element for investor confidence in reporting by companies.
We strongly favour meaningful, transparent and informative auditor reports, giving us additional insights into the
audit process and accounting outcomes. Audit fees must be sufficient to pay for an appropriately in-depth assurance
process. We would be concerned if a company sought to make savings in this respect as the cost in terms of damage
to audit effectiveness and confidence in the company’s accounts would be much more substantial.
The
independence of the auditor and the standard of their work, particularly in challenging management, should be subject
to regular assessment that is appropriately disclosed. Even when individuals carrying out the audit are refreshed, we
believe that the independence of the audit firm erodes over time and we will encourage a tender process and change
of audit firm where an engagement has lasted for an extended period. In order to demonstrate the level of independence,
companies should not have the same audit firm in place for more than 20 years.
The
relationship with the auditor should be mediated through the audit committee. Where we are significant shareholders,
we expect to be consulted on plans to tender and replace auditors.
● |
We
will generally vote against the re-election of an auditor which has a tenure of 20 years or over, if there are no plans for
rotation in the near term. |
● |
We
will consider voting against the auditors if we have concerns regarding the accounts presented or the audit procedures
used. |
● |
We
will vote against the approval of auditor fees if we have concerns regarding the level of fees or the balance of non-audit
and audit fees. |
Remuneration
Remuneration
policies and the overall levels of pay should be aligned with strategy, attracting and retaining talent and incentivising
the decisions and behaviours needed to create long-term value. The component parts of remuneration should
be structured so as to link rewards to corporate and individual performance and they should be considered in the context
of the remuneration policies when taken as a whole. We recognise the benefits of simplicity in forming the policy, which
should clearly link outcomes and expectations for those receiving the remuneration, as well as external stakeholders.
The structure should be transparent and understandable.
A
company’s annual report should contain an informative statement of remuneration policy which communicates clearly
to stakeholders how it has developed and evolved. This should include details of any stress testing that may have been
undertaken to understand the policy outcomes for different business scenarios. The remuneration committee should
provide a clear description of the application of policy and the outcomes achieved.
Base
salary should be set at a level appropriate for the role and responsibility of the executive. We discourage increases which
are driven by peer benchmarking, and expect increases to be aligned with the wider workforce. Consideration should
also be given to the knock on impact to variable remuneration potential. Pension arrangements and benefits should
be clearly disclosed. We generally expect pension structures to be aligned with the wider workforce.
A
company should structure variable, performance- related pay to incentivise and reward management in a manner that
is aligned with the company’s sustainable performance and risk appetite over the long term. We expect all variable pay
to be capped, preferably as a proportion of base salary. In the UK we expect variable pay to be capped as a proportion
of salary. In other markets, if variable pay is capped at a number of shares, we expect the value of grants to be kept
under review annually to ensure the value remains appropriate and is not excessive.
Appendix
C - Proxy Voting Policies and Procedures 171
Performance
metrics used to determine variable pay should be clearly disclosed and aligned with the company’s strategy.
A significant portion of performance metrics should seek to measure significant improvements in the underlying financial
performance of the company. We also encourage the inclusion of non-financial metrics linked to targets which are
aligned with the company’s progress on its ESG strategy. Where possible we expect these targets to be quantifiable and
disclosed.
Variable
pay arrangements should incentivise participants to achieve above-average performance through the use of challenging
targets. We encourage sliding-scale performance measures and expect performance target ranges to be disclosed
to enable shareholders to assess the level of challenge and pay for performance alignment. We expect annual bonus
targets to be disclosed retrospectively and encourage the disclosure of long term incentive (LTI) targets at the beginning
of the performance period, but at minimum we expect retrospective disclosure. Where bonus or LTI targets are
not disclosed due to commercial sensitivity we expect an explanation of why the targets continue to be considered sensitive
retrospectively and expect some detail regarding the level of achievement vs target. Where a share price metric is
being used, we expect this to be underpinned by a challenging measure of underlying performance.
We
encourage settlement of a portion of the annual bonus in shares which are deferred for at least one year.
We
expect settlement of long term incentives to be in shares, with rationale provided for any awards settled in cash. Long term
incentives should have a performance period of no less than three years. In the UK we expect a further holding period
of two years to be applied, and we encourage this in other markets.
We
do not generally support restricted share schemes or value creation plans. We will consider supporting the use of restricted
share plans which have been structured consistent with the guidelines of the Investment Association.
We
expect appropriate malus and clawback provisions to be applied to variable remuneration plans.
We
expect shareholding guidelines to be adopted for executive directors and encourage the adoption of post- departure
shareholding guidelines.
We
expect details of any use of discretion to be disclosed and its use should be justifiable, appropriate and clearly explained.
We would expect policies to be sufficiently robust so that discretion is only necessary in exceptional circumstances.
We do not generally support exceptional awards, and are particularly sensitive to such awards being granted
to reward a corporate transaction.
We
expect executive service contracts to provide for a maximum notice period of 12 months. We will consider local best practice
provisions related to severance arrangements when voting.
Non-executive
fees should reflect the role’s level of responsibility and time commitment. We do not support NED’s participation
in option or performance-related arrangements. However we do support the payment of fees in shares, particularly
where conservation of cash is an issue.
In
the UK our expectations of companies are aligned with the Investment Association’s Principles of Remuneration.
Where
significant changes to remuneration arrangements are being considered, we would expect remuneration committees
to consult with their largest shareholders prior to finalising any changes. Where any increase to variable remuneration
is proposed, we would expect this to be accompanied by a demonstrable increase in the stretch of the targets.
Furthermore we expect any increases to remuneration to be subject to shareholder approval.
In
response to the issues arising from the cost of living crisis being experienced by many people in the UK, we expect companies
to focus any additional help towards those members of the workforce who need it most. We expect Remuneration
Committees to take into account factors arising from the cost of living crisis when deliberating over executive
pay outcomes. We would be concerned by reputational issues arising from decisions made in these unusual circumstances
and may make this a factor in our voting decisions at relevant AGMs.
In
line with the expectations set out above we will generally vote against the appropriate resolution(s) where:
● |
We
consider the overall reward potential or outcome to be excessive. |
● |
A
significant increase to salary has been granted which is not aligned with the workforce or is not sufficiently justified.
|
● |
A
significant increase to performance-related pay has been granted which is not sufficiently justified, is not accompanied
by an increase in the level of stretch required for achievement or results in the potential for excessive reward.
|
● |
There
is no appropriate cap on variable incentive schemes. |
● |
Performance
targets for annual bonus awards are not disclosed retrospectively and the absence of disclosure is not explained.
|
● |
Performance
targets for long term incentive awards are not disclosed up front and there is no compelling explanation regarding
the absence of disclosure or a commitment to disclose retrospectively. |
● |
Performance
targets are not considered sufficiently challenging, either at threshold, target or maximum. |
● |
Relative
performance targets allow vesting of awards for below median performance. |
172 Appendix
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● |
Retesting
provisions apply. |
● |
Incentives
that have been conditionally awarded have been repriced or performance conditions changed part way through
a performance period. |
● |
We
have concerns regarding the use of discretion or the grant of exceptional awards. |
● |
Pension
arrangements are excessive. |
● |
Pension
arrangements are not aligned with the wider workforce (UK). |
Investor
Rights
The
interests of minority shareholders must be protected and any major, or majority, investor should not enjoy preferential
treatment. The structure of ownership or control should minimise the potential for abuse of public shareholders.
Corporate
Transactions
Companies
should not make significant changes to their structure or nature without being fully transparent to their investors.
Shareholders should have the opportunity to vote on significant corporate activity, such as mergers and acquisitions.
Where a transaction is with a related party, only independent shareholders should have a vote. Even in markets
where no vote is given to shareholders in these circumstances, investors need transparent disclosure of the reasons
for any such major change. Companies should expect that shareholders may want to discuss and debate proposed
developments
Diversification
beyond the core skills of the business needs to be justified as it is more often than not a distraction from operational
performance. All major deals need to be clearly explained and justified in the context of the pre- existing strategy
and be subject to shareholder approval.
We
will vote on corporate transactions on a case by case basis.
Dividends
We
will generally support the payment of dividends but will scrutinise the proposed level where it appears excessive given
the company’s financial position.
Share
Capital
The
board carries responsibility for prudent capital management and allocation.
Share
Issuance
We
will consider capital raises which are proposed for a specific purpose on a case by case basis but recognise that it can
be beneficial for companies to have some general flexibility to issue shares to raise capital. However we expect issuances
to be limited to the needs of the business and companies should not issue significant portions of shares unless offering
these on a pro-rata basis to existing shareholders to protect against inappropriate dilution of investments.
● |
Where
a company seeks a general authority to issue shares we generally expect this to be limited to 25% of the company’s
share capital for pre- emptive issuances. In the UK we are aligned with the guidance of the Investment Association
Share Capital Management Guidelines. |
● |
Where
a company seeks a general authority to issue shares we generally expect this to be limited to 10% of the company’s
share capital for non-pre-emptive issuances. In the UK we are aligned with the guidance of the Investment Association
Share Capital Management Guidelines and those of the Pre-Emption Group. |
● |
We
will not generally support share issuances at investment trusts unless there is a commitment that shares would only
be issued at a price at or above NAV.
|
When
considering our votes we will, however, take account of the company’s circumstances and any further detail regarding
proposed capital issuance authorities prior to voting.
Following
changes to the UK’s Pre-Emption Group Guidelines in November 2022, which reflect an increase on previous limits,
we will hold the Chair of the company accountable for any perceived misuse of the increased flexibility through a vote
against their re-election.
Buyback
We
recognise that share buybacks can be a flexible means of returning cash to shareholders.
● |
We
will generally support buyback authorities of up to 10% of the issued share capital. |
Related
Party Transactions
The
nature of relations – particularly any related party transactions (RPTs) – with parent or related companies, or other major
investors, must be disclosed fully. Related party transactions must be agreed on arm’s length terms and be made fully
transparent. Where they are material, they should be subject to the approval of independent shareholders.
● |
We
will vote against RPTs where there is insufficient transparency of the nature of the transaction, the rationale, the terms
or the views and assessment of directors and advisors. |
Appendix
C - Proxy Voting Policies and Procedures 173
Article/Bylaw
amendments
While
it is standard to see proposals from companies to amend their articles of association or bylaws, we will review these
on a case by case basis. When doing so we expect full transparency of the proposed changes to be disclosed.
● |
We
will vote against amendments which will reduce shareholder rights. |
Anti-Takeover
Defences
There
should be no artificial structures put in place to entrench management and protect companies from takeover. The best
defence from hostile takeover is strong operational delivery.
● |
We
will generally vote against anti-takeover/‘poison pill’ proposals. |
Voting
Rights
We
are strong supporters of the principle of ‘one share, one vote’ and therefore favour equal voting rights for all shareholders.
● |
We
will generally vote against proposals which seek to introduce or continue capital structures with multiple voting rights.
|
● |
We
will consider voting against proposals to raise new capital at companies with multiple share classes and voting rights.
|
General
Meetings
Shareholder
meetings provide an important opportunity to hold boards to account not only through voting on the proposed
resolutions but also by enabling investors the opportunity to raise questions, express views and emphasise concerns
to the entire board. We may make a statement at a company’s AGM as a means of escalation to reinforce our views
to a company’s board.
We
welcome the opportunity to attend meetings virtually, being of the view that this can increase participation given obstacles
such as location or meeting concentration. However we are not supportive of companies adopting virtual-only meetings
as we believe this format reduces accountability. Our preference is for a hybrid meeting format to balance the flexibility
of remote attendance with the accountability of an in-person meeting.
● |
We
will generally support resolutions seeking approval to shorten the EGM notice period to minimum 14 days, unless we
have concerns regarding previous inappropriate use of this flexibility. |
● |
We
will generally support proposals to enable virtual meetings to take place as long as there is confirmation that the format
will be hybrid, with physical meetings continuing to take place (unless prohibited by law). We expect virtual attendees
to have the same rights to speak and raise questions as those attending in-person. |
As
part of strategic planning, boards need to have oversight of, and clearly articulate, the key opportunities and risks affecting
the sustainability of the business model. This includes having a process for, and transparent disclosure of, potential and
emerging opportunities and risks and the actions being taken to address them.
The
effective management of risks extends to long-term issues that are hard to measure and whose timeframe is uncertain
and will include the management of environmental and social issues. We use the UN Global Compact’s four areas
of focus in assessing how companies are performing in this area.
Specifically
we expect companies to be able to demonstrate how they manage their exposures under the following headings.
The
Environment
It
is generally accepted that companies are responsible for the effects of their operations and products on the environment.
The steps they take to assess and reduce those impacts can lead to cost savings and reduce potential reputational
damage. Companies are responsible for their impact on the climate and they face increased regulation from
world governments on activities that contribute to climate change.
We
expect that companies will
● |
Identify,
manage and reduce their environmental impacts. |
● |
Understand
the impact of climate change along the company value chain. |
● |
Develop
group-level climate policies and, where relevant, set targets to manage the impact, report on policies, practices
and actions taken to reduce carbon and other environmental risks within their operations. |
● |
Comply
with all environmental laws and regulations, or recognised international best practice as a minimum. |
Where
we have serious concerns regarding a board’s actions, or inaction, in relation to the environment we will consider taking
voting action on an appropriate resolution.
We
will use the indicators within the Carbon Disclosure Project to identify companies which are not fulfilling their climate commitments.
Where appropriate we will take voting action to encourage better practice among companies which we deem
to be laggards.
174 Appendix
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Labour
and employment
Companies
that respect internationally recognised labour rights and provide safe and healthy working environments for employees
are likely to reap the benefits. This approach is likely to foster a more committed and productive workforce, and
help reduce damage to reputation and a company’s license to operate. We expect companies to comply with all employment
laws and regulations and adopt practices in line with the International Labour Organization’s core labour standards.
a minimum.
In particular, companies will:
● |
Take
affirmative steps to ensure that they uphold decent labour standards. |
● |
Adopt
strong health and safety policies and programmes to implement such policies. |
● |
Adopt
equal employment opportunity and diversity policies and a programme for ensuring compliance with such policies.
|
● |
Adopt
policies and programmes for investing in employee training and development. |
● |
Adopt
initiatives to attract and retain talented employees, foster higher productivity and quality, and encourage in their workforce
a commitment to achieving the company’s purpose. |
● |
Ensure
policies are in place for a company’s suppliers that promote decent labour standards, and programmes are in place
to ensure high standards of labour along supply chains. |
● |
Report
regularly on its policy and implementation of managing human capital. |
Where
we have serious concerns regarding a board’s actions, or inaction, in relation to labour and employment we will consider
taking voting action on an appropriate resolution.
Human
rights
We
recognise the impact that human-rights issues can have on our investments and the role we can play in stimulating progress.
We draw upon a number of international, legal and voluntary agreements for guidance on human-rights responsibilities
and compliance. Our primary sources are the International Bill of Rights and the core conventions of the International
Labour Organisation (ILO), which form the list of internationally agreed human rights, and the UN Guiding Principles
on Business and Human Rights (UNGPs), which clarifies the roles of states and businesses. We encourage companies
to use the UNGPs Reporting Framework and encourage disclosure in line with this guidance.
We
expect companies to:
● |
Continually
work to understand their actual and potential impacts on human rights. |
● |
Establish
systems that actively ensure respect for human rights. |
● |
Take
appropriate action to remedy any infringements on human rights. |
Where
we have serious concerns regarding a board’s actions, or inaction, in relation to human rights we will consider taking
voting action on an appropriate resolution.
Business
ethics
As
institutions of wealth and influence, companies have a significant impact on the prosperity of their local communities and
the wider world. Having a robust code of ethics and ensuring professional conduct mean companies operate more effectively,
particularly when it comes to ethical principles governing decision- making. A company’s failure to conform to internationally
recognised standards of business ethics on matters such as bribery and corruption, can increase its risk of facing
investigation, litigation and fines. This could undermine its license to operate, and affect its reputation and image.
We
expect companies to have policies in place to support the following:
● |
Ethics
at the heart of the organisation’s governance. |
● |
A
zero-tolerance policy on bribery and corruption.. How people are rewarded, as pay can influence behaviour. |
● |
Respect
for human rights. |
● |
Ethical
training for employees. |
Where
we have serious concerns regarding a board’s actions, or inaction, related to business ethics we will consider taking
voting action on an appropriate resolution.
We
will review any resolution at company meetings which ISS has identified as covering environmental and social factors. The
following will detail our overarching approach and expectations.
Our
approach to vote analysis is consistent across active and quantitative investment strategies
Review
the resolution, proponent and board statements, existing disclosures, and external research.
Engage
with the company, proponents, and other stakeholders as required.
Involve
thematic experts, regional specialists, and investment analysts in decision-making to harness a wide range of expertise
and include all material factors in our analysis.
Appendix
C - Proxy Voting Policies and Procedures 175
Ensure
consistency by using our own in-house guidance to frame case-by-case analysis.
Monitor
the outcomes of votes.
Follow-up
with on-going engagement as required.
Given
the nature of the topics covered by these resolutions we do not apply binary voting policies. We adopt a nuanced approach
to our voting research and outcomes and will consider the specific circumstances of the company concerned. Our
objective is not to vote in favour of all shareholder resolutions but to determine the best outcome for the company in the
context of the best outcome for our clients. There are instances where we are supportive of the spirit of a resolution however
there may be a reason which prevents our support for the proposal. For example, where the purpose of the resolution
is unclear, where the wording is overly prescriptive, when suggested implementation is overly burdensome or where
the proposal strays too closely to the board’s responsibility for setting the company’s strategy.
Management
Proposals
We
are supportive of the steps being taken by companies to provide transparent, detailed reporting of their ESG strategies
and targets. While shareholder proposals on environmental and social topics have been common on AGM agenda
for several years, an increasing number of companies are presenting management proposals, such as so called ‘say
on climate’ votes, for shareholder approval. While we welcome the intention of accountability behind these votes, we have
reservations about the potential for them to limit the scope for subsequent investor challenge and diminish the direct
responsibility and accountability of the board and individual directors. We believe it is the role of the board and the executive
to develop and apply strategy, including ESG strategies, and we will continue to use existing voting items to hold boards
to account on the implementation of these strategies. As active investors we also regularly engage with investee companies
on ESG topics and find this dialogue to be the best opportunity to provide feedback.
We
will review the appropriateness of ‘say on climate’ votes and consider if other voting mechanisms should be applied to
ensure both Boards and Executives apply the appropriate rigour to initiate and deliver strategies to support the climate transition.
Shareholder
Proposals
The
number of resolutions focused on environmental and social (E&S) issues filed by shareholders continues to grow rapidly.
The following provides an overview of some of the factors we consider when assessing the most prevalent themes
for shareholder proposals.
Climate
Change
We
are members of the Net Zero Asset Manager Initiatives
and this is reflected in our Active Ownership approach. We encourage
the companies in which we invest to demonstrate a robust methodology underpinning Paris aligned goals and
targets and are supportive of resolutions that will help companies to achieve this. Once a credible climate strategy is in
place, we prioritise evidence of implementation over requests to re-draft strategies and targets after only a year or two.
A
growing number of resolutions call on companies to increase the transparency of their reporting on climate- related lobbying.
These proposals typically encompass direct lobbying undertaken by the company and indirect lobbying undertaken
by trade associations and other organisations of which it is a member or supporter. Lobbying contrary to the objectives
of the Paris Agreement is effective in creating climate policy inertia and impeding the transition to net zero economies.
We
do not evaluate resolutions in isolation. Our approach recognises the links between corporate governance, strategy and
climate approach. Where a company’s operational response to climate change is inadequate, the effectiveness of board
oversight and corporate governance may also be called into question.
We
expect and encourage companies to:
● |
Demonstrate
that a robust methodology underpins Paris aligned, net zero goals and targets. |
● |
Set
targets for absolute emission reduction, not just carbon intensity, to show a clear pathway to net zero. |
● |
Report
in alignment with the Taskforce for Climate-Related Financial Disclosure framework. |
● |
Link
targets to remuneration and ensure they are reflected in capital expenditure and R&D plans. |
● |
Carefully
manage climate-related lobbying by ensuring appropriate oversight, transparent disclosure of activities, and alignment
of activities with the company’s strategy and publicly stated positions. |
Diversity
& Inclusion
Diversity
& Inclusion (D&I) is an important and growing theme for shareholder resolutions. In recent years resolutions have
focussed on racial equity audits, pay gap reporting, transparent disclosure of D&I metrics and assessments of the efficacy
of D&I programmes.
A
racial equity audit is an independent analysis of a company’s business practices designed to identify practices that may
have a discriminatory effect. We are supportive of racial equity audits in relation to internal and external D&I programmes.
It is appropriate that these programmes should have KPIs and audit mechanisms in place to measure and
176 Appendix
C - Proxy Voting Policies and Procedures
evaluate
outcomes. Some proposals request racial equity audits of provision of services. We are aware that measuring provision
of service is challenging and gathering racial data on customers can be difficult and inappropriate. There are also
multiple different factors that can influence service provision and which could be misconstrued as being racially motivated.
We will however, support resolutions which are not unduly prescriptive and allow companies to carry out audits
within a reasonable timeframe, at a reasonable cost, and excluding confidential or proprietary information.
We
consider standardised gender pay gap disclosure to be an important tool for assessing how companies are addressing
gender inequality. Reporting on gender pay gaps across global operations can help companies to remain ahead
of the regulatory curve. It also enables them to offer better opportunities and remuneration for women around the world.
We are therefore supportive of resolutions which are likely to deliver these benefits. Proposals must be carefully drafted
to achieve these outcomes. For instance, in the past we have been unable to support resolutions which called for global
median gender and racial pay gap reporting as it was unclear how this would reveal potential pay disparities at a local
level and how it could be implemented by companies with operations in jurisdictions where collection of racial identity
data is illegal.
In
the US market we support public disclosure of EEO-1 forms by companies. The EEO-1 form details a comprehensive breakdown
of workforce by race and gender according to ten employment categories. The form is submitted privately to the
US Equal Employment Opportunity Commission on an annual basis. When publicly disclosed, it offers investors and other
stakeholders data in a standardised and comparable form. We have used our engagement programme to ask the companies
in which we invest to disclose this form for their US operations while making it central to our D&I voting approach
and supporting resolutions that request it.
Human
rights
As
a supporter of the UN Guiding Principles on Business and Human Rights (UNGPs), we expect companies to demonstrate
how human rights due diligence is conducted across operations, services, product use and the supply chain.
Companies can have a significant impact on human rights directly through operations and provision of services, and
indirectly through product use and the supply chain. In recent years the sale and end-use of controversial technologies,
such as facial recognition software, has emerged as a prominent theme.
We
expect and encourage companies to:
● |
Have
robust due diligence processes to assess the actual and potential human rights impacts of their operations, services,
product use and supply chain. |
● |
Conduct
customer and supplier vetting processes commensurate with the risk of human rights abuse. |
● |
Publicly
disclose information about the operation of these processes and utilise the UNGPs’ Reporting Framework. This will
improve the standard and consistency of human rights reporting and enable more informed investment decision making.
|
Corporate
Lobbying & Political Contributions
Corporate
lobbying and political contributions are a recurrent theme of shareholder resolutions, particularly in the US. These
proposals typically encompass direct lobbying undertaken by the company and indirect lobbying undertaken by trade
associations and other organisations of which it is a member or supporter. Proposals may also request the disclosure
of more information regarding the process and rationale for political contributions. We expect companies to make
transparent, consolidated disclosures of direct and indirect lobbying and political expenditure. This disclosure should
be underpinned by a coherent policy that: explains public policy priorities and the rationale for associated expenditure,
identifies the management positions responsible for public policy engagement, and provides appropriate mechanisms
for board oversight. These measures should mitigate the risks associated with corporate lobbying and political
contributions, protecting the interest of shareholders and other stakeholders.
Nuclear
Energy
In
the Japanese market nuclear energy is a recurrent theme of shareholder resolutions. The Japanese government is seeking
to reduce the nation’s reliance on coal and its energy strategy presents safe nuclear power generation as an important
source of base-load power. In this context, resolutions which seek to limit or cease the nuclear operations of an individual
company do not appear to be in the best interests of shareholders and other stakeholders. The health & safety risks
associated with nuclear energy are high, must be managed carefully across the industry, and are an important consideration
in our voting.
Important
Information
This
document is strictly for information purposes
only and should not be considered as an offer, investment recommendation,
or solicitation,
to deal in any of the
investments or funds mentioned
herein and does not constitute investment
research.
abrdn does not warrant the accuracy, adequacy or completeness of the information and materials
contained in this document
and expressly disclaims liability for errors or omissions in such information and materials.
Any
research or analysis used in the preparation of this document has been procured by abrdn for its own use and may have
been acted on for its own purpose. The results thus obtained are made available only coincidentally and the information
is not guaranteed as to its accuracy. Some of the information in this document may contain projections or
Appendix
C - Proxy Voting Policies and Procedures 177
other
forward looking statements regarding future events or future financial performance of countries, markets or companies.
These statements are only predictions and actual events or results may differ materially. The reader must make
their own assessment of the relevance, accuracy and adequacy of the information contained in this document and
make such independent investigations, as they may consider necessary or appropriate for the purpose of such assessment.
This material serves to provide general information and is not meant to be investment, legal or tax advice for any
particular investor. No warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether
directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or
estimate contained in this document. abrdn reserves the right to make changes and corrections to any information in this
document at any time, without notice. This material is not to be reproduced in whole or in part without the prior written
consent of abrdn.
Applying
ESG and sustainability criteria in the investment process may result in the exclusion of securities within the universe
of potential investments. The interpretation of ESG and sustainability criteria is subjective meaning that products may
invest in companies which similar products do not (and thus perform differently) and which do not align with the personal
views of any individual investor. Furthermore, the lack of common or harmonized definitions and labels regarding
ESG and sustainability criteria may result in different approaches by managers when integrating ESG and sustainability
criteria into investment decisions. This means that it may be difficult to compare strategies within ostensibly similar
objectives and that these strategies will employ different security selection and exclusion criteria. Consequently, the
performance profile of otherwise similar vehicles may deviate more substantially than might otherwise be expected. Additionally,
in the absence of common or harmonized definitions and labels, a degree of subjectivity is required and this will
mean that a product may invest in a security that another manager or an investor would not.
abrdn
plc is registered in Scotland (SC286832) at 1 George Street, Edinburgh EH2 2LL.
United
Kingdom (UK)
abrdn
Investment Management Limited registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Authorised
and regulated in the UK by the Financial Conduct Authority.
Europe(1),
Middle East and Africa
(1) |
In
EU/EEA for Professional Investors, in Switzerland for Qualified Investors - not authorised for distribution to retail investors in these
regions. |
Belgium,
Cyprus, Denmark, Finland, France, Gibraltar, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal,
Spain, and Sweden: Produced by abrdn Investment
Management Limited which is registered in Scotland (SC123321)
at 1 George Street, Edinburgh EH2 2LL and authorised and regulated by the Financial Conduct Authority in the
UK. Unless otherwise indicated, this content refers only to the market views, analysis and investment capabilities of the foregoing
entity as at the date of publication. Issued by abrdn Investments Ireland Limited. Registered in Republic of Ireland
(Company No.621721) at 2-4 Merrion Row, Dublin D02 WP23. Regulated by the Central Bank of Ireland. Austria,
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abrdn Investment Management Limited registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL.
Authorised and regulated by the Financial Conduct Authority in the UK. Switzerland:
abrdn Investments Switzerland AG. Registered
in Switzerland (CHE-114.943.983) at Schweizergasse 14, 8001 Zürich. Abu
Dhabi Global Market (“ADGM”):
Aberdeen Asset Middle East Limited, 6th floor,
Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, P.O. Box
764605, Abu Dhabi, United Arab Emirates. Regulated by the ADGM Financial Services Regulatory Authority. For Professional
Clients and Market Counterparties only. South
Africa: Aberdeen Asset Managers Limited
(“AAML”). Registered in Scotland
(SC108419) at 10 Queen’s Terrace, Aberdeen, AB10 1XL AAML is not a registered Financial Service Provider
and is exempt from the Financial Advisory And Intermediary Services Act, 2002. AAML operates in South Africa under
an exemption granted by the Financial Sector Conduct Authority (FSCA FAIS Notice 3 of 2022) and can render financial
services to the classes of clients specified therein.
Asia-Pacific
Australia
and New Zealand: abrdn Australia Limited
ABN 59 002 123 364, AFSL No. 240263. In New Zealand to wholesale investors
only as defined in the Financial Markets Conduct Act 2013 (New Zealand). Hong
Kong: abrdn Hong Kong Limited.
This document has not been reviewed by the Securities and Futures Commission. Malaysia:
abrdn Malaysia Sdn Bhd, Company Number: 200501013266
(690313-D). This document has not been reviewed by the Securities Commission
of Malaysia. Thailand:
Aberdeen Asset Management (Thailand) Limited. Singapore:
abrdn Asia Limited, Registration Number 199105448E.
Americas
Brazil:
abrdn Brasil Investimentos Ltda. is an entity duly registered with the Comissão de Valores Mobiliários (CVM) as an investment
manager. Canada:
abrdn is the registered marketing name in Canada for the following entities: abrdn Canada
Limited, Aberdeen Standard Investments Luxembourg S.A., abrdn Private Equity (Europe) Limited, abrdn Capital Partners
LLP, abrdn Investment Management Limited, Aberdeen Standard Alternative Funds Limited, and Aberdeen Capital
Management LLC. abrdn Canada Limited is registered as a Portfolio Manager and Exempt Market Dealer in all provinces
and territories of Canada as well as an Investment Fund Manager in the provinces of Ontario, Quebec, and Newfoundland
and Labrador. United States:
abrdn is the marketing name for the following affiliated, registered investment
advisers: abrdn Inc., Aberdeen Asset Managers Ltd., abrdn Australia Limited, abrdn Asia Limited, Aberdeen Capital
Management LLC, abrdn ETFs Advisors LLC and Aberdeen Standard Alternative Funds Limited.
178 Appendix
C - Proxy Voting Policies and Procedures
|
|
abrdn
Funds |
|
Prospectus
|
|
February
29, 2024 |
|
abrdn
EM SMA Completion Fund
Institutional
Class - ASEMX
As
with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these Funds’ shares or determined
whether this prospectus is complete or accurate.
To state otherwise is a crime.
|
|
|
Summary
- abrdn EM SMA Completion Fund
|
|
|
|
abrdn
EM SMA Completion Fund |
|
Objective
The abrdn EM SMA Completion Fund (the “EM
SMA Completion Fund” or the “Fund”) seeks long-term capital appreciation.
Fees
and Expenses of the Fund
This table describes the fees and expenses that
you may pay when you buy, hold and sell shares of the abrdn EM SMA Completion
Fund.
|
|
Shareholder
Fees (fees paid directly from your investment) |
None
|
|
|
Annual
Fund Operating Expenses (expenses that you pay each yearas a percentage of the value of your investment)
|
|
Management
Fees(1)
|
|
Distribution
and/or Service (12b-1) Fees |
|
Other
Expenses |
|
Acquired
Fund Fees and Expenses(2)
|
|
Total
Annual Fund Operating Expenses(3)
|
|
Less:
Amount of Fee Limitations/Expense Reimbursements(4)
|
|
Total
Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements(3)
|
|
(1) |
None
of abrdn Inc. (the “Adviser”), abrdn Asia Limited (“aAL”)
or abrdn Investments Limited (“aIL”
and collectively with aAL,
the “Sub-advisers”) charges a management
fee or sub-advisory fee to the Fund. Shareholders should be aware, however, that the Fund is an integral part of separately managed account
programs, and the Fund’s Adviser, the Fund’s Sub-advisers or their affiliates will be compensated directly or indirectly
by separately managed account program sponsors
or program participants for managed account advisory services. |
(2) |
Acquired
fund fees and expenses are indirect fees and expenses that the Fund incurs from investing in the shares of other mutual funds, including
money market funds and
exchange traded funds. |
(3) |
The
Total Annual Fund Operating Expenses and Total Annual Fund Operating Expenses After Fee Limitations/Expense Reimbursements do not correlate
to the Fund’s
Ratio of Expenses (Prior to Reimbursements) to Average Net Assets and Ratio of Expenses to Average Net Assets, respectively, included
in the Fund’s
Financial Highlights in the Fund’s prospectus, as those ratios do not reflect indirect expenses, such as Acquired Fund Fees and
Expenses. |
(4) |
abrdn
Funds (the “Trust”) and the Adviser have entered into a written contract pursuant to which the Adviser has agreed to reimburse
the Fund’s operating expenses (excluding
certain expenses, including any taxes, interest, brokerage fees, Acquired Fund Fees and Expenses and extraordinary expenses).
This contractual arrangement may not be terminated before February
28,
2025 without the approval
of the Independent Trustees. |
Example
This Example is intended to help you compare
the cost of investing in the abrdn EM SMA Completion Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000
in the Fund for the time periods indicated and then sell all of your shares at the
end of those periods. It assumes a 5% return each year and that the Fund’s operating expenses remain the same (taking into account the contractual fee limitation until its expiration, which impacts the 1-Year figure listed below). Although
your actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
$0
|
$4,606
|
$7,336
|
$10,236
|
Portfolio
Turnover
The abrdn EM SMA Completion Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns
over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes
when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. During
the most recent fiscal period, the Fund’s portfolio turnover
rate was 30.12%
of
the average value of its portfolio.
Principal
Strategies
The abrdn EM SMA Completion Fund will invest
primarily in common stocks, but may also invest in other types of equity securities,
including, but not limited to, preferred stock and depositary receipts. As a non-fundamental policy, under normal
circumstances, the Fund invests at least 80% of the value of its net assets, plus any borrowings for investment purposes,
in equity securities of emerging market companies. An emerging market country is any country determined by the
Adviser or Sub-advisers to have an emerging market economy, considering factors such as the country’s credit rating,
its political and economic stability and the development of its financial and capital markets. Emerging market countries
include every nation in the world except the United States, the United Kingdom, Canada, Japan, Australia, New
Summary
- abrdn EM SMA Completion Fund 1
Summary
- abrdn EM SMA Completion Fund
Zealand, Israel, Hong Kong, Singapore and most
countries located in Western Europe. A company is considered to be an emerging
market company if Fund management determines that the company meets one or more of the following criteria:
● |
the
company is organized under the laws of, or has its principal office in an emerging market country; |
● |
the
company has its principal securities trading market in an emerging market country; and/or |
● |
the
company derives the majority of its annual revenue or earnings or assets from goods produced, sales made or services
performed in an emerging market country. |
At times, the Fund
may have a significant amount of its assets invested in
a country or geographic region. The Fund currently anticipates that it will invest a significant amount of its assets in securities
economically tied to mainland China, including
through the Shanghai-Hong Kong and Shenzhen-Hong Kong
Stock Connect program or by any other available means. The Fund also currently anticipates that it will invest a significant
amount of its assets in securities economically tied to India and securities economically tied to South Korea. The
Fund may invest in securities denominated in U.S. Dollars and currencies of emerging market countries in which it is permitted
to invest. The Fund typically has full currency exposure to those markets in which it invests.
The Fund may invest in securities of any market
capitalization, including small and mid-cap securities.
The Fund may invest in securities of any market
sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. The Fund currently anticipates that it will have significant exposure to the information
technology and financials sectors.
In seeking to achieve the Fund’s investment
objective, the Adviser and Sub-advisers invest in quality companies and are an
active, engaged owners. The Adviser and Sub-advisers evaluate every company against quality criteria and build conviction
using a team-based approach and peer review process. The quality assessment covers five key factors: 1) the durability
of the business model, 2) the attractiveness of the industry, 3) the strength of financials, 4) the capability of management,
and 5) the most material environmental, social and governance (“ESG”) factors impacting a company. As
ESG information is just
one investment consideration, ESG considerations generally are not solely determinative in any investment
decision made by the Adviser and Sub-advisers.
Through fundamental research, supported by a global research
presence, the Adviser and Sub-advisers seek to identify companies whose quality and
future prospects are not yet
fully recognized by the market.
The Fund is non-diversified any may invest a
significant portion of its assets in the securities of a single issuer or a small number
of issuers.
Principal
Risks
The
abrdn EM SMA Completion Fund cannot guarantee that it will achieve its investment objective.
As
with any fund, the value of the Fund’s investments – and therefore, the value of Fund shares – may fluctuate. The
following is a list of the principal risks
of investing in the Fund (in alphabetical order after the first seven risks).
Market Risk –
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield,
of securities in those markets in which the Fund invests.
Issuer Risk –
The value of a security may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services.
Equity Securities Risk –
The stock or other security of a company may not perform as well as expected, and may decrease
in value, because of factors related to the company (such as poorer than expected earnings or certain management
decisions), or to the industry in which the company is engaged (such as a reduction in the demand for products
or services in a particular industry), or to the market as a whole (such as periods of market volatility or instability, or
general and prolonged periods of economic decline).
Active Management
Risk – The Fund is subject to the
risk that the Adviser or Sub-advisers may make poor security selections.
The Adviser or Sub-adviser and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or Sub-advisers may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies.
Emerging Markets Risk –
Emerging
markets are countries generally considered to be relatively less developed or industrialized,
and investments in emerging markets countries are subject to a
magnification of the risks that apply to foreign
investments. These risks are greater for securities of companies in emerging market countries, municipalities or governments
because the countries may have less stable governments, more volatile currencies and less established markets
(see “Foreign Securities Risk” below).
China Risk.
Investments in China and Hong Kong subject the Fund to additional risks, and may make it significantly more
volatile than geographically diverse mutual funds. Additional risks associated with investments in China and Hong Kong
include exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization,
2 Summary
- abrdn EM SMA Completion Fund
Summary
- abrdn EM SMA Completion Fund
exchange control regulations (including currency
blockage), trading halts, imposition of tariffs, limitations on repatriation and
differing legal standards. Any spread of an infectious illness, public health threat or similar issue could reduce consumer
demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant
impact on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Shanghai-Hong
Kong and Shenzhen-Hong Kong Stock Connect Risk.
Investing in China A shares through Stock Connect
involves various considerations and risks, including, but not limited to, illiquidity risk; currency risk; greater price volatility;
legal and regulatory uncertainty risk; execution risk; operational risk; tax risk; credit risk; and economic, social and
political instability of the stock market in the People’s Republic of China.
India Risk.
The value of the Fund’s assets may be adversely affected by political, economic, social and religious factors,
changes in Indian law or regulations and the status of India’s relations with other countries. In addition, the economy
of India may differ favorably or unfavorably from the U.S. economy in such respects as the rate of growth of gross
domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
The Indian government has exercised and continues to exercise significant influence over many aspects of the economy,
and the number of public sector enterprises in India is substantial. Accordingly, Indian government actions in the
future could have a significant effect on the Indian economy, which could affect private sector companies and the Fund,
market conditions, and prices and yields of securities in the Fund’s portfolio.
The Republic
of Korea (South Korea) Risk. Concentrating
investments in South Korea subjects the Fund to additional risks,
and may make it significantly more volatile than geographically diverse mutual funds. Additional risks associated with
investments in South Korea include political, economic and social instability, and the potential for increasing militarization
in North Korea. The financial sector in South Korea has been subject to systemic weaknesses and illiquidity, which
could be a material risk for any investments in South Korea if exacerbated. A
significant increase in energy prices could
have an adverse impact on South Korea’s economy as South Korea is dependent on foreign sources for much of its energy
needs. The South Korean government has exercised and continues to exercise significant influence over many aspects
of the economy. Accordingly, South Korean government actions in the future could have a significant effect on the
South Korean economy, which could affect private sector companies and the Fund, market conditions, and prices and
yields of securities in the Fund’s portfolio.
Foreign Currency Exposure Risk –
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic,
political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar
reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund
more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
Foreign Securities Risk –
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated
and more volatile than U.S. markets. The value of the Fund’s investments may decline because of factors such as
unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial
instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic
region, economic, political, regulatory or other conditions affecting such country or region may have a greater
impact on Fund performance relative to a more geographically diversified fund.
Cybersecurity Risk –
Cybersecurity incidents may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
ESG Integration Risk
–
To the extent ESG factors are used to evaluate investments, the consideration of such factors may adversely
affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG characteristics
are not the only factors considered and, as a result, the issuers in which a Fund invests may not be issuers with
favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing differently
than its benchmark index and other funds in its peer group that do not consider ESG factors or consider different
ESG factors.
Mid-Cap Securities Risk –
Securities of medium-sized companies tend to be more volatile and less liquid than securities of larger
companies.
Non-Diversified
Fund Risk – The Fund’s performance
may be more volatile than a diversified fund because it may invest a greater
percentage of its total assets in the securities of a single issuer.
Sector Risk –
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and
Summary
- abrdn EM SMA Completion Fund 3
Summary
- abrdn EM SMA Completion Fund
internationally, which may have an adverse effect
on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Financials
Sector Risk. To the extent that the financials
sector represents a significant portion of the Fund, the Fund will
be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector. Performance
of companies in the financials sector may be adversely impacted by many factors, including, among others,
government regulations, economic conditions, credit rating downgrades, changes in interest rates, decreased liquidity
in credit markets as well as cyber-attacks.
Small-Cap Securities Risk –
Securities of smaller companies are usually less stable in price and less liquid than those of larger, more established
companies. Therefore, they generally involve greater risk. Small-cap companies may have limited product lines or markets, be less financially
secure than larger companies, or depend on a small number of key personnel. If adverse developments occur, such as due to management changes
or product failure, a Fund’s investment in a small-cap company may lose substantial value.
Valuation Risk –
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using
a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon
the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than
expected loss or lesser than expected gain upon the sale of the investment. The Fund’s ability to value its investments
may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
If
the value of the Fund’s investments decreases, you may lose money.
For
additional information regarding the above identified risks, see “Fund Details: Additional Information about Investments,
Investment Techniques and Risks” in the prospectus.
Performance
No
performance information is presented for the EM SMA Completion Fund because it has not been in operation for a full calendar
year. For updated performance
information, please visit https://www.abrdn.com/en-us/us/investor/fund-centre#literature
or call 866-667-9231.
Investment
Adviser
abrdn
Inc. (the “Adviser”) serves as the EM SMA Completion Fund’s investment adviser. abrdn Asia Limited (“aAL”)
and abrdn Investments Limited (“aIL”,
together with aAL,
the “Sub-advisers”) serve as the Fund’s sub-advisers.
Portfolio
Managers
The
Fund is managed using a team-based approach, with the following team members being jointly and primarily responsible
for the day-to-day management of the Fund:
|
|
|
Name
|
Title
|
Served
on the Fund Since |
Kristy
Fong, CFA®
|
Senior
Investment Director |
|
Joanne
Irvine |
Deputy
Head of Global Emerging Markets |
|
Devan
Kaloo |
Global
Head of Equities and Head of Global Emerging Markets
Equities |
|
Nick
Robinson, CFA®
|
Senior
Investment Director |
|
Gabriel
Sacks, CFA®
|
Investment
Director |
|
Purchase
and Sale of Fund Shares
NOT
AVAILABLE TO THE GENERAL PUBLIC.
Shares
of the fund may be purchased only by or on behalf of separately managed account clients where the Fund’s Adviser
or an affiliate of the Adviser (each a “Managed Account Adviser”) has an agreement with the managed account program
sponsor (the “Program Sponsor”), or directly with the client, to provide management or advisory services to the managed
account or to the Program Sponsor for its use in managing such account. The Fund is a “completion fund,” meaning
that it is intended to be used as part of a broader investment program by certain separately managed account clients.
There
are no maximum or minimum investment requirements in the Fund (although your Program Sponsor may have certain
investment requirements).
Redemption
orders are made based on instructions from your Managed Account Adviser or Program Sponsor to the broker/dealer
who executes trades for the account.
4 Summary
- abrdn EM SMA Completion Fund
Summary
- abrdn EM SMA Completion Fund
Fund
shares may be redeemed on each day that the New York Stock Exchange is open.
Tax
Information
The
Fund’s dividends and distributions are subject to federal income taxes and will be taxed as ordinary income or capital gains,
unless you are a tax-exempt investor or invest through a qualified employee benefit plan, retirement plan or other tax-deferred
account, in which case your withdrawals from such account may be taxed as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor
to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary’s website
for more information.
Summary
- abrdn EM SMA Completion Fund 5
Additional
Information about Principal Strategies
In
seeking to achieve the Fund’s investment objective, the Adviser and Sub-adviser(s), as applicable, (together, the “Advisers”)
invest in quality companies and are active, engaged owners. The Advisers evaluate every company against quality
criteria and build conviction using a team-based approach and peer review process. The quality assessment covers
five key factors: (1) durability of the business model, (2) the attractiveness of the industry, (3) the strength of financials,
(4) the capability of management, and (5) the most material Environmental, Social and Governance (“ESG”) factors
impacting a company.
Examples of ESG factors considered by the Advisers include, but are not limited to, carbon emissions,
climate risks, labor management, employee safety and corporate governance. The specific factors considered
may vary depending on the type of company being evaluated. As ESG information is just one investment consideration,
ESG considerations generally are not solely determinative in any investment decision made by the Advisers.
Through
fundamental research, supported by a global research presence, the Advisers seek to identify companies whose
quality and
future prospects are not yet fully recognized
by the market.
The
Advisers may sell a security when they perceive that a company’s business direction or growth potential has changed
or the company’s valuations no longer offer attractive relative value.
Investment
Objective. The investment objective of
the Fund is not fundamental and may be changed by the Board of Trustees
without shareholder approval.
80%
Investment Policy. If the EM SMA Completion
Fund changes its 80% investment policy, it will notify shareholders at least
60 days before the change and, if necessary, will change the name of the Fund.
Derivatives.
To the extent that the Fund invests in derivatives with an underlying asset with economic characteristics similar
to the investments included in the investment policies described under “Principal Strategies” of the Fund’s “Summary”
section above, the market value or notional value of such derivative, depending on the exposure provided by the
type of derivative, would be included to meet the applicable investment policy, except for an 80% policy required by Rule
35d-1 with respect to which market value would be included.
Additional
Information on Engagement and Proxy Voting on ESG Issues.
More
information about the Advisers’ approach to engagement is described in Appendix C to the Statement of Additional
Information.
Additional
Information about Investments, Investment Techniques and Risks
The
principal investments and principal risks of the Fund are disclosed in the Fund’s Summary section. The discussion below
provides more information about the principal investments and techniques that the Fund may use and the related risks.
The
Statement of Additional Information contains information about additional investments in which the Fund may invest to
a lesser degree and additional risks to which the Fund may be subject. The order of the below investments, investment techniques
and risks does not indicate their significance.
Active
Management Risk –
The Fund is subject to the risk that the Adviser or a Sub-adviser may make poor security selections.
The Adviser, Sub-advisers and their portfolio managers apply their own investment techniques and risk analyses
in making investment decisions for the Fund, and there can be no guarantee that these decisions will achieve the
desired results for the Fund. In addition, the Adviser or a Sub-adviser may select securities that underperform the relevant
market or other funds with similar investment objectives and strategies. The Fund is also subject to the risk that deficiencies
in the internal systems or controls of the Adviser or a Sub-adviser or another service provider will cause losses
for the Fund or hinder Fund operations. For example, trading delays or errors (both human and systematic) could prevent
the Fund from purchasing a security expected to appreciate in value.
Cybersecurity
Risk – Cybersecurity incidents
may allow an unauthorized party to gain access to Fund assets, customer data
(including private shareholder information), or proprietary information, or cause the Fund, the Adviser and/or its service
providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial
intermediaries) to suffer data breaches, data corruption or lose operational functionality.
Emerging
Markets Risk – The risks of investing
in foreign securities are increased in connection with investments in emerging
markets. Emerging markets are countries generally considered to be relatively less developed or industrialized. Emerging
markets often face economic problems that could subject the Fund to increased volatility or substantial declines
in value. Emerging market securities may also be less liquid (particularly during market closures due to local holidays
or other reasons) and more difficult to value than securities economically tied to developed foreign countries. Deficiencies
in regulatory oversight, market infrastructure, shareholder protections and company laws could expose the Fund
to risks beyond those generally encountered in developed countries. Emerging market countries typically have less
6 Fund
Details - Additional Information about Investments, Investment Techniques and Risks
established
legal, accounting and financial reporting systems than those in more developed markets, which may reduce the
scope or quality of financial information available to investors. Governments in emerging market countries are often less
stable and more likely to take extra-legal action with respect to companies, industries, assets, or foreign ownership than
those in more developed markets. Moreover, it can be more difficult for investors to bring litigation or enforce judgments
against issuers in emerging markets or for U.S. regulators to bring enforcement actions against such issuers. The
Fund may also be subject to Emerging Markets Risk if it invests in derivatives or other securities or instruments whose value
or return are related to the value or returns of emerging markets securities. In addition, profound social changes and
business practices that depart from norms in developed countries’ economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High levels of debt tend to make emerging
economies heavily reliant on foreign capital and vulnerable to capital flight. Emerging market countries may be dependent
on the economies of certain key trading partners, and a reduction in spending on products and services or changes
in those economies or their relationships with countries in those regions may cause an adverse impact on the regional
economy. Countries in emerging markets are also more likely to experience high levels of inflation, deflation or currency
devaluation, which could also hurt their economies and securities markets, as well as political uncertainty, corruption,
military intervention, social unrest or natural disasters. The economy of some emerging markets may be particularly
exposed to or affected by a certain industry or sector, and therefore issuers and/or securities of such emerging
markets may be more affected by the performance of such industries or sectors. For these and other reasons, investments
in emerging markets are often considered speculative. The Fund may also invest in frontier markets, which involve
the same risks as emerging markets, but to a greater extent since they tend to be even smaller, less developed and
less accessible than other emerging markets.
China
Risk. In addition to the risks discussed
above under “Emerging Markets Risk,” as well as the risks described below
under “Foreign Securities Risk,” investing in China presents additional risks. Concentrating investments in China and Hong
Kong may make the Fund significantly more volatile than geographically diverse mutual funds. Additional risks associated
with investments in China and Hong Kong include exposure to currency fluctuations, less liquidity, expropriation,
confiscatory taxation, nationalization, exchange control regulations (including currency blockage) and differing
legal standards. Any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the Chinese economy, which in turn could adversely affect the Fund’s investments.
Inflation
and rapid fluctuations in inflation and interest rates have had, and may continue to have, negative effects on
the economies and securities markets of China or Hong Kong. The Chinese government could, at any time, alter or discontinue
economic reform programs implemented since 1978. Military conflicts, either in response to internal social unrest
or conflicts with other countries, are an ever present consideration.
The
adoption or continuation of protectionist trade policies by one or more countries (including the U.S.) could lead to
decreased demand for Chinese products and have an adverse effect on the Chinese securities markets. In particular, the
current political climate has intensified concerns about a potential trade war between China and the United States, as
each country has imposed, and may in the future impose additional, tariffs on the other country’s products. These actions
may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on the Fund’s performance. Certain securities are, or may in the future
become, restricted, and the Fund may be forced to sell such restricted securities and incur a loss as a result. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly
vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the
potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs
may be imposed or other escalating actions may be taken in the future. Recent developments in relations between the
U.S. and China have raised concerns regarding trade restrictions between the two countries, which could negatively impact
a Fund. It is currently impossible to predict whether further restrictions will be placed on trade between China and the
U.S.
Chinese
authorities may intervene in the China securities market and halt or suspend trading of securities for short or
even longer periods of time. The China securities market has, at times, experienced considerable volatility and has historically
been subject to relatively frequent and extensive trading halts and suspensions. These trading halts and suspensions
have, among other things, contributed to uncertainty in the markets and reduced the liquidity of the securities
subject to such trading halts and suspensions, which could include securities held by the Fund.
The
Fund may gain exposure to companies based or operated in China by investing through legal structures known as
variable interest entities (VIEs). Instead of directly owning the equity securities of a Chinese company, a VIE enters into service
and other contracts with the Chinese company. Although the VIE has no equity ownership of the Chinese company,
the contractual arrangements permit the VIE to consolidate the Chinese company into its financial statements.
The Chinese government could intervene with respect to VIEs, which could significantly affect the Chinese company’s
performance and the enforceability of the VIE’s contractual arrangement with the Chinese company.
Fund
Details - Additional Information about Investments, Investment Techniques and Risks 7
Exposure
to China may be gained through investments in securities that are economically tied to China or, in some cases,
through direct investment in China securities. For a more detailed analysis and explanation of the specific risks of investing
in China, please see “Emerging Markets Securities – Investing in China” in the SAI.
Stock
Connect. Investing
in China A shares through Stock Connect involves various considerations and risks, including,
but not limited to, illiquidity risk; currency risk; greater price volatility; legal and regulatory uncertainty risk; execution
risk; operational risk; tax risk; credit risk; and economic, social and political instability of the stock market in the People’s
Republic of China (“PRC”).
In
recent years, non-Chinese investors, including the Funds,
have been permitted to make investments usually only available
to foreign investors through a quota license or by purchasing from specified brokers in Shanghai or other locations
that have stock connect programs.
China
Stock Exchange-listed securities are available via brokers in Hong Kong through the Shanghai-Hong Kong Stock
Connect program, through the Shenzhen-Hong Kong Stock Connect Program, and may be available in the future through
additional stock connect programs as they are developed in different locations (collectively, “Stock Connect Programs”).
China
A shares through the Stock Connect Programs are held by third party securities settlement systems in Hong
Kong (Hong Kong Securities Clearing Company (“HKSCC”)) and the PRC (“ChinaClear”) where they are mixed with
other investors’
assets and may be subject to lower safekeeping, segregation and record keeping requirements than investments
held domestically. It is considered unlikely that ChinaClear will become insolvent but, if it does so, HKSCC is likely
to seek to recover any outstanding China A shares from ChinaClear through available legal channels but it is not obligated
to do so. If HKSCC does not enforce claims against ChinaClear these funds may not be able to recover their China
A shares. China A shares traded through Stock Connect are uncertificated and are held in the name of HKSCC or its
nominee. PRC law may not recognize the beneficial ownership of the China A shares by these funds and, in the event of
a default of ChinaClear, it may not be possible for the China A shares held by these funds to be recovered. Stock Connect
is subject to a daily quota (the “Daily
Quota”), which limits the maximum net purchases under Stock Connect each
day and, as such, buy orders for China A Shares would be rejected once the Daily Quota is exceeded (although the Funds
will be permitted to sell China A Shares regardless of the Daily Quota balance). Further, Stock Connect, which relies
on the connectivity of the Shanghai or Shenzhen markets with Hong Kong, is subject to operational risk and regulations
that are relatively untested and subject to change. If one or both of the Chinese and Hong Kong markets are closed
on a U.S. trading day, the Funds
may not be able to acquire or dispose of China A Shares through Stock Connect in a
timely manner, which could adversely affect the Funds’
performance.
India.
Political, economic, social and other factors in India may adversely affect a Fund’s performance. An emerging market
such as India has undergone and may continue to undergo rapid change and lack the social, political and economic
stability of more developed countries. The value of the Fund’s assets may be adversely affected by political, economic,
social and religious factors, changes in Indian law or regulations and the status of India’s relations with other countries.
In addition, the economy of India may differ favorably or unfavorably from the U.S. economy in such respects as
the rate of growth of gross domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Agriculture occupies a more prominent position in the Indian economy than in the United States,
and the Indian economy therefore is more susceptible to adverse changes in weather. Moreover, the Indian economy
remains vulnerable to natural disasters, such as droughts and monsoons. The Indian government has exercised and
continues to exercise significant influence over many aspects of the economy, and the number of public sector enterprises
in India is substantial. Accordingly, Indian government actions in the future could have a significant effect on the
Indian economy, which could affect private sector companies and a Fund, market conditions, and prices and yields of
securities in a Fund’s portfolio.
Further,
the economies of developing countries such as India generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. The Indian economy also has been and may continue to be adversely affected by economic
conditions in the countries with which it trades.
There
is also the possibility of nationalization, expropriation or confiscatory taxation, political changes, government regulation,
social instability or diplomatic developments (including war or terrorist attacks). All of these factors could adversely
affect the economy of India, make the prices of Indian securities generally more volatile than the prices of securities
of companies in developed markets and increase the risk of loss to a Fund.
The
securities market in India is substantially smaller, less liquid and significantly more volatile than the securities market
in the United States. The relatively small market capitalizations of, and trading values on, Indian stock exchanges may
cause the Fund’s investments in securities listed on these exchanges to be comparatively less liquid and subject to greater
price volatility than comparable U.S. investments. In addition, Indian securities markets are less developed than U.S.
securities markets. Disclosure and regulatory standards are in many respects less stringent than U.S. standards. Issuers
in India are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly,
from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial
8 Fund
Details - Additional Information about Investments, Investment Techniques and Risks
statements
of an Indian issuer may not reflect its financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally accepted accounting principles.
There is substantially less publicly available information about Indian issuers than there is about U.S. issuers.
A
high proportion of the shares of many Indian issuers are held by a limited number of persons, which may limit the number
of shares available for investment by a Fund. In addition, further issuances, or the perception that such issuances may
occur, of securities by Indian issuers in which a Fund has invested could dilute the earnings per share of a Fund’s investment
and could adversely affect the market price of such securities. Sales of securities by such issuer’s major stockholders,
or the perception that such sales may occur, may also significantly and adversely affect the market price of
such securities and, in turn, a Fund’s investment. A limited number of issuers represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of the Indian securities markets may also affect
the Fund’s ability to acquire or dispose of securities at the price and time that it desires.
Furthermore,
restrictions or controls applicable to foreign investment in the securities of issuers in India may also adversely
affect a Fund’s investments within the country. The availability of financial instruments with exposure to Indian financial
markets may be substantially limited by restrictions on foreign investors and subject to regulatory authorizations. Foreign
investors are required to observe certain investment restrictions, including limits on shareholdings, which may impede
a fund’s ability to invest in certain issuers or to fully pursue its investment objective. These restrictions may also have
the effect of reducing demand for, or limiting the liquidity of, such investments. There can be no assurance that the Indian
government will not impose restrictions on foreign capital remittances abroad or otherwise modify the exchange control
regime applicable to foreign investors in such a way that may adversely affect the ability of a Fund to repatriate their
income and capital.
Indian
stock exchanges have in the past experienced substantial fluctuations in the prices of their listed securities. They
have also experienced problems such as temporary exchange closures, broker defaults, settlement delays and broker
strikes that, if they occur again in the future, could affect the market price and liquidity of the Indian securities in which
the Fund invests. In addition, the governing bodies of the various Indian stock exchanges have from time to time imposed
restrictions on trading in certain securities, limitations on price movements and margin requirements. Disputes have
also occurred from time to time among listed companies, the stock exchanges and other regulatory bodies, and in some
cases those disputes have had a negative effect on overall market sentiment. The foregoing factors could impede the
ability of the Fund to effect portfolio transactions on a timely basis and could have an adverse effect on the net asset value
of a Fund’s shares of common stock and the price at which those shares trade.
There
is less regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants
than in the United States. Moreover, issuers of securities in India are not subject to the same degree of regulation
as are U.S. issuers with respect to such matters as insider trading rules, tender offer regulation, stockholder proxy
requirements and the timely disclosure of information. Legal principles relating to corporate affairs and the validity of
corporate procedures, directors’ fiduciary duties and liabilities and stockholders’ rights may differ from those that may
apply in other jurisdictions. Stockholders’
rights under Indian law may not be as extensive as those that exist under the laws
of the United States. The
Fund may therefore have more difficulty asserting its rights as a stockholder of an Indian company
in which it invests than it would as a stockholder of a comparable American company. The
Fund may also have difficulty enforcing foreign
judgments against Indian companies or their management.
The
Republic of Korea (South Korea) Risk.
Concentrating investments in South Korea subjects the Fund to additional risks,
and may make it significantly more volatile than geographically diverse mutual funds. Additional risks associated with
investments in South Korea include political, economic and social instability, and the potential for increasing militarization
in North Korea. Escalated tensions involving the South Korea and North Korea, and the outbreak of hostilities between
the two nations, or even the threat of an outbreak of hostilities, could have a severe adverse effect on the South Korean
economy. In addition, the financial sector in South Korea has been subject to systemic weaknesses and illiquidity, which
could be a material risk for any investments in South Korea if exacerbated. South Korea’s economy depends largely
on economies of countries in Asia and the U.S., which means that negative changes in any of these economies could
cause adversely effect the South Korean. South Korea is dependent on foreign sources for much of its energy needs
and, therefore, increases in energy prices could adversely affect South Korea’s economy. The South Korean government
has exercised and continues to exercise significant influence over many aspects of the economy. Accordingly,
South Korean government actions in the future could have a significant effect on the South Korean economy,
which could affect private sector companies and the Fund, market conditions, and prices and yields of securities
in the Fund’s portfolio. The South Korean economy faces long-term challenges, including a rapidly aging population,
an inflexible labor market, the dominance of large conglomerates, and over-dependence on exports to drive economic
growth.
Equity
Securities Risk – Although investments
in equity securities, such as stocks, historically have been a leading choice for
long-term investors, the values of stocks rise and fall depending on many factors. The stock or other security of a company
may not perform as well as expected, and may decrease in value, because of factors related to the company (such
as poorer than expected earnings or certain management decisions), to the industry in which the company is engaged
(such as a reduction in the demand for products or services in a particular industry), or to the market as a whole
(such as periods of market volatility or instability, or general and prolonged periods of economic decline). Market
Fund
Details - Additional Information about Investments, Investment Techniques and Risks 9
and
economic factors may adversely affect securities markets generally, which could in turn adversely affect the value of
the Fund’s investments, regardless of the performance or expected performance of companies in which the Fund invests.
Equity securities may be subject to increased risk during periods of economic or market uncertainty or difficulty. Holders
of common stock generally are subject to more risks than holders of preferred stock or debt securities because the
right to repayment of common stockholders’ claims is subordinated to that of preferred stock and debt securities upon
the bankruptcy of the issuer.
ESG
Integration Risk –
To the extent the ESG factors are used to evaluate investments, the consideration of such factors may
adversely affect a Fund’s performance. Not every ESG factor may be identified or evaluated for every investment. ESG
characteristics may not be the only factors considered and, as a result, the issuers in which a Fund invests may not be
issuers with favorable ESG characteristics or high ESG ratings. The application of ESG factors may result in a Fund performing
differently than its benchmark index and other funds in its peer group that do not consider ESG factors or consider
different ESG factors.
Foreign
Currency Exposure Risk – To the
extent the Fund invests in securities that trade in, or receive revenues in, foreign currencies,
the Fund is subject to the risk that those currencies may fluctuate in value relative to the U.S. Dollar. Currency rates
in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes
in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational
entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments
in the U.S. or abroad. These risks may impact the Fund more greatly to the extent the Fund does not hedge its
currency risk.
To
the extent a foreign government limits or causes delays in the convertibility or repatriation of its currency, this will adversely
affect the U.S. dollar value and/or liquidity of investments denominated in that currency. Such actions could severely
affect security prices, impair the Fund’s ability to purchase or sell foreign securities or transfer the Fund’s assets back
into the U.S., or otherwise adversely affect the Fund’s operations.
Foreign
Securities Risk – The Fund uses
various criteria to determine to which country or countries the securities in which the
Fund invests are economically tied. Because issuers often have activities and operations in several different countries, an
issuer could be considered a non-U.S. issuer even though changes in the value of its securities held by the Fund are significantly
impacted by its U.S. activities. Similarly, an issuer could be classified as a U.S. issuer even when the changes in the
value of the issuer’s securities held by the Fund are significantly impacted by non-U.S. activities. Foreign securities may be
more volatile, harder to price and less liquid than U.S. securities. Foreign investments involve some of the following risks as
well:
● |
political
and economic changes and/or instability, including adverse consequences stemming from war, terrorism, market
manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments,
public health emergencies, natural/environmental disasters, recessions, inflation, rapid interest rate changes
and supply chain disruptions; |
● |
the
impact of currency exchange rate fluctuations; |
● |
reduced
information about issuers; |
● |
higher
transaction costs; |
● |
less
stringent regulatory and accounting standards; and |
Additional
risks include the possibility that a foreign jurisdiction might impose or increase withholding taxes on income payable
with respect to foreign securities; the possible seizure, nationalization or expropriation of the issuer or foreign deposits
(in which the Fund could lose its entire investment in a certain market); and the possible adoption of foreign governmental
restrictions such as exchange controls. To the extent that the Fund invests a significant portion of its assets in
a specific geographic region or in securities denominated in a particular foreign currency, the Fund will generally have more
exposure to regional economic risks, including weather emergencies and natural disasters, associated with foreign investments.
The risks of investing in foreign securities are increased in connection with investments in emerging markets. See
“Emerging Markets Risk” above.
Issuer
Risk – The value of a security
may decline for reasons directly related to the issuer, such as management performance,
financial leverage and reduced demand for the issuer’s goods or services, as well as the historical and prospective
earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect
securities markets as a whole.
Market
Risk – Deteriorating market conditions
might cause a general weakness in the market that reduces the prices, or yield,
of securities in that market. Developments in a particular class of bonds or the stock market could also adversely affect
the Fund by reducing the relative attractiveness of bonds or stocks as an investment. Also, to the extent that the Fund
emphasizes bonds or stocks from any given industry, it could be hurt if that industry does not do well. Additionally, the
Fund could lose value if the individual stocks in which it maintains long positions and/or the overall stock markets on which
the stocks trade decline in price. In addition, the Fund that engages in short sales could lose value if the individual
10 Fund
Details - Additional Information about Investments, Investment Techniques and Risks
stocks
which they sell short increase in price. Stocks and stock markets may experience short-term volatility (price fluctuation)
as well as extended periods of price decline or increase. Individual stocks are affected by many factors, including:
● |
market
trends, including investor demand for a particular type of stock, such as growth or value stocks, small or large stocks,
or stocks within a particular industry. |
Stock
markets are affected by numerous factors, including interest rates, the outlook for corporate profits, the health of the
national and world economies, the fluctuation of other stock markets around the world, and financial, economic and other
global market developments and disruptions, such as those arising from war, terrorism, market manipulation, government
interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies,
natural/environmental disasters, recessions, inflation, rapid interest rate changes and supply chain disruptions.
In addition, any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the world economy, which in turn could adversely affect the Fund’s investments.
Policy
and legislative changes in the United States and in other countries are affecting many aspects of financial regulation,
and governmental and quasi-governmental authorities and regulators throughout the world have responded to
serious economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to,
direct capital infusions into companies, new monetary programs and interest rate hikes. The impact of these policies and
legislative changes on the markets, and the practical implications for market participants, may not be fully known for some
time. A reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets,
which could adversely impact the Fund’s investments. The current market environment could make identifying investment
risks and opportunities especially difficult for the Adviser.
Fund
Details - Additional Information about Investments, Investment Techniques and Risks 11
Mid-Cap
Securities Risk – Securities of
medium-sized companies tend to be more volatile and less liquid than securities of larger
companies. Compared to larger companies, mid-cap securities tend to have analyst coverage by fewer Wall Street
firms and may trade at prices that reflect incomplete or inaccurate information. Medium-sized companies may have
a shorter history of operations, less access to financing and a less diversified product line and be more susceptible to
market pressures and therefore have more volatile prices and company performance than larger companies. During some
periods, securities of medium-sized companies, as an asset class, have underperformed the securities of larger companies.
Non-Diversified Fund Risk – Certain Funds are subject to non-diversified fund risk because they may invest a greater percentage of their total
assets in the securities of a single issuer compared to diversified funds. As a result, a single security’s increase or decrease
in value may have a greater impact on the Fund’s performance.
Sector
Risk – To the extent that the Fund
has a significant portion of its assets invested in securities of companies conducting
business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable
to unfavorable developments in that economic sector than funds that invest more broadly.
Information
Technology Sector Risk. To the extent
that the information technology sector represents a significant portion
of the Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors
impacting this sector. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on their profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid technological developments, frequent new product
introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies
in the information technology sector are heavily dependent on patent and intellectual property rights. The loss
or impairment of these rights may adversely affect the profitability of these companies.
Financials
Sector Risk. To the extent that the financials
sector continues to represent a significant portion of the Fund,
the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this
sector. Performance of companies in the financials sector may be adversely impacted by many factors, including, among
others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased
liquidity in credit markets. The impact of more stringent capital requirements, recent or future regulation of any
individual financial company, or recent or future regulation of the financials sector as a whole cannot be predicted. In recent
years, cyber attacks and technology malfunctions and failures have become increasingly frequent in this sector and
have caused significant losses.
Small-Cap
Securities Risk – In general, securities
of small-cap companies trade in lower volumes and are subject to greater
or more unpredictable price changes than larger cap securities or the market overall. Small-cap companies may
have limited product lines or markets, be less financially secure than larger companies, or depend on a small number
of key personnel. If adverse developments occur, such as due to management changes or product failure, the Fund’s
investment in a small-cap company may lose substantial value. Investing in small-cap companies requires a longer
term investment view and may not be appropriate for all investors. These risks may be exacerbated for micro-cap securities.
Temporary
Investments – Generally, the Fund
will be fully invested in accordance with its investment objective and strategies;
however, pending investment of cash balances or for other cash management purposes or if the Fund’s management
believes that business, economic, political or financial conditions warrant, the Fund may invest without limit in
cash, cash equivalents or other short-term obligations, including:
● |
short-term
U.S. Government securities; |
● |
certificates
of deposit, bankers’ acceptances, and interest-bearing savings deposits of commercial banks; |
● |
prime
quality commercial paper; |
● |
repurchase
agreements covering any of the securities in which the Fund may invest directly; and |
● |
shares
of money market funds. |
The
use of temporary investments prevents the Fund from fully pursuing its investment objective, and the Fund may miss potential
market upswings.
In
addition, pending investment of cash balances or for other cash management purposes, the Fund may invest without limit
in other instruments, including but not limited to, derivatives that provide exposure to markets or companies in which the
Fund may invest and in shares of other investment companies that invest in securities in which the Fund may invest, subject
to the limits of the Investment
Company Act of 1940, as amended (the “1940 Act”).
For information about the risks of investing
in derivatives and other investment companies, please see “Derivatives Risk” and “Securities of Other Investment
Companies” in the SAI.
Valuation
Risk – The price the Fund could
receive upon the sale of any particular portfolio investment may differ from the Fund’s
valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a
fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the
sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than expected
loss or lesser than expected gain upon the sale of the investment. Pricing services that value fixed-income securities
generally utilize a range of market-based and security-specific inputs and assumptions, as well as
12 Fund
Details - Additional Information about Investments, Investment Techniques and Risks
considerations
about general market conditions, to establish a price. Pricing services generally value fixed-income securities
assuming orderly transactions of an institutional round lot size and the strategies employed by the Adviser generally
trade in round lot sizes. In certain circumstances, fixed income securities may be held or transactions may be conducted
in smaller, odd lot sizes. Odd lots may trade at lower or, occasionally, higher prices than institutional round lots. The
Fund’s ability to value its investments may also be impacted by technological issues and/or errors by pricing services or
other third-party service providers.
In
addition, since foreign exchanges may be open on days when the Fund does not price its shares, the value of the securities
in the Fund’s portfolio may change on days when shareholders are not be able to purchase or sell the Fund’s shares.
The
SAI contains more information on the Fund’s investments and strategies and can be requested using the address and telephone
numbers on the back of this Prospectus.
Other
Information
Commodity
Pool Operator Exclusion – The Adviser
has claimed an exclusion from the definition of “commodity pool operator”
under Commodity Futures Trading Commission (“CFTC”) Rule 4.5 for the Fund and therefore the Fund and the Adviser
(with respect to the Fund) are not currently subject to registration, disclosure, and regulatory requirements under applicable
CFTC rules. The Adviser has to reaffirm annually its eligibility for this exclusion. The Adviser intends to continue to
operate the Fund in a manner to maintain its exclusion under CFTC Rule 4.5.
Portfolio
Holdings Disclosure – The Fund
posts on the Fund’s internet site, https://www.abrdn.com/en-us/us/investor/fund-centre#literature,
substantially all of its securities holdings as of the end of
each month. Such portfolio holdings generally are available no earlier than 7 business days after the end of the previous
month for equity funds. A description of the Fund’s policies and procedures regarding the release of portfolio holdings
information is available in the Fund’s SAI.
Fund
Details - Additional Information about Investments, Investment Techniques and Risks 13
Investment
Adviser
abrdn
Inc., a Delaware corporation formed in 1993, serves as the investment adviser to the Fund. The Adviser’s principal place
of business is located at 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103. The Adviser manages and supervises
the investment of the Fund’s assets on a discretionary basis.
The
Adviser is a wholly-owned subsidiary of abrdn (Holdings) PLC, which has its registered offices at 10 Queen’s Terrace, Aberdeen,
Scotland AB10 1YG. abrdn (Holdings) PLC is a wholly-owned subsidiary of abrdn plc (“abrdn”), which has registered
offices at 1 George Street, Edinburgh, Scotland EH2 2LL. abrdn, combined with its subsidiaries and affiliates, manages
approximately
$467.4
billion in assets as of December
31, 2023. abrdn provides asset management
and investment solutions for clients and customers
worldwide and also have a strong position in the pensions and savings market.
In
rendering investment advisory services, the Adviser, and Sub-advisers described below, may use the resources of investment
advisor subsidiaries of abrdn plc. These affiliates have entered into a memorandum of understanding / personnel
sharing procedures (“MOU”) pursuant to which investment professionals from each affiliate may render portfolio
management and research services to U.S. clients of the abrdn plc affiliates, including the Fund, as associated persons
of the Adviser or a Sub-adviser. No remuneration is paid by the Fund with regards to the MOU.
Sub-advisers
abrdn
Investments Limited (“aIL”),
a Scottish Company, and abrdn Asia Limited (“aAL”
and together with aIL,
the “Sub-advisers”), a Singapore
corporation, serve as Sub-advisers to the Fund. aIL’s
registered office is located at 10 Queen’s
Terrace, Aberdeen, Scotland AB10 1YG. aAL’s
principal place of business is located at 21 Church Street, #01-01 Capital
Square Two, Singapore 049480. aIL
and aAL are responsible for the day-to-day
management of the Fund. To the extent that
aIL
or aAL do not have management over a specific
portion of the Fund’s assets, aIL
and aAL will assist the Adviser
with oversight for the Fund. aIL
and aAL are both affiliates of the Adviser
and wholly owned by abrdn PLC.
A
discussion regarding the basis for the Board of Trustees’ approval of the investment advisory and sub-advisory agreements
for the Fund is
available in the Fund’s first semiannual
Report to Shareholders
for the period ended April 30, 2023.
Management
Fees
The
Fund does not pay the Adviser or the Sub-advisers a management fee.
abrdn
Funds (the “Trust”) and the Adviser have entered into a written contract pursuant to which the Adviser has agreed to
reimburse the Fund’s operating expenses (excluding certain expenses, including any taxes, interest, brokerage fees, Acquired
Fund Fees and Expenses and extraordinary expenses). This contractual arrangement may not be terminated before
February 28,
2025 without the approval of the Independent
Trustees.
Portfolio
Management
The
Adviser and Sub-advisers generally use a team-based approach for the management of the Fund. Information about
the abrdn team members jointly and primarily responsible for managing the Fund is included below.
The
Fund is managed by the Global Emerging Markets Equity Team. The team works in a truly collaborative fashion; all team
members have both portfolio construction and research responsibilities. The Adviser
and Sub-advisers do not believe in having
star managers, instead preferring to have both depth and experience within the team. Depth of team members
allows the Adviser and Sub-advisers to perform the diligent research required by the Adviser’s process. The experience
of senior managers provides the confidence needed to take a long-term view.
The
Team is jointly and primarily responsible for the day-to-day management of the Fund, with the following members having
the most significant responsibility for the day-to-day management of the Fund, as indicated:
|
|
Portfolio
Manager |
Kristy
Fong, CFA®,
Senior Investment Director Kristy
Fong is a Senior Investment Director on the Asian Equities Team at abrdn. Kristy joined the company in 2004 from UOB KayHian
Pte Ltd where she was an Analyst. Kristy graduated with a BA (Hons) in Accountancy from Nanyang Technological University,
Singapore and is a CFA®
charterholder. |
|
Joanne
Irvine, Deputy Head of Global Emerging Markets Joanne
Irvine is Deputy Head of Global Emerging Markets on the Global Emerging Markets Equity Team in London at abrdn. Joanne
joined the company in 1996 in a group development role, and moved to the Global Emerging Markets Equity Team in 1997. Prior
to abrdn, Joanne was with Rutherford Manson Dowds (subsequently acquired by Deloitte), specializing in raising private equity and
bank funding for private companies. |
|
|
|
Portfolio
Manager |
Devan
Kaloo, Global Head of Equities and Head of Global Emerging Markets Equities Devan
Kaloo is Global Head of Equities and Head of Global Emerging Markets Equities for abrdn. Devan joined the company in 2000 as
part of the Asian equities team in Singapore, before later transferring to London where he took up the position of Head of Global Emerging
Markets Equities in 2005. In 2015 he was promoted to Global Head of Equities and joined the company’s Group management
board. Devan started in fund management with Martin Currie in 1994 covering Latin America, before subsequently working
with the North American equities, global asset allocation and eventually the Asian equities teams. Devan graduated with an
MA (Hons) in International Relations and Management from the University of St Andrews and has a postgraduate diploma in Investment
Analysis from the University of Stirling. |
|
|
Nick
Robinson, CFA®,
Senior Investment Director Nick
Robinson is a Senior Investment Director on the Global Emerging Markets Equity Team at abrdn. Nick joined the company in 2000
and spent eight years on the North American Equities team, including three years based in the company‘s US offices. In 2008 he
joined the Global Emerging Markets Equity team. Nick relocated to São Paulo in 2009 to start abrdn’s operations in Brazil.
In 2016 he returned to
London. Nick graduated with an MSc in Chemistry from Lincoln College, Oxford and is a CFA charterholder. |
|
|
Gabriel
Sacks, CFA®,
Investment Director Gabriel
Sacks is an Investment Director on the Asian equities team. Gabriel joined the company in 2008 on the Global Emerging Markets
equity team in London before moving to Singapore in 2018, where he spent five years. Gabriel graduated with an MA (Hons)
in Land Economy from Selwyn College, Cambridge University and is a CFA Charterholder. |
The
SAI provides additional information about each portfolio manager’s compensation, other accounts managed by the portfolio
manager and the portfolio manager’s ownership of securities in the Fund(s) managed by the portfolio manager,
if any.
Multi-Manager
Structure
The
Adviser and the Trust have received an exemptive order from the Securities and Exchange Commission for a multi-manager
structure that allows the Adviser, subject to the approval of the Board of Trustees, to hire, replace or terminate
a sub-adviser (excluding hiring a sub-adviser which is an affiliate of the Adviser) without the approval of shareholders.
The order also allows the Adviser to revise a sub-advisory agreement with an unaffiliated sub-adviser with the
approval of the Board of Trustees, but without shareholder approval.
If
a new unaffiliated sub-adviser is hired for the Fund, shareholders will receive information about the new sub-adviser within
90 days of the change. The multi-manager structure allows the Fund greater flexibility enabling them to operate more
efficiently.
Under
the multi-manager structure, the Adviser has ultimate responsibility, subject to oversight by the Board of Trustees, for
overseeing the Fund’s sub-advisers and recommending to the Board of Trustees the hiring, termination or replacement
of a sub-adviser. In instances where the Adviser hires a sub-adviser, the Adviser performs the following oversight
and evaluation services to the sub-advised Fund:
● |
initial
due diligence on prospective Fund sub-advisers; |
● |
monitoring
sub-adviser performance, including ongoing analysis and periodic consultations; |
● |
communicating
performance expectations and evaluations to the sub-advisers; and |
● |
making
recommendations to the Board of Trustees regarding renewal, modification or termination of a sub-adviser’s contract.
|
The
Adviser does not currently utilize un-affiliated sub-advisers in reliance on this exemptive order for the Fund described in
this Prospectus. Where the Adviser does recommend sub-adviser changes, the Adviser periodically provides written reports
to the Board of Trustees regarding its evaluation and monitoring of the sub-adviser. Although the Adviser monitors
the sub-adviser’s performance, there is no certainty that any sub-adviser or Fund will obtain favorable results at any
given time.
|
|
|
Investing
with abrdn Funds |
Investing
with abrdn Funds
Shares
of the Fund have not been registered for sale outside of the United States and its territories.
SHARES
OF THE FUND ARE NOT AVAILABLE TO THE GENERAL PUBLIC.
Contacting
abrdn Funds
Customer
Service Representatives are available
8 a.m. to 6 p.m. Eastern Time, Monday through Friday at 866-667-9231.
Share
Price
The
net asset value or “NAV” is the value of a single share. A separate NAV is calculated for each share class of the Fund.
The NAV is:
● |
calculated
at the close of regular trading (usually 4 p.m. Eastern Time) each day the New York Stock Exchange is open. |
● |
generally
determined by dividing the total net market value of the securities and other assets owned by the Fund allocated
to a particular class, less the liabilities allocated to that class, by the total number of outstanding shares of that
class. |
The
purchase or “offering” price for Fund shares is the NAV for a particular class next determined after the order is received
in good form by the Fund’s transfer agent or an authorized intermediary. An order is in “good form” if the Fund’s
transfer agent has all the information and
documentation it deems necessary to effect your order.
Please
note the following with respect to the price at which your transactions are processed:
Fund
shares will generally not be priced on any day the New York Stock Exchange is closed.
The
Trust reserves the right to reprocess purchase (including dividend reinvestments), redemption and exchange transactions
that were processed at a NAV that is subsequently adjusted, and to recover amounts from (or distribute amounts
to) shareholders accordingly based on the official closing NAV, as adjusted.
The
time at which transactions and shares are priced and the time by which orders must be received may be changed in case
of an emergency or if regular trading on the New York Stock Exchange and/or the bond markets are stopped at a time
other than their regularly scheduled closing time. In the event the New York Stock Exchange and/or the bond markets
do not open for business, the Trust may, but is not required to, open one or more Funds for purchase, redemption and
exchange transactions if the Federal Reserve wire payment system is open. To learn whether the Fund is open for business
during this situation, please call 1-866-667-9231.
The
Fund does not calculate NAV on days when the New York Stock Exchange is regularly closed. The New York Stock Exchange
is closed on the following days:
● |
Martin
Luther King, Jr. Day |
● |
Juneteenth
National Independence Day |
● |
Other
days as determined by the New York Stock Exchange. |
Foreign
securities may trade on their local markets on days when the Fund is closed. As a result, if the Fund holds foreign securities,
its NAV may be impacted on days when investors may not be able to purchase or redeem shares.
Buying
and Selling Shares
Fund
Transactions
All
transaction orders must be received by the Fund’s transfer agent in Kansas City, Missouri or an authorized intermediary
prior to the calculation of the Fund’s NAV to receive that day’s NAV.
How
to Buy Shares
Shares
of the Fund may be purchased only by or on behalf of separately managed account clients where the Fund’s Adviser
or an affiliate of the Adviser (each a “Managed Account Adviser”) has an agreement with the managed account program
sponsor (the “Program Sponsor”) (typically, a registered investment adviser or broker/dealer), or directly with the
client, to provide management or advisory services to the managed account.
16 Investing
with abrdn Funds
Investing
with abrdn Funds
There
are no maximum or minimum investment requirements applicable to the Fund (although your Program Sponsor may
have certain investment requirements for separately managed accounts). Purchase orders are made based on instructions
from your Managed Account Adviser or Program Sponsor to the broker/dealer who executes trades for your account.
To make a purchase, your broker/dealer must submit a purchase order to the fund’s transfer agent, either directly
or through an appropriate clearing agency (e.g., the National Securities Clearing Corporation—Fund/SERV).
For
more information about buying shares, please contact your Program Sponsor. The Fund may reject any order to buy shares
and may suspend the offering of shares at any time.
How
to Sell*
Shares
* |
A
medallion signature guarantee may be required. See “Medallion Signature Guarantee” below. |
Redemption
orders are placed on your behalf by your Managed Account Adviser or Program Sponsor with the broker/dealer
that executes trades for your managed account. Shares of the Fund can be redeemed through the broker/dealer on
any day the New York Stock Exchange is
open. Shares of the Fund may be held only by investors participating in an eligible
managed account program and cannot be transferred.
The
Fund reserves the right to redeem shares of any investor if the investor ceases to be a participant in an eligible managed
account program. The liquidation of Fund shares will have tax consequences for the investor. Each investor, by participating
in a managed account program that purchases Fund shares, agrees to the redemption of such Fund shares upon
termination of its participation in such program. Subject to applicable law, the Fund may, with prior notice, adopt other
policies from time to time requiring mandatory redemption of shares in certain circumstances.
Pricing
of Fund Shares
The
Fund values its securities at current market value or fair value, consistent with regulatory requirements. “Fair value”
is defined in the Fund’s Valuation
and Liquidity Procedures (“Valuation
Procedures”) as the price that could
be received to sell an asset or paid to transfer
a liability in an orderly transaction between willing market participants without a compulsion
to transact at the measurement date. Pursuant to Rule 2a-5 under the 1940
Act, the Board of Trustees (the “Board”)
designated abrdn Inc. (the “Adviser”) as the valuation designee (“Valuation Designee”) for the Fund
to perform the fair value determinations relating
to Fund investments for which market quotations are not readily available.
Equity
securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which
the security is traded at the “Valuation Time”, subject to application, when appropriate, of the valuation factors described
in the paragraph below. Under normal circumstances, the Valuation Time is as of the close of regular trading on
the New York Stock Exchange (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the
mean of the bid/ask quoted at the close on the principal exchange on which the security is traded. Securities traded on
NASDAQ are valued at the NASDAQ official closing price. Open-end mutual funds are valued at the respective net asset
value as reported by such company. The prospectuses for the registered open-end management investment companies
in which the Fund invests explain the circumstances under which those companies will use fair value pricing and
the effects of using fair value pricing. Closed-end funds and ETFs are valued at the market price of the security at the Valuation
Time.
Foreign
equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying
valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent
pricing service provider. These valuation factors are used when pricing the Fund’s portfolio holdings to estimate
market movements between the time foreign markets close and the time the Fund values such foreign securities.
These valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange
rates, and local exchange opening and closing prices of each security. When prices with the application of valuation
factors are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices
of the securities on their primary markets. Valuation factors are not utilized if the independent pricing service provider
is unable to provide a valuation factor or if the valuation factor falls below a predetermined confidence threshold.
Long-term
fixed income securities are valued at the last quoted or evaluated bid price on the valuation date provided by an
independent pricing service provider approved by the Fund’s Board of Trustees. If there are no current day bids, the security
is valued at the previously applied bid. Pricing services generally price debt securities assuming orderly transactions
of an institutional “round lot” size, and the strategies employed by the Adviser generally trade in round lot sizes.
In certain circumstances, fixed income securities may be held or transactions may be conducted in smaller, “odd lot”
sizes. Odd lots may trade at lower, or occasionally, higher prices than institutional round lot trades. Short-term fixed income
securities (such as commercial paper and U.S. treasury bills) having a remaining maturity of 60 days or less are valued
at the last quoted or evaluated bid price on the valuation date provided by an independent pricing service, or on the
basis of amortized cost if it represents the best approximation for fair value.
Derivative
instruments are generally valued according to the following procedures. Forward currency exchange contracts
are generally valued based on the current spot exchange rates and the forward exchange rate points (ex. 1-month,
3-month) that are obtained from an approved pricing agent. Based on the actual settlement dates of the forward
contracts held, an interpolated value of the forward points is combined with the spot exchange rate to derive the
Investing
with abrdn Funds 17
Investing
with abrdn Funds
valuation.
Futures contracts are generally valued at the most recent settlement price as of NAV determination. Swap agreements
are generally valued by an approved pricing agent based on the terms of the swap agreement (including future
cash flows). When market quotations or exchange rates are not readily available, or if the Valuation
Designee concludes
that such market quotations do not accurately reflect fair value, the fair value of the Fund’s assets are determined
in good faith in accordance with the Valuation Procedures.
In-Kind
Purchases
The
Fund may accept payment for shares in the form of securities that are permissible investments for the Fund.
Customer
Identification Information
To
help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions
to obtain, verify and record information that identifies each person that opens a new account, and to determine
whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations.
As
a result, unless such information is collected by the broker-dealer or other financial intermediary pursuant to an agreement,
the Fund must obtain the following information for each person that opens a new account:
● |
date
of birth (for individuals); |
● |
residential
or business street address (although post office boxes are still permitted for mailing); and |
● |
Social
Security number, taxpayer identification number, or other identifying number. |
You
may also be asked for a copy of your driver’s license, passport or other identifying document in order to verify your identity.
In addition, it may be necessary to verify your identity by cross-referencing your identification information with a consumer
report or other electronic database. Additional information may be required to open accounts for corporations
and other entities. Federal law prohibits the Fund and other financial institutions from opening a new account
unless they receive the minimum identifying information listed above. After an account is opened, the Fund may restrict
your ability to purchase additional shares until your identity is verified. The Fund may close your account or take other
appropriate action if they are unable to verify your identity within a reasonable time. If your account is closed for this
reason, your shares will be redeemed at the NAV next calculated after the account is closed. If the NAV on the redemption
date is lower than the NAV on your original purchase date, you will receive less than your original investment amount
when the account is closed (less any applicable CDSC).
Selling
Shares
You
can sell, or in other words redeem, your Fund shares at any time, subject to the restrictions described below. The price
you receive when you redeem your shares is the NAV next determined after the Fund’s authorized intermediary or an
agent of the Fund receives your properly completed redemption request. The value of the shares you redeem may be worth
more or less than their original purchase price depending on the market value of the Fund’s investments at the time
of the redemption.
You
may not be able to redeem your Fund shares or the Fund may delay paying your redemption proceeds if:
● |
the
New York Stock Exchange is closed (other than customary weekend and holiday closings); |
● |
trading
is restricted; or |
● |
an
emergency exists (as determined by the Securities and Exchange Commission). |
Generally,
the Fund will issue payment for shares that you redeem within two business days after your redemption request
is received in good order. The proceeds will be sent to you thereafter and delivery time may vary depending on the
method by which you owned your shares (for example, directly or through a broker). Payment for shares that you recently
purchased by check may be delayed up to 10 business days from the purchase date to allow time for your payment
to clear. The Fund may delay forwarding redemption proceeds for up to seven days:
● |
if
the amount of the redemption request would disrupt efficient portfolio management or adversely affect the Fund. |
Occasionally,
large shareholder redemption requests may exceed the cash balance of the Fund and result in overdraft charges
to the Fund until the sale of portfolio securities to cover the redemption request settle, which is typically a few days.
Under
normal circumstances, the Fund expects to meet redemption requests by using cash in its portfolio or by selling portfolio
securities to generate cash. During periods of stressed market conditions, when a significant portion of the Fund’s
portfolio may be comprised of less-liquid investments, such Fund may be more likely to limit cash redemptions and
may determine to pay redemption proceeds by borrowing under its overdraft facility, and/or by transferring some of the
securities held by the Fund directly to an account holder as a redemption-in-kind of securities (instead of cash). For more
about abrdn Funds’ ability to make a redemption-in-kind, see the SAI.
18 Investing
with abrdn Funds
Investing
with abrdn Funds
The
Board of Trustees has adopted procedures for redemptions in-kind by shareholders including affiliated and unaffiliated
persons of the Fund. Affiliated persons of the Fund include shareholders who are affiliates of the Adviser and shareholders
of the Fund owning 5% or more of the outstanding shares of that Fund. These procedures provide that a redemption-in-kind
shall be effected at approximately the affiliated shareholder’s proportionate share of the Fund’s current
net assets, and are designed so that such redemptions will not favor the affiliated shareholder to the detriment of any
other shareholder. Further, the procedures require that, in general, in-kind redemptions may be distributed on a pro rata
basis whereby the redeeming shareholder would receive a proportionate share of every investment held by the Fund
including cash. In certain circumstances, however, pro rata distribution with some adjustments may be made when the
redeeming shareholder is restricted by law from taking possession of certain securities or the Fund’s Adviser believes such
a distribution is in the best interests of shareholders.
Medallion
Signature Guarantee
A
medallion signature guarantee is a certification by a bank, brokerage firm or other financial institution that a customer’s signature
is valid. Medallion signature guarantees can be provided by members of the STAMP program. We reserve the right
to require a medallion signature guarantee in other circumstances, without notice.
Excessive
or Short-Term Trading
Because
the Fund is designed to be a component of separately managed accounts that also invest, at the direction of or based
on the advice of the accounts’ investment manager, in individual securities and other investments, Fund shares may
be purchased or redeemed on a frequent basis for rebalancing purposes or to invest new monies (including through
dividend reinvestment) or to accommodate reductions in account size. The Fund is managed in a manner that is consistent
with its role in separately managed accounts. Separately managed account clients are typically not in a position
to directly effect purchase and redemption orders under the terms of their separately managed account and are,
therefore, unable to directly trade in Fund shares. Accordingly, the Board of Trustees has not adopted specific buying and
exchanging limitations based on trading frequency for the Fund.
The
Fund reserves the right to reject, without any prior notice, any purchase order for any reason, and will not be liable for any
loss resulting from rejected orders. For example, the Fund may in its sole discretion restrict or reject a purchase order if
the Fund or its agents determine that accepting the order could interfere with efficient management of the Fund’s portfolio
or is otherwise contrary to the Fund’s best interests. Your Program Sponsor or financial intermediary may have their
own market timing policy, which may be more restrictive.
Fair
Valuation
The
Trust has fair value pricing procedures in place as described above in “Investing with abrdn Funds: Pricing of Fund Shares.”
Investing
with abrdn Funds 19
Distributions
and Taxes
The
following information is provided to help you understand the income and capital gains you can earn while you own Fund
shares, as well as the federal income taxes you may have to pay. The amount of any distribution will vary and there is
no guarantee the Fund will pay either income dividends or capital gain distributions. For tax advice about your personal tax
situation, please speak with your tax adviser.
Income
and Capital Gain Distributions
The
Fund intends to qualify each year as a regulated investment company under Subchapter M the Internal Revenue Code
of 1986, as amended (the “Code” or the “Internal Revenue Code”). As a regulated investment company, the Fund
generally pays no federal income tax on the
income and capital gains it distributes to you. The abrdn EM SMA Completion
Fund expects to declare and distribute its net investment income, if any, to shareholders as dividends annually.
Capital gains, if any, may be distributed at least annually. The Fund may distribute income dividends and capital gains
more frequently, if necessary, in order to reduce or eliminate federal excise or income taxes on the Fund. All income and
capital gain distributions are automatically reinvested in shares of the Fund.
You may request in writing a payment in cash
if the distribution is in excess of $5.
If
you choose to have dividends or capital gain distributions, or both, mailed to you and the distribution check is returned as
undeliverable or is not presented for payment within six months, the Trust reserves the right to reinvest the check proceeds
and future distributions in shares of the Fund at the Fund’s then-current NAV until you give the Trust different instructions.
Tax
Considerations
If
you are a taxable investor, a portion of the dividends and capital gain distributions you receive from the Fund, whether you
reinvest your distributions in additional Fund shares or receive them in cash, are subject to federal income tax, state taxes
and possibly local taxes:
● |
distributions
are taxable to you at either ordinary income or capital gains tax rates (except as described below with respect
to exempt-interest dividends); |
● |
distributions
of short-term capital gains are paid to you as ordinary income that is taxable at applicable ordinary income
tax rates; |
● |
distributions
of long-term capital gains are taxable to you as long-term capital gains no matter how long you have owned
your Fund shares; |
● |
for
individuals, a portion of the income dividends paid may be qualified dividend income eligible for long-term capital gain
tax rates, provided that certain holding period requirements are met; |
● |
for
individuals, a portion of the income dividends paid may be eligible for a 20% “qualified business income” deduction
available through 2025 to the extent attributable
to ordinary real estate investment trust (“REIT”) dividends, provided that
certain holding period requirements are met; |
● |
for
corporate shareholders, a portion of income dividends may be eligible for the corporate dividends-received deduction,
subject to certain limitations; and |
● |
distributions
declared in October, November or December to shareholders of record in such month, but paid in January,
are taxable as if they were paid in December. |
The
amount and type of income dividends and the tax status of any capital gains distributed to you are reported on Form 1099-DIV
(any exempt interest dividends will be reported on Form 1099-INT), which we send to you annually during tax season
(unless you hold your shares in a qualified tax-deferred plan or account or are otherwise not subject to federal income
tax). The Fund may reclassify income after your tax reporting statement is mailed to you. This can result from the rules
in the Internal Revenue Code that effectively prevent mutual funds, such as the Fund, from ascertaining with certainty,
until after the calendar year end, and in some cases the Fund’s fiscal year end, the final amount and character of
distributions the Fund has received on its investments during the prior calendar year. Prior to issuing your statement, the
Fund makes every effort to search for reclassified income to reduce the number of corrected forms mailed to shareholders.
However, when necessary, the Fund will send you a corrected Form 1099-DIV to reflect reclassified information.
Distributions
from the Fund (both taxable dividends and capital gains) are normally taxable to you when made, regardless
of whether you reinvest these distributions or receive them in cash (unless you hold your shares in a qualified tax-deferred
plan or account or are otherwise not subject to federal income tax). If you are a taxable investor and invest in
the Fund shortly before the record date of a taxable distribution, the distribution will lower the value of the Fund’s shares by
the amount of the distribution, and you will in effect receive some of your investment back, but in the form of a taxable distribution.
This is commonly known as “buying a dividend.”
Dividends
and other distributions by the Fund are generally treated under the Internal Revenue Code as received by the shareholders
at the time the dividend or distribution is made. However, any dividend or capital gain distribution declared by
the Fund in October, November or December of any calendar year and payable to shareholders of record on a
20 Distributions
and Taxes
specified
date in such a month shall be deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid
by the Fund during January of the following calendar year.
In
certain situations, the Fund may, for a taxable year, defer all or a portion of its net capital loss realized after October (or if
there is no net capital loss, then any net longterm or short-term capital loss) and its late-year ordinary loss (defined as the
sum of the excess of post-October non-U.S. currency and passive non-U.S. investment company (“PFIC”) losses over post-October
non-U.S. currency and PFIC gains plus the excess of post-December ordinary losses over post-December ordinary
income) until the next taxable year in computing its investment company taxable income and net capital gain, which
will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and losses realized after
October (or December) may affect the tax character of shareholder distributions.
If
more than 50% of the Fund’s total assets at the end of a fiscal year is invested in foreign securities, the Fund may elect
to pass through to you your pro rata share
of foreign taxes paid by the Fund. If the Fund elects to do so, then any foreign taxes
it pays on these investments may be passed through to you either as a deduction (in calculating U.S. taxable income,
but only for investors who itemize their deductions on their personal tax returns) or as a foreign tax credit.
Selling
Shares
Selling
your shares may result in a realized capital gain or loss, which is subject to federal income tax. For individuals, any long-term
capital gains you realize from selling Fund shares are currently taxed at 15% or 20%, depending on whether your
income exceeds certain threshold amounts, which are adjusted annually for inflation. You or your tax adviser should track
your purchases, tax basis, sales and any resulting gain or loss. If you redeem Fund shares for a loss, you may be able to
use this capital loss to offset any other capital gains you have.
Tax
Status for Retirement Plans and Other Tax-Deferred Accounts
When
you invest in the Fund through a qualified employee benefit plan, retirement plan or some other tax-deferred account,
dividend and capital gain distributions generally are not subject to current federal income taxes. In general, these
entities are governed by complex tax rules. You should ask your tax adviser or plan administrator for more information
about your tax situation, including possible state or local taxes.
Backup
Withholding
By
law, you may be subject to backup withholding on a portion of your taxable distributions and redemption proceeds unless
you provide your correct Social Security or taxpayer identification number and certify that (1) this number is correct,
(2) you are not subject to backup withholding, and (3) you are a U.S. person (including a U.S. resident alien). You may
also be subject to withholding if the Internal Revenue Service instructs us to withhold a portion of your distributions and
proceeds.
Other
Distributions
and gains from the sale or exchange of your Fund shares may be subject to state and local taxes, even if not subject
to federal income taxes. State and local tax laws vary; please consult your tax adviser. Non-U.S. investors may be subject
to U.S. withholding at a 30% or lower treaty tax rate, U.S. estate tax and special U.S. tax certification requirements to
avoid backup withholding and claim any treaty benefits. Properly reported dividends received by a non-U.S. investor are
generally exempt from U.S. federal withholding tax when they (i) are paid in respect of the Fund’s “qualified net interest
income” (generally, the Fund’s U.S. source interest income, reduced by expenses that are allocable to such income),
or (ii) are paid in connection with the Fund’s “qualified short-term capital gains” (generally, the excess of the
Fund’s net short-term capital gain
over the Fund’s long-term capital loss for such taxable year). However, depending on the
circumstances, the Fund may report all, some or none of the Fund’s potentially eligible dividends as such qualified net interest
income or as qualified short-term capital gains, and a portion of the Fund’s distributions (e.g., interest from non-U.S.
sources or any foreign currency gains) would be ineligible for this potential exemption from withholding. Exemptions
from U.S. withholding tax are also provided for exempt-interest dividends and capital gain dividends paid by the
Fund from long-term capital gains, if any. However, notwithstanding such exemption from U.S. withholding at the source,
any dividends and distributions of income or capital gains will be subject to backup withholding if you fail to properly
certify that you are not a U.S. person.
Under
current law, the Fund serves to block unrelated business taxable income from being realized by their tax-exempt shareholders.
Notwithstanding the foregoing, a tax-exempt shareholder could realize unrelated business taxable income by
virtue of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt
shareholder within the meaning of Section 514(b) of the Code. Certain types of income received by the Fund
from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund
to report some or all of its distributions as “excess inclusion income.” To Fund shareholders, such excess inclusion income
may (i) constitute taxable income, as “unrelated business taxable income” for those shareholders who would otherwise
be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain
charitable entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced
U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (iv) cause the Fund to be subject
Distributions
and Taxes 21
to
tax if certain “disqualified organizations” as defined by the Code are Fund shareholders. If a charitable remainder annuity
trust or a charitable remainder unitrust (each as defined in Section 664 of the Code) has unrelated business taxable
income for a taxable year, a 100% excise tax on the unrelated business taxable income is imposed on the trust.
A
3.8% Medicare contribution tax is imposed on net investment income, including, among other things, dividends and net gain
from investments, of U.S. individuals with income exceeding $200,000 ($250,000 if married filing jointly), and of estates
and trusts.
Additionally,
a 30% withholding tax is currently imposed on fund dividends paid to (i) foreign financial institutions including non-U.S.
investment funds unless they agree to collect and disclose to the Internal Revenue Service (“IRS”) information regarding
their direct and indirect U.S. account holders and (ii) certain other foreign entities unless they certify certain information
regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i)
enter into agreements with the IRS that state that they will provide the IRS information, including the names, addresses and
taxpayer identification numbers of direct and indirect U.S. account holders, comply with due diligence procedures with
respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained,
agree to withhold tax on certain payments made to non-compliant foreign financial institutions or to account
holders who fail to provide the required information, and determine certain other information as to their account holders,
or (ii) in the event that an applicable intergovernmental agreement and implementing legislation are adopted, provide
local revenue authorities with similar account holder information. Other foreign entities will need to either provide the
name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S.
ownership unless certain exceptions apply. Under some circumstances, a foreign shareholder may be eligible for refunds
or credits of such taxes.
This
discussion of “Distributions and Taxes” is not intended or written to be used as tax advice. Because everyone’s tax
situation is unique, you should consult
your tax professional about federal, state, local or foreign tax consequences before making
an investment in the Fund.
22 Distributions
and Taxes
Financial
Highlights
The
financial highlights table is intended to help you understand the Fund’s financial performance for the period from January
27, 2023 (commencement of operations) through October 31, 2023. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and distributions and no sales charges). The information
for the period ended October 31, 2023 was derived from the financial statements which were audited by KPMG
LLP, independent registered public accounting firm, whose report, along with the Fund’s financial statements, is included
in the Fund’s most recent annual report, which is available upon request.
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
EM SMA Completion Fund
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities |
Distributions
|
|
|
|
Net
Asset Value, Beginning
of Period
|
Net
Investment Income
(Loss)(a)
|
Net
Realized and Unrealized
Gains (Losses)
on Investments
|
Total
from Investment
Activities
|
Net
Investment Income
|
Total
Distributions
|
Net
Asset Value, End
of Period
|
Total
Return(b)(c)
|
Institutional
Class Shares |
|
|
|
|
|
|
|
|
Period
Ended October 31, 2023(g)
|
|
|
|
|
|
|
|
|
|
(a) |
Net
investment income/(loss) is based on average shares outstanding during the period. |
(b) |
Excludes
sales charge. |
(c) |
Not
Annualized for periods less than one year. |
(d) |
Annualized
for periods less than one year. |
(e) |
During
the period, certain fees were waived and/or reimbursed. If such waivers/reimbursements had not occurred, the ratios would have been as
indicated. |
(f) |
Portfolio
turnover is calculated on the basis of the Fund as a whole without distinguishing among the classes of shares. |
(g) |
For
the period from January 27, 2023 (commencement of operations) through October 31, 2023. |
(h) |
Amounts
listed as “–” are 0% or round to 0% |
Selected
Data for Each Share of Capital Outstanding Throughout the Periods Indicated
abrdn
EM SMA Completion Fund (concluded)
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data |
|
|
|
|
Net
Assets at End of Period (000’s)
|
Ratio
of Expenses (Net of Reimbursements/
Waivers) to Average
Net Assets(d)
|
Ratio
of Expenses (Prior to Reimbursements)
to Average Net
Assets(d)(e)
|
Ratio
of Net Investment Income
(Loss) to Average Net
Assets(d)
|
Portfolio
Turnover(c)(f)
|
Institutional
Class Shares
|
|
|
|
|
|
Period
Ended October 31, 2023(g)
|
$268
|
–(h)
|
27.99%
|
3.52%
|
30.12%
|
|
Information
from abrdn Funds
Please
read this Prospectus before you invest, and keep it with your records. The following documents – which may be obtained
free of charge – contain additional information about the Fund:
● |
Statement
of Additional Information (incorporated by reference into this Prospectus) |
● |
Annual
Reports (which
contain discussions of the market conditions and investment strategies that significantly affected
the Fund’s performance) |
While
this Prospectus and the Statement of Additional Information of the Fund
describe pertinent information about the Trust
and the Fund, neither this Prospectus nor the Statement of Additional Information represents a contract between the
Trust or the Fund and any shareholder or any other party.
To
obtain any of the above documents free of charge,
to request other information about the Fund, or to make other shareholder
inquiries, contact us at the address or number listed below. You can also access and download the annual and
semi-annual reports and
the Statement of Additional Information at the Fund’s website https://www.abrdn.com/en-us/us/investor/fund-centre#literature.
To
reduce the volume of mail you receive, only one copy of financial reports, prospectuses, other regulatory materials and
other communications will be mailed to your household (if you share the same last name and address). You can call us
at 866-667-9231, or write to us at the address listed below, to request (1) additional copies free of charge, or (2) that we
discontinue our practice of mailing regulatory materials together.
If
you wish to receive regulatory materials and/or account statements electronically, you can sign-up for our free e-delivery
service. Please visit the Fund’s website at https://www.abrdn.com/en-us/us/investor/fund-centre#literature or
call 866-667-9231 for additional information.
For
Additional Information Contact:
866-667-9231
(toll free)
Customer
Service Representatives are available 8 a.m.-6 p.m. Eastern Time, Monday through Friday. Call after 7 p.m. Eastern
Time for closing share prices.
Also,
visit the Fund’s website at https://www.abrdn.com/en-us/us/investor/fund-centre#literature.
Information
from the Securities and Exchange Commission (SEC)
You
can obtain information about the Fund, including the SAI from the SEC:
● |
on
the SEC’s EDGAR database via the Internet at www.sec.gov; or |
● |
by
electronic request to publicinfo@sec.gov (the SEC charges a fee for this service). |
THE
TRUST’S INVESTMENT COMPANY ACT FILE NO.: 811-22132
26 Information
from abrdn Funds
|
|
|
abrdn
Funds |
|
Statement
of Additional Information |
|
February
29, 2024 |
|
abrdn
EM SMA Completion Fund
Institutional
Class - ASEMX
abrdn
Funds (the “Trust”) is a registered open-end investment company consisting of 19 series as of the date hereof. This Statement
of Additional Information (“SAI”)
relates to the series of the Trust listed above (the “Fund”). This SAI is not a prospectus but is incorporated by reference
into the Prospectus for the Fund. It contains information in addition to and more detailed than that set forth in the Prospectus and
should be read in conjunction with the Prospectus for the Fund dated February 29,
2024.
Terms
not defined in this SAI have the meanings assigned to them in the Prospectus. You can order copies of the Prospectus without charge
by writing to abrdn Funds, c/o SS&C GIDS, Inc. (”SS&C”),
333 West 11th Street, Kansas City, Missouri 64105 or calling (toll-free) 866-667-9231.
The
audited financial statements with respect to the Fund for the fiscal year ended October 31, 2023, and the related report
of KPMG, LLP (“KPMG”), independent registered public accounting firm for the Fund, which are contained in the Fund’s October
31, 2023 Annual Report, are incorporated herein by reference in the section “Financial Statements.” No other
parts of the Annual Report are incorporated by reference herein. A copy of the Annual Report may be obtained upon
request and without charge by writing to abrdn Funds at 430 W. 7th Street, Ste. 219534, Kansas City, MO 64105-1407
or by calling 866-667-9231.
GENERAL
INFORMATION
The
Trust is an open-end management investment company formed as a statutory trust under the laws of the state of
Delaware by a Certificate of Trust filed on September 27, 2007. The Trust currently consists of 19 separate series, each with
its own investment objective.
The
Fund is a non-diversified open-end management investment company as defined in the Investment Company Act
of 1940, as amended (the “1940 Act”).
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
The
Fund invests in a variety of securities and employs a number of investment techniques that involve certain risks. The
Prospectus for the Fund highlights the principal investment strategies, investment techniques and risks. This SAI contains
additional information regarding the principal investment strategies for the Fund and information about non-principal
investment strategies of the Fund. The following provides additional information concerning permissible investments
and techniques for the Fund and risk factors.
Please
review the discussions in the Prospectus for further information regarding the investment objective and policies
of the Fund.
References
to the “Adviser” in this section also include the Sub-advisers, as applicable.
General
Information about the Fund’s Portfolio Instruments and Investment Policies
The
following is a description of various types of securities, instruments and techniques that may be purchased and/or used by
the Fund as well as certain risks to which the Fund is subject.
Adjustable,
Floating and Variable Rate Instruments.
Floating, adjustable rate or variable rate obligations bear interest at
rates that are not fixed, but vary with changes in specified market rates or indices, such as the prime rate, or at specified
intervals. The interest rate on floating-rate securities varies with changes in the underlying index (such as the Treasury
bill rate), while the interest rate on variable or adjustable rate securities changes at preset times based upon an underlying
index. Certain of the floating or variable rate obligations that may be purchased by the Fund may carry a demand
feature that would permit the holder to tender them back to the issuer of the instrument or to a third party at par
value prior to maturity.
The
interest rates paid on the adjustable rate securities in which the Fund may invest generally are readjusted at intervals
of one year or less to an increment over some predetermined interest rate index. There are three main categories
of indices: those based on U.S. Treasury securities, those derived from a calculated measure such as a cost of funds
index and those based on a moving average of mortgage rates. Commonly used indices include the one-year, three-year
and five-year constant maturity Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill rate,
rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, and the National Median
Cost of Funds.
Auction
rate securities are variable rate bonds whose interest rates are reset at specified intervals through a “Dutch” auction
process. A “Dutch” auction is a competitive bidding process designed to determine a single uniform clearing rate that
enables purchases and sales of the auction rate securities to take place at par. All accepted bids and holders of the auction
rate securities receive the same rate. Auction rate securities holders rely on the liquidity generated by the auction.
There is a risk that an auction will fail due to insufficient demand for the securities. If an auction fails, an auction rate
security may become illiquid until a subsequent successful auction is conducted, the issuer redeems the issue, or a secondary
market develops.
Demand
Instruments.
Demand instruments usually have a stated maturity of more than one year but contain a demand
feature (or “put”) that enables the holder to redeem the investment. Variable-rate demand instruments provide for
automatic establishment of a new interest rate on set dates. Floating-rate demand instruments provide for automatic adjustment
of interest rates whenever a specified interest rate (e.g., the prime rate) changes. These floating and variable rate
instruments are payable upon a specified period of notice which may range from one day up to one year. The terms of
the instruments provide that interest rates are adjustable at intervals ranging from daily to up to one year and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate adjustment index as provided in the
respective instruments. Variable rate instruments include participation interests in variable- or fixed-rate municipal obligations
owned by a bank, insurance company or other financial institution or affiliated organizations. Although the rate
of the underlying municipal obligations may be fixed, the terms of the participation interest may result in the Fund receiving
a variable rate on its investment.
Because
of the variable rate nature of the instruments, when prevailing interest rates decline the yield on these instruments
will generally decline. On the other hand, during periods when prevailing interest rates increase, the yield on these
instruments will generally increase and the instruments will have less risk of capital depreciation than instruments bearing
a fixed rate of return.
Some
of the demand instruments purchased by the Fund may not be traded in a secondary market and derive their liquidity
solely from the ability of the holder to demand repayment from the issuer or third party providing credit support. If
a demand instrument is not traded in a secondary market, the Fund will nonetheless treat the instrument as “readily marketable”
for the purposes of its investment restriction limiting investments in illiquid securities unless the demand feature
has a notice period of more than seven days in which case the instrument will be characterized as “not readily marketable”
and therefore illiquid. Such obligations include variable rate master demand notes, which are unsecured instruments
issued pursuant to an agreement between the issuer and the holder that permit the indebtedness thereunder
to vary and to provide for periodic adjustments in the interest rate. The Fund will limit its purchases of floating
4 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
and
variable rate obligations to those of the same quality as it is otherwise allowed to purchase. abrdn Inc. (“abrdn Inc.”
or the “Adviser”) will monitor
on an ongoing basis the ability of an issuer of a demand instrument to pay principal and interest on
demand. The Fund’s right to obtain payment at par on a demand instrument could be affected by events occurring between
the date the Fund elects to demand payment and the date payment is due that may affect the ability of the issuer
of the instrument or third party providing credit support to make payment when due, except when such demand instruments
permit same day settlement. To facilitate settlement, these same day demand instruments may be held in book
entry form at a bank other than the Fund’s custodian subject to a sub-custodian agreement approved by the Fund between
that bank and the Fund’s custodian.
Borrowing.
The Fund, to the extent permitted by its fundamental investment restrictions, may borrow money from banks.
The Fund will limit borrowings to amounts not in excess of 33⅓ % of the value of the Fund’s total assets less liabilities
(other than borrowings), unless the Fund’s
fundamental investment restrictions set forth a lower limit. Any borrowings that
exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to
comply with the 33⅓% limitation or fundamental investment restriction. The Fund may borrow money as a temporary measure
for defensive or emergency purposes in order to meet redemption requests without immediately selling any portfolio
securities. Investments in mortgage dollar roll and reverse repurchase agreements are not considered a form of borrowing
where the Fund covers its exposure by segregating or earmarking liquid assets. Rule 18f-4 under the 1940 Act (“Rule
18f-4”) permits the Fund to treat reverse repurchase transactions either as borrowings or as “derivative transactions”
subject to the risk-based limits of the rule, and does not require the Fund to maintain a segregated account assets
to meet its asset coverage requirements.
Certain
types of borrowings by the Fund may result in the Fund being subject to covenants in credit agreements relating
to asset coverage, portfolio composition requirements and other matters. It is not anticipated that observance of such
covenants would impede the Adviser from managing the Fund’s portfolio in accordance with the Fund’s investment objective(s)
and policies. However, a breach of any such covenants not cured within the specified cure period may result in
acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at a time when it may
be disadvantageous to do so.
Common
Stock. Common stock is issued
by companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, the Fund participates in the success or failure of any company in
which it holds stock. The market value of common stock can fluctuate significantly, reflecting the business performance
of the issuing company, investor perception,
general economic or financial market movements,
or the occurrence of
political, geopolitical, social or economic events affecting issuers.
Smaller companies are especially sensitive
to these factors and may even become valueless. Despite the risk of price volatility, however, common stocks also
offer a greater potential for gain on investment, compared to other classes of financial assets such as bonds or cash equivalents.
The Fund may also receive common stock as proceeds from a defaulted debt security held by the Fund or from
a convertible bond converting to common stock. In such situations, the Fund will hold the common stock at the Adviser’s
discretion.
Convertible
Securities. Convertible
securities are bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can provide an opportunity for capital appreciation
and/or income through interest and dividend payments by virtue of their conversion or exchange features.
The
convertible securities in which the Fund may invest are either fixed income or zero coupon debt securities which may
be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends,
spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities
and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities.
Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion
or exchange feature, the market value of convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the general market for equity securities.
A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same
extent as the underlying common stock. When the market price of the underlying common stock increases, the prices
of the convertible securities tend to rise as a reflection of the value of the underlying common stock, although typically
not as much as the underlying common stock. As
the conversion value of a convertible security is in part determined
by the market price of the underlying common stock, the convertible security is therefore also subject to the same
types of market and issuer risks that may negatively affect the underlying common stock. While
no securities investments are without risk,
investments in convertible securities generally entail less risk than investments in common stock
of the same issuer.
As
debt securities, convertible securities are investments which provide for a stream of income (or in the case of zero coupon
securities, accretion of income) with generally higher yields than common stocks. Convertible securities generally
offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features.
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 5
Like
all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible
securities may default on their obligations.
Convertible
securities generally are subordinated to other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible
preferred stock is senior to common stock, of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower ratings than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay current income or as zero coupon notes
and bonds, including Liquid Yield Option Notes (“LYONs”™).
Zero
coupon convertible securities are debt securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity. Rather, interest earned on zero coupon convertible
securities accretes at a stated yield until the security reaches its face amount at maturity. Zero coupon convertible
securities are convertible into a specific number of shares of the issuer’s common stock. In addition, zero coupon
convertible securities usually have put features that provide the holder with the opportunity to sell the securities back
to the issuer at a stated price before maturity. Generally, the prices of zero coupon convertible securities may be more
sensitive to market interest rate fluctuations than conventional convertible securities.
Currency
Transactions. The Fund may
engage in currency transactions as described in the prospectus or this SAI. Generally,
except as provided otherwise, the Fund may engage with counterparties primarily in order to hedge, or manage
the risk of the value of portfolio holdings denominated in particular currencies against fluctuations in relative value.
Currency transactions include forward currency contracts, exchange listed currency futures, exchange listed and over
the counter (“OTC”) options
on currencies, and currency swaps. The Fund may enter into currency transactions with creditworthy
counterparties that have been approved by the Adviser’s Counterparty Credit Risk Department in accordance
with its Credit Risk Management Policy.
Forward
Currency Contracts. A forward
currency contract involves an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are entered into in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers.
At
or before the maturity of a forward currency contract, the Fund may either sell a portfolio security and make delivery of
the currency, or retain the security and fully or partially offset its contractual obligation to deliver the currency by purchasing
a second contract. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund,
at the time of execution of the offsetting transaction, will incur a gain or a loss to the extent that movement has occurred
in forward currency contract prices.
The
precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will change after the foreign currency contract
has been established. Thus, the Fund might need to purchase or sell foreign currencies in the spot (cash) market to
the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency
market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly
uncertain.
In
general, in accordance with current federal securities laws, rules, and staff positions, the Fund covers its daily obligation requirements
for outstanding forward foreign currency contracts by earmarking or segregating liquid portfolio securities. To
the extent that the Fund is not able to cover its forward currency positions with underlying portfolio securities, the Fund segregates
cash. If the value of the securities used to cover a position or the value of segregated assets declines, the Fund
will find alternative cover or segregate additional cash or other liquid assets on a daily basis so that the value of the ear-marked
or segregated assets will be equal to the amount of such Fund’s commitments with respect to such contracts.
Transaction
hedging is entering into a currency transaction with respect to specific assets or liabilities of the Fund, which will
generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position
hedging is entering into a currency transaction with respect to portfolio security positions denominated or generally
quoted in that currency.
Cross
Hedge. If a particular currency
is expected to decrease against another currency, the Fund may sell the currency expected
to decrease and purchase a currency which is expected to increase against the currency sold in an amount approximately
equal to the lesser of some or all of the Fund’s portfolio holdings denominated in or exposed to the currency
sold.
Proxy-Hedge.
The Fund may also enter into a position hedge transaction in a currency other than the currency being hedged
(a “proxy hedge”). The Fund may enter into a proxy hedge if the Adviser believes there is a correlation between the
currency being hedged and the currency in which the proxy hedge is denominated. Proxy hedging is often used when
the currency to which the Fund’s portfolio is exposed is difficult to hedge or to hedge against the dollar. This type of hedging
entails an additional risk beyond a direct position hedge because it is dependent on a stable relationship between
two currencies paired as proxies. Overall risk to the Fund may increase or decrease as a consequence of the use
of proxy hedges.
6 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
Currency
Hedging. While the value
of forward currency contracts, currency options, currency futures and options on futures
may be expected to correlate with exchange rates, they will not reflect other factors that may affect the value of the
Fund’s investments. A currency hedge, for example, should protect a yen-denominated bond against a decline in the yen,
but will not protect the Fund against price decline if the issuer’s creditworthiness deteriorates. Because the value of the
Fund’s investments denominated in foreign currency will change in response to many factors other than exchange rates,
a currency hedge may not be entirely successful in mitigating changes in the value of the Fund’s investments denominated
in that currency over time.
A
decline in the dollar value of a foreign currency in which the Fund’s securities are denominated will reduce the dollar value
of the securities, even if their value in the foreign currency remains constant. The use of currency hedges does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a rate of exchange that can be achieved
in the future. In order to protect against such diminutions in the value of securities it holds, the Fund may purchase
put options on the foreign currency. If the value of the currency does decline, the Fund will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its securities that
otherwise would have resulted. Conversely, if a rise in the dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the securities, the Fund may purchase call options
on the particular currency. The purchase of these options could offset, at least partially, the effects of the adverse movements
in exchange rates. Although currency hedges limit the risk of loss due to a decline in the value of a hedged currency,
at the same time, they also limit any potential gain that might result should the value of the currency increase.
The
Fund may enter into foreign currency exchange transactions to hedge its currency exposure in specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward currency contracts with respect to specific receivables
or payables of a fund generally accruing in connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency contracts with respect to portfolio security positions.
The
currencies of certain emerging market countries have experienced devaluations relative to the U.S. Dollar, and future devaluations
may adversely affect the value of assets denominated in such currencies. In addition, currency hedging techniques
may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
Position
Hedge. The Fund may hedge
some or all of its investments denominated in a foreign currency or exposed to foreign
currency fluctuations against a decline in the value of that currency relative to the U.S. Dollar by entering into forward
foreign currency contracts to sell an amount of that currency approximating the value of some or all of its portfolio
securities denominated in or exposed to that currency and buying U.S. Dollars or by participating in options or future
contracts with respect to the currency. Such transactions do not eliminate fluctuations caused by changes in the local
currency prices of security investments, but rather, establish an exchange rate at a future date. Although such contracts
are intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time
they tend to limit any potential gain which might result should the value of such currencies increase. The Adviser may
from time to time seek to reduce foreign currency risk by hedging some or all of the Fund’s foreign currency exposure
back into the U.S. Dollar.
Currency
Futures. The Fund may also
seek to enhance returns or hedge against the decline in the value of a currency through
use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts while forward foreign exchange transactions
are traded in the OTC market. Currency futures involve currency risk equivalent to currency forwards.
Currency
Options. The Fund that invests
in foreign currency-denominated securities may buy or sell put and call options on
foreign currencies either on exchanges or in the OTC market. A put option on a foreign currency gives the purchaser of
the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency
gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires.
the Fund may also write covered options on foreign currencies. For example, to hedge against a potential decline in
the U.S. Dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, the Fund
could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised and the decline in value of portfolio securities will be offset by the amount
of the premium received. Currency options traded on U.S. or other exchanges may be subject to position limits which
may limit the ability of a fund to reduce foreign currency risk using such options. OTC options differ from exchange traded
options in that they are two-party contracts with price and other terms negotiated between buyer and seller, and generally
do not have as much market liquidity as exchange-traded options.
Under
definitions adopted by the CFTC and SEC, many foreign currency options are considered swaps for certain purposes,
including determination of whether such instruments need to be exchange-traded and centrally cleared.
Currency
hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived correlation between various currencies may not
be present or may not be present during the particular time that the Fund is engaging in proxy hedging.
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 7
Risks
of Currency Transactions.
Currency transactions are subject to risks different from those of other portfolio transactions.
Because currency control is of great importance to the issuing governments and influences economic planning
and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange
controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses
to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges
it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers
and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options
is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country’s economy.
Risk
Factors in Hedging Foreign Currency Risks.
Hedging transactions involving currency instruments involve substantial risks,
including correlation risk. While an objective of the Fund’s use of currency instruments to effect hedging strategies is intended
to reduce the volatility of the net
asset value (“NAV”) of the Fund’s
shares, the NAV of the Fund’s shares will fluctuate.
Moreover, although currency instruments will be used with the intention of hedging against adverse currency movements,
transactions in currency instruments involve the risk that such currency movements may not occur and that the
Fund’s hedging strategies may be ineffective. To the extent that the Fund hedges against anticipated currency movements
that do not occur, the Fund may realize losses and decrease its total return as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging
activities when movements in currency exchange rates occur.
In
connection with its trading in forward foreign currency contracts, the Fund will contract with a foreign or domestic bank,
or foreign or domestic securities dealer, to make or take future delivery of a specified amount of a particular currency.
There are no limitations on daily price moves in such forward contracts, and banks and dealers are not required to
continue to make markets in such contracts. There have been periods during which certain banks or dealers have refused
to quote prices for such forward contracts or have quoted prices with an unusually wide spread between the price
at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit
controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, the Fund
may be subject to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect
to such contracts. Any such default would deprive the Fund of any profit potential or force the Fund to cover its commitments
for resale, if any, at the then market price and could result in a loss to the Fund. It may not be possible for the
Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction
at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which currency
instruments are not available and it is not possible to engage in effective foreign currency hedging. The cost to the
Fund of engaging in foreign currency transactions varies with such factors as the currencies involved, the length of the
contract period and the market conditions then prevailing. In addition, the Fund may not always be able to enter into forward
contracts at attractive prices and may be limited in its ability to use these contracts to hedge Fund assets. Since transactions
in foreign currency exchanges usually are conducted on a principal basis, no fees or commissions are involved.
New
regulations governing certain OTC derivatives may also increase the costs of using these types of instruments or make
them less effective, as described under “Strategic Transactions, Derivatives and Synthetic Investments – Risks of Strategic
Transactions Inside the U.S.”
See
“Regulation of Commodity Interests” for additional information about the Funds’ use of derivatives in connection
with CFTC exclusions.
Custody/Sub-Custody
Risk. To the extent that
the Fund invests in markets where custodial and/or settlement systems
are not fully developed, the Fund is subject to foreign custody/sub-custody risk. Foreign custody risk refers to the risks
inherent in the process of clearing and settling trades and to the holding of securities, cash and other assets by banks,
agents and depositories in securities markets that are less developed than those in the United States. Low trading volumes
and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade
groups may compel non-U.S. agents to hold securities in designated depositories that may not be subject to independent
evaluation. The laws of certain countries may place limitations on the ability to recover assets if a non-U.S. bank,
agent or depository becomes insolvent or enters bankruptcy. Non- U.S. agents are held only to the standards of care
of their local markets, and thus may be subject to limited or no government oversight. In general, the less developed a
country’s securities market is, or the more difficult communication is with that location, the greater the likelihood of custody
problems.
Cyber
Security Risk. With the
increased use of technologies such as mobile devices and Web-based or “cloud” applications,
and the dependence on the Internet and computer systems to conduct business, the Fund is susceptible to operational,
information security and related risks. In general, cybersecurity incidents can result from deliberate attacks or
unintentional events (arising from external or internal sources) that may cause the Fund to lose proprietary information,
suffer data corruption, physical damage to a computer or network system or lose operational capacity. Cybersecurity
attacks include, but are not limited to, artificial
intelligence spoofing, infection by malicious
software, such
8 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
as
malware or computer viruses or gaining unauthorized access to digital systems, networks or devices that are used to service
the Fund’s operations (e.g., through “hacking,” “phishing” or malicious software coding) or other means
for purposes of misappropriating assets or
sensitive information, corrupting data, or causing operational disruption. Cybersecurity
attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on the Fund’s websites (i.e., efforts to make network services unavailable to intended users).
In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored
on the Fund’s systems.
The use of cloud-based service providers could heighten or change these risks.
Cybersecurity
incidents affecting the Fund’s Adviser, other service providers to the Fund or its shareholders (including,
but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) have
the ability to cause disruptions and impact business operations, potentially resulting in financial losses to both the Fund
and shareholders, interference with the Fund’s ability to calculate its NAV,
impediments to trading, the inability of Fund
shareholders to transact business and the Fund to process transactions (including fulfillment of Fund share purchases
and redemptions), violations of applicable privacy and other laws (including the release of private shareholder
information) and attendant breach notification and credit monitoring costs, regulatory fines, penalties, litigation
costs, reputational damage, reimbursement or other compensation costs, forensic investigation and remediation
costs, and/or additional compliance costs. Similar adverse consequences could result from cybersecurity incidents
affecting issuers of securities in which the Fund invests, counterparties with which the Fund engages in transactions,
governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers,
dealers, insurance companies and other financial institutions (including financial intermediaries and other service
providers) and other parties. In addition, substantial costs may be incurred in order to safeguard against and reduce
the risk of any cybersecurity incidents in the future. In addition to administrative, technological and procedural safeguards,
the Adviser has established business continuity plans in the event of such cybersecurity incidents. However, there
are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified,
as well as the rapid development of new threats. Furthermore, the Fund cannot control the cybersecurity plans and
systems put in place by its service providers or any other third parties whose operations may affect the Fund or its shareholders.
The Fund and its shareholders could be negatively impacted as a result. In addition, work-from-home arrangements
by the Fund, the Adviser or their service providers could increase all of the above risks, create additional data
and information accessibility concerns, and make the Fund, the Adviser or their service providers susceptible to operational
disruptions, any of which could adversely impact their operations. Furthermore, the Fund may be an appealing
target for cybersecurity threats such as hackers and malware.
Depositary
Receipts. Depositary receipts
include American Depositary Receipts (“ADRs”), European Depositary Receipts
(“EDRs”) and Global Depositary Receipts (“GDRs”) or other securities convertible into securities of issuers
based in foreign countries. These securities
may not necessarily be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, in registered form, are denominated in U.S. Dollars and are designed for use
in the U.S. securities markets, GDRs, in bearer form, are issued and designed for use outside the United States and EDRs
(also referred to as Continental Depositary Receipts (“CDRs”)), in bearer form, may be denominated in other currencies
and are designed for use in European securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement.
GDRs are receipts typically issued by non-U.S. banks and trust companies that evidence ownership of either
foreign or domestic securities. For purposes of the Fund’s investment policies, ADRs, GDRs and EDRs are deemed to have
the same classification as the underlying securities they represent. Thus, an ADR, GDR or EDR representing ownership
of common stock will be treated as common stock.
The
Fund may invest in depositary receipts through “sponsored” or “unsponsored” facilities. While ADRs issued
under these two types of facilities are in
some respects similar, there are distinctions between them relating to the rights and obligations
of ADR holders and the practices of market participants.
A
depositary may establish an unsponsored facility without participation by (or even necessarily the acquiescence of)
the issuer of the deposited securities, although typically the depositary requests a letter of non-objection from such issuer
prior to the establishment of the facility. Holders of unsponsored ADRs generally bear all the costs of such facilities. The
depositary usually charges fees upon the deposit and withdrawal of the deposited securities, the conversion of dividends
into U.S. Dollars, the disposition of non-cash distributions, and the performance of other services. The depositary
of an unsponsored facility frequently is under no obligation to pass through voting rights to ADR holders in respect
of the deposited securities. In addition, an unsponsored facility is generally not obligated to distribute communications
received from the issuer of the deposited securities or to disclose material information about such issuer
in the U.S. and thus there may not be a correlation between such information and the market value of the depositary
receipts. Unsponsored ADRs tend to be less liquid than sponsored ADRs.
Sponsored
ADR facilities are created in generally the same manner as unsponsored facilities, except that the issuer of
the deposited securities enters into a deposit agreement with the depositary. The deposit agreement sets out the rights
and responsibilities of the issuer, the depositary, and the ADR holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the facility (such as dividend payment fees of the depositary),
although ADR holders continue to bear certain other costs (such as deposit and withdrawal fees). Under the
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 9
terms
of most sponsored arrangements, depositaries agree to distribute notices of shareholder meetings and voting instructions,
and to provide shareholder communications and other information to the ADR holders at the request of the issuer
of the deposited securities.
In
addition, the issuers of depositary receipts may discontinue issuing new depositary receipts and withdraw existing depositary
receipts at any time, which may result in costs and delays in the distribution of the underlying assets to the Fund
and may negatively impact the Fund’s performance.
Emerging
Markets Securities. Although
there is no universally accepted definition, an emerging or developing country is
generally considered to be a country which is in the initial stages of industrialization. Investing in emerging markets can involve
unique risks in addition to and greater than those generally associated with investing in developed markets. Shareholders
should be aware that investing in the equity and fixed income markets of developing countries involves exposure
to unstable governments, economies based on only a few industries, and securities markets which trade a small
number of securities. Securities markets of developing countries tend to be more volatile than the markets of developed
countries; however, such markets have in the past provided the opportunity for higher rates of return to investors.
The
value and liquidity of investments in developing countries may be affected favorably or unfavorably by political, economic,
fiscal, regulatory or other developments in the particular countries or neighboring regions. The extent of economic
development, political stability and market depth of different countries varies widely. Such investments typically
involve greater potential for gain or loss than investments in securities of issuers in developed countries.
The
securities markets in developing countries are substantially smaller, less liquid and more volatile than the major securities
markets in the United States. A high proportion of the shares of issuers in developing countries may be held by a limited
number of persons and financial institutions, which may limit the number of shares available for investment by a fund.
The small size, limited trading volume and relative inexperience of the securities markets in these countries may make
investments in securities traded in emerging markets less liquid and more volatile than investments in securities traded
in more developed countries. For example, limited market size may cause prices to be unduly influenced by traders
who control large positions. A limited number of issuers in developing countries’ securities markets may represent a
disproportionately large percentage of market capitalization and trading volume. The limited liquidity of securities markets
in developing countries may also affect the Fund’s ability to acquire or dispose of securities at the price and time it
wishes to do so. Accordingly, during periods of rising securities prices in the more illiquid securities markets, the Fund’s ability
to participate fully in such price increases may be limited by its investment policy of investing not more than 15% of its
total net assets in illiquid investments. Conversely, the Fund’s inability to dispose fully and promptly of positions in declining
markets could cause the Fund’s NAV to decline as the value of the unsold positions is marked to lower prices. In addition,
the Fund may be required to establish special custodial or other arrangements before making investments in securities
traded in emerging markets. There may be little financial or accounting information available with respect to issuers
of emerging market securities, and it may be difficult as a result to assess the value of prospects of an investment in
such securities.
Investments
in the securities of issuers located in emerging markets could also be affected by risks associated with pervasiveness
of corruption and crime, armed conflict (e.g., the ongoing Russian-Ukraine conflict), the impact on the economy
of civil war, religious or ethnic unrest and the withdrawal or non-renewal of any license enabling the Fund to trade
in securities of a particular country, confiscatory taxation, restrictions on transfers of assets, less publicly available financial
and other information. International trade barriers or economic sanctions against foreign countries, organizations,
entities and/or individuals in response to geopolitical tensions or conflicts may adversely affect the value of the
Fund’s foreign holdings. The type and severity of sanctions and other similar measures are difficult to measure or predict.
Emerging market countries typically have less
established legal, accounting and financial reporting systems than those
in more developed markets, which may reduce the scope or quality of financial information available to investors. Governments
in emerging market countries are often less stable and more likely to take extra-legal action with respect to
companies, industries, assets, or foreign ownership than those in more developed markets. Moreover, it can be more difficult
for investors to bring litigation or enforce judgments against issuers in emerging markets or for U.S. regulators to bring
enforcement actions against such issuers. The
Fund may also be subject to Emerging Markets
Risk if it
invests in derivatives
or other securities or instruments whose value or return are related to the value or returns of emerging markets
securities.
The
currencies of certain emerging market countries have experienced devaluations relative to the U.S. Dollar, and future
devaluations may adversely affect the value of assets denominated in such currencies. In addition, currency hedging
techniques may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
Political
and economic structures in many such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability characteristics of the United States. In
addition, unanticipated political or social developments may affect the value of investments in emerging markets and the
availability of additional investments in these markets. Any change in the leadership or politics of emerging market countries,
or the countries that exercise a significant influence over those countries, may halt the expansion of or reverse
10 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
the
liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities. Certain
countries have in the past failed to recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened.
Economies
of developing countries may differ favorably or unfavorably from the United States’ economy in such respects
as rate of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. The economy of some emerging markets may be particularly exposed to or affected by a certain
industry or sector, and therefore issuers and/or securities of such emerging markets may be more affected by the
performance of such industries or sectors. Certain developing countries do not have comprehensive systems of laws, although
substantial changes have occurred in many such countries in this regard in recent years. Laws regarding fiduciary
duties of officers and directors and the protection of shareholders may not be well developed. Even where adequate
law exists in such developing countries, it may be impossible to obtain swift and equitable enforcement of such law,
or to obtain enforcement of the judgment by a court of another jurisdiction.
The
risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading
of securities may cease or may be substantially curtailed and prices for the Fund’s securities in such markets may not
be readily available. The Fund may suspend redemption of its shares for any period during which an emergency exists,
as determined by the SEC. Accordingly if the Fund believes that appropriate circumstances exist, it will promptly apply
to the SEC for a determination that an emergency is present. During the period commencing from the Fund’s identification
of such condition until the date of the SEC action, the Fund’s securities in the affected markets will be valued at
fair value determined in good faith by or under the direction of the Fund’s Board.
Governments
of many emerging market countries have become overly reliant on the international capital markets and
other forms of foreign credit to finance large public spending programs that cause huge budget deficits. As a result of
either an inability to pay or submission to political pressure, the governments have sought to restructure their loan and/ or
bond obligations, have declared a temporary suspension of interest payments, or have defaulted (in part or full) on their
outstanding debt obligations. These events have adversely affected the values of securities issued by the governments
and corporations domiciled in these emerging market countries and have negatively affected not only their
cost of borrowing but also their ability to borrow in the future. The economic and political environment has presented
significant challenges to the economies of emerging markets, including, among others, rising inflation, food insecurity,
subdued employment growth, and economic setback caused by supply chain disruption and the reduction in exports.
Certain
of the foregoing risks may also apply to some extent to securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities of U.S. issuers having significant foreign operations.
Trading
in futures contracts on foreign commodity exchanges may be subject to the same or similar risks as trading in
foreign securities.
Asian
Risk. The Fund may invest
its assets in Asian securities and be subject to general economic and political conditions
in Asia. The Fund may invest a significant portion of their assets in Asian securities and may be more volatile than
a fund which is broadly diversified geographically. Additional factors relating to Asia that an investor should consider include
the following:
Political,
Social and Economic Factors. Some parts
of the Asian region may be subject to a greater degree of economic,
political and social instability than is the case in the United States and Europe. Such instability may result from, among
other things, the following: (i) authoritarian governments or military involvement in political and economic decision-making,
including changes in government through extra-constitutional means; (ii) popular unrest associated with
demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection. Such social, political and economic instability could significantly
disrupt the principal financial markets in which the Fund invests and adversely affect the value of the Fund’s assets.
Some
Asian economies are reliant on exports in varying degrees as a major contribution to economic growth and as such
may be affected by developments in the economies of their principal trading partners. These economies may be accordingly
affected by protective trade barriers and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. The enactment by the United States or other principal trading partners
of protectionist trade legislation, reduction of foreign investment in local economies and general declines in the international
securities markets could have a significant adverse effect upon the securities markets of Asia.
Some
Asian economies have limited natural resources, resulting in dependence on foreign sources for certain raw materials
and economic vulnerability to global fluctuations of price and supply. Other economies such as Indonesia and Malaysia,
for example, are commodity exporters susceptible to world prices for their commodity exports, including crude oil.
Some
governments in the Asian region are authoritarian in nature and influenced by security forces. For example, during
the course of the last twenty-five years, certain governments in the region have been installed or removed as a result
of military coups while others have periodically demonstrated their repressive police state nature. Disparities of
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 11
wealth,
among other factors, have also led to social unrest in some Asian countries accompanied, in certain cases, by violence
and labor unrest. Ethnic, religious and racial disaffection, as evidenced in India, Myanmar, Pakistan and Sri Lanka, have
created social, economic and political problems.
Several
Asian countries have or in the past have had hostile relationships with neighboring nations or have experienced
internal insurgency. For example, Thailand experienced border battles with Laos and India is engaged in border
disputes with several of its neighbors, including China and Pakistan. An uneasy truce exists between North Korea and
South Korea and the two countries technically remain in a state of war. In addition, North Korea’s nuclear weapons program
has caused an increased level of risk of military conflict in the area.
There
may be the possibility of expropriations, confiscatory taxation, political, economic or social instability or diplomatic
developments which would adversely affect assets of the Fund held in foreign countries. Governments in certain
Asian countries participate to a significant degree, through ownership interests or regulation, in their respective economies.
Action by these governments could have a significant adverse effect on market prices of the Fund’s securities
and its share price.
Market
Characteristics. Most of the securities
markets of Asia have substantially less volume than the New
York Stock Exchange,
and equity securities of most companies in Asia are less liquid and more volatile than equity securities of U.S.
companies of comparable size. Some of the stock exchanges in Asia, such as those in China, are in the early stages of their
development. Many companies traded on securities markets in Asia are smaller, newer and less seasoned than companies
whose securities are traded on securities markets in the United States. In some Asian countries, there is no established
secondary market for securities. Therefore, liquidity in these countries is generally low and transaction costs high.
Reduced liquidity often creates higher volatility, as well as difficulties in obtaining accurate market quotations for financial
reporting purposes and for calculating NAVs, and sometimes also an inability to buy and sell securities. Market quotations
on many securities may only be available from a limited number of dealers and may not necessarily represent
firm bids from those dealers or prices for actual sales. Additionally, market making and arbitrage activities are generally
less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets.
Investments in smaller companies involve greater risk than is customarily associated with investing in larger companies.
Smaller companies may have limited product lines, markets or financial or managerial resources and may be
more susceptible to losses and risks of bankruptcy. Accordingly, each of these markets may be subject to greater influence
by adverse events generally affecting the market, and by large investors trading significant blocks of securities, than
is usual in the U.S. To the extent that any of the Asian countries experiences rapid increases in its money supply and investment
in equity securities for speculative purposes, the equity securities traded in any such country may trade at price-earning
multiples higher than those of comparable companies trading on securities markets in the United States, which
may not be sustainable.
Brokerage
commissions and other transaction costs on securities exchanges in Asia are generally higher than in the U.S.
Settlement procedures in certain Asian countries are less developed and reliable than those in the U.S. and in other developed
markets, and the Fund may experience settlement delays or other material difficulties. Securities trading in certain
Asian securities markets may be subject to risks due to a lack of experience of securities brokers, a lack of modern
technology and a possible lack of sufficient capital to expand market operations. The foregoing factors could impede
the ability of the Fund to effect portfolio transactions on a timely basis and could have an adverse effect on the NAV
of shares of the Fund.
There
is also less government supervision and regulation of foreign securities exchanges, brokers, and listed companies
in the Asian countries than exists in the United States. In addition, existing laws and regulations are often inconsistently
applied. As legal systems in Asian countries develop, foreign investors may be adversely affected by new laws
and regulations, changes to existing laws and regulations and preemption of local laws and regulations by national laws.
In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the
law. Less information will, therefore, be available to the Fund than in respect of investments in the U.S. Further, in certain
Asian countries, less information may be available to the Fund than to local market participants. Brokers in Asian countries
may not be as well capitalized as those in the U.S., so that they are more susceptible to financial failure in times of
market, political, or economic stress.
In
addition, accounting and auditing standards applied in certain Asian countries frequently do not conform with the generally
accepted accounting principles (“GAAP”) used in the United States. The use of some accounting policies, such as
the constant purchasing power method, can cause distortion in some cases. Also, substantially less financial information
is generally publicly available about issuers in Asian countries and, where available, may not be independently
verifiable.
Energy.
Asia has historically depended on oil for most of its energy requirements. Certain Asian countries are highly dependent
on imported oil. In the past, oil prices have had a major impact on Asian economies. Oil prices are generally subject
to extreme volatility. Continuing increases in levels of worldwide oil and gas reserves and production may further depress
the value of investments related to the natural resources industry. This trend is causing producers to curtail production
or reduce capital spending for exploration activities. This could increase the time period the Fund would need to
see a realization of its investments in the energy industry.
12 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
Natural
Disasters. The Asian region has in the
past experienced earthquakes, mud slides and tidal waves of varying degrees
of severity (e.g., tsunamis), and the risks of such phenomena, and the damage resulting from natural disasters, continue
to exist. The long-term economic effects of such geological factors on the Asian economy as a whole, and on the
Fund’s investments and share price, cannot be predicted.
Investing
in China.
In addition to the risks listed above under “Foreign Securities,” “Emerging Markets Securities” and “Asian
Risk,” investing in China presents additional risks. Investing in China involves a high degree of risk and special considerations
not typically associated with investing in other more established economies or securities markets. Such risks
may include: (a) the risk of nationalization or expropriation of assets or confiscatory taxation; (b) greater social, economic
and political uncertainty (including the risk of war and social unrest); (c) dependency on exports and the corresponding
importance of international trade; (d) the increasing competition from Asia’s other low-cost emerging market
economies; (e) greater price volatility and significantly smaller market capitalization of securities markets; (f) substantially
less liquidity, particularly of certain share classes of Chinese securities; (g) currency exchange rate fluctuations
and the lack of available currency hedging instruments; (h) higher rates of inflation; (i) controls on foreign investment
and limitations on repatriation of invested capital and on the Fund’s ability to exchange local currencies for U.S.
Dollars; (j) greater governmental involvement in and control over the economy, including over securities exchanges; (k)
the risk that the Chinese government may decide not to continue to support the economic reform programs implemented
since 1978 and could return to the prior, completely centrally planned, economy; (l) the fact that China companies,
particularly those located in China, may be smaller, less seasoned and newly-organized; (m) the difference in,
or lack of, auditing and financial reporting standards which may result in unavailability of material information about issuers,
particularly in China; (n) the fact that statistical information regarding the economy of China may be inaccurate or
not comparable to statistical information regarding the U.S. or other economies; (o) the less extensive, and still developing,
regulation of the securities markets, business entities and commercial transactions; (p) the fact that the settlement
period of securities transactions in foreign markets may be longer; (q) the willingness and ability of the Chinese
government to support the Chinese and Hong Kong economies and markets is uncertain; (r) the risk that it may be
more difficult, or impossible, to obtain and/or enforce a judgment than in other countries; and (s) the rapidity and erratic
nature of growth, particularly in China, resulting in efficiencies and dislocations. In addition, any spread of an infectious
illness, public health threat or similar issue could reduce consumer demand or economic output, result in market
closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which
in turn could adversely affect the Fund’s investments.
Investments
in China may subject the Fund’s investments to a number of tax rules, and the application of many of those
rules may be uncertain. Moreover, China has implemented a number of tax reforms in recent years, and may amend
or revise its existing tax laws and/or procedures in the future, possibly with retroactive effect. Changes in applicable
Chinese tax law could reduce the after-tax profits of the Fund, directly or indirectly, including by reducing the after-tax
profits of companies in China in which the Fund invests. Chinese taxes that may apply to the Fund’s investments include
income tax or withholding tax on dividends, interest or gains earned by the Fund, business tax and stamp duty. Uncertainties
in Chinese tax rules could result in unexpected tax liabilities for the Fund.
In
December 2020, the U.S. Congress passed the Holding Foreign Companies Accountable Act (“HFCAA”). The HFCAA
provides that after three consecutive years of determinations by the U.S. Public Company Accounting Oversight Board
(“PCAOB”) that positions taken by authorities in China obstructed the PCAOB’s ability to inspect and investigate
registered public accounting
firms in mainland China and Hong Kong completely, the companies audited by those firms would
be subject to a trading prohibition on U.S. markets. On August 26, 2022, the PCAOB signed a Statement of Protocol with
the China Securities (defined below) Regulatory Commission and the Ministry of Finance of the People’s Republic of China
to grant the PCAOB access to inspect and investigate registered public accounting firms in mainland China and Hong
Kong completely, consistent with U.S. law. To the extent the PCAOB remains unable to inspect audit work papers and
practices of PCAOB-registered accounting firms in China with respect to their audit work of U.S. reporting companies,
such inability may impose significant additional risks associated with investments in China. Further, to the extent
the Fund invests in the securities of a company whose securities become subject to a trading prohibition, the Fund’s
ability to transact in such securities, and the liquidity of the securities, as well as their market price, would likely be adversely
affected.
Investment
in China is subject to certain political risks. Following the establishment of the People’s Republic of China (“PRC”)
by the Communist Party in 1949, the Chinese government renounced various debt obligations incurred by China’s
predecessor governments, which obligations remain in default, and expropriated assets without compensation. There
can be no assurance that the Chinese government will not take similar action in the future. The political reunification
of China and Taiwan is a highly problematic issue and is unlikely to be settled in the near future. This situation poses
a threat to Taiwan’s economy and could negatively affect its stock market.
Hong
Kong reverted to Chinese sovereignty on July 1, 1997 as a Special Administrative Region of the People’s Republic
of China under the principle of “one country, two systems.” Although China is obligated to maintain the current capitalist
economic and social system of Hong Kong through June 30, 2047, the continuation of economic and social freedoms
enjoyed in Hong Kong is dependent on the government of China. Any attempt by China to tighten its control over
Hong Kong’s political, economic, legal or social policies may result in an adverse effect on Hong Kong’s markets. Uncertainty
over Hong Kong’s political future arising from interactions with China has resulted in social unrest, which could
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 13
in
turn cause uncertainty in the markets. In addition, the Hong Kong dollar trades at a fixed exchange rate in relation to (or,
is “pegged” to) the U.S. dollar, which has contributed to the growth and stability of the Hong Kong economy. However, it
is uncertain how long the currency peg will continue or what effect the establishment of an alternative exchange rate system
would have on the Hong Kong economy. Because the Fund’s NAV is denominated in U.S. dollars, the establishment
of an alternative exchange rate system could result in a decline in the Fund’s NAV.
The
Chinese economy has grown rapidly in the past but there is no assurance that this growth rate will be maintained.
In fact, the Chinese economy may experience a significant slowdown as a result of, among other things, a deterioration
in global demand for Chinese exports, as well as contraction in spending on domestic goods by Chinese consumers.
An economic downturn
in China or geopolitical tensions involving China could adversely impact investments in
Chinese or Chinese-related issuers because, among other possibilities, certain Chinese issuers may be sanctioned by the
U.S. government in the event of a geopolitical tension. In
addition, China may experience substantial rates of inflation or
economic recessions, which would have a negative effect on the economy and securities market. Delays in enterprise restructuring,
slow development of well-functioning financial markets and widespread corruption have also hindered performance
of the Chinese economy. China continues to receive substantial pressure from trading partners to liberalize official
currency exchange rates. Chinese authorities may intervene in the China Securities market and halt or suspend trading
of securities for short or even longer periods of time. Recently, the China Securities market has experienced considerable
volatility and been subject to relatively frequent and extensive trading halts and suspensions. These trading halts
and suspensions have, among other things, contributed to uncertainty in the markets and reduced the liquidity of the
securities subject to such trading halts and suspensions, which could include securities held by the Fund.
The
current political climate has intensified concerns about a potential trade war between China and the United States,
as each country has imposed, and may in the future impose additional, tariffs on the other country’s products. These
actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or large segments of China’s export
industry, which could have a negative impact on the Fund’s performance. Certain securities are, or may in the future
become, restricted, and the Fund may be forced to sell such restricted securities and incur a loss as a result. U.S. companies
that source material and goods from China and those that make large amounts of sales in China would be particularly
vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the
potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs
may be imposed or other escalating actions may be taken in the future.
Historically,
investments in stocks, bonds, and warrants listed and traded on a Mainland China stock exchange, investment
companies, and other financial instruments (collectively referred to as “China Securities”) approved by the China
Securities Regulatory Commission (“CSRC”) were not eligible for investment by non-Chinese investors. However, the
CSRC may grant qualified foreign institutional investor (“QFII”) licenses and renminbi qualified foreign institutional investor
(“RQFII”) licenses that allow non-Chinese institutional investors to invest in China securities. Each QFII and RQFII license
holder is authorized to invest in China Securities only up to a specified quota established by the Chinese State Administration
of Foreign Exchange (“SAFE”). The provisions regarding such quotas may be subject to change with little or
notice given by SAFE. abrdn Asia Limited (“aAL”),
a Sub-adviser
to the Fund, has received a QFII license and an RQFII license
and specified quotas to be invested in China Securities, the QFII quota specifically referring to a nominee quota in this
instance (the “QFII Quota” and “RQFII Quota” respectively). A portion of the Chinese securities in which the
Fund invests in China Securities is part of
the QFII Quota granted to aAL
and may invest through the RQFII Quota.
Although
China law permits the use of nominee accounts for clients of investment managers who are QFII or RQFII license
holders, the Chinese regulators require the securities trading and settlement accounts to be maintained in the name
of the QFII or RQFII license holder. As a result, there is a risk that creditors of aAL
may assert that aAL,
and not the individual fund, is the legal
owner of the securities and other assets in the accounts. aAL
has obtained a legal opinion from Chinese
counsel confirming that, as a matter of Chinese law, aAL
as QFII license holder has no ownership interest in the assets
in the Fund account held as a nominee account and the relevant Fund will be ultimately and exclusively entitled to ownership
of the assets in such nominee accounts. Nonetheless, if a court upholds a creditor’s assertion that the assets held
under the QFII Quota belong to aAL
as license holder, then creditors of aAL
could seek payment from the China Securities
held under the QFII Quota.
Variable
Interest Entities.
The Fund may obtain exposure to companies based or operated in China by investing through
legal structures known as variable interest entities (VIEs). Because of Chinese governmental restrictions on non-Chinese
ownership of companies in certain industries in China, certain Chinese companies have used VIEs to facilitate
foreign investment without distributing direct ownership of companies based or operated in China. In such cases,
the Chinese operating company establishes an offshore company, and the offshore company enters into contractual
arrangements with the Chinese company. These contractual arrangements are intended to give the offshore
company the ability to exercise power over and obtain economic rights from the Chinese company. Shares of the
offshore company, in turn, are listed and traded on exchanges outside of China and are available to non-Chinese investors,
such as the Fund. This arrangement allows non-Chinese investors in the offshore company to obtain economic exposure
to the Chinese company without direct equity ownership in the Chinese company.
14 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
Although
VIEs are a longstanding industry practice and well known to officials and regulators in China, VIEs are not formally
recognized under Chinese law. There is a risk that China may cease to tolerate VIEs at any time or impose new restrictions
on the structure, in each case either generally or with respect to specific industries, sectors or companies. Investments
involving a VIE may also pose additional risks because such investments are made through a company whose
interests in the underlying Chinese company are established through contract rather than through equity ownership.
For example, in the event of a dispute, the offshore company’s contractual claims with respect to the Chinese company
may be deemed unenforceable in China, thus limiting (or eliminating) the remedies and rights available to the offshore
company and its investors. Such legal uncertainty may also be exploited against the interests of the offshore company
and its investors. Further, the interests of the equity owners of the Chinese company may conflict with the interests
of the investors of the offshore company, and the fiduciary duties of the officers and directors of the Chinese company
may differ from, or conflict with, the fiduciary duties of the officers and directors of the offshore company. The VIE
structure generally restricts the Fund’s ability to influence the Chinese company through proxy voting and other means
and may restrict the ability of an issuer to pay dividends to shareholders from the Chinese company’s earnings. VIE
structures also could face delisting or other ramifications for failure to meet the requirements of the SEC, the Public Company
Accounting Oversight Board (PCAOB) or other United States regulators. If these risks materialize, the value of investments
in VIEs could be adversely affected and a fund could incur significant losses with no recourse available
QFII
Regulations. The QFII Quota for investment
in China Securities is measured by aAL’s
investments across all accounts that it manages
that are invested in China Securities using the QFII Quota. Net realized profits for any financial year
may not currently be repatriated until the completion of an audit by a registered accountant in China and payment of
all applicable taxes. SAFE retains its power to exercise macro prudential supervision over the repatriation of capital by QFIIs,
based on China’s financial situation, foreign exchange market supply and demand and international balance of payment
position. The application and interpretation of the QFII regulations are subject to uncertainty as to how they will be
applied and the regulations can be changed at any time.
RQFII
Regulations. Where the Fund is invested
through aAL’s
RQFII Quota, repatriation is subject to the RQFII regulations
in effect from time to time (“RQFII Regulations”). Currently, there is no regulatory prior approval requirement for
repatriation of funds from aAL’s
RQFII Quota. Net realized profits for any financial year may not currently be repatriated
until the completion of an audit by a registered accountant in China and payment of all applicable taxes. However,
there is no certainty that regulatory restrictions will not be imposed on the repatriation of funds in the future. The
RQFII license and the RQFII Regulations may be changed by the CSRC with little or no notice. The application and interpretation
of the RQFII Regulations by the CSRC and SAFE are subject to uncertainty.
RQFII
Regulations apply to aAL’s
RQFII Quota as a whole. Thus, violations of the RQFII Regulations related to any additional
RQFII quota obtained by aAL
that is not allocated to the Fund could result in the revocation of or other regulatory
action in respect of the RQFII quota held by aAL
as a whole. Likewise, the ability of the Fund to make investments
and/or repatriate monies from aAL’s
RQFII quota may be affected adversely by the activities of other investors
utilizing any additional RQFII quota obtained by aAL.
RQFII
Systems Risk. The prevailing rules and
regulations governing RQFIIs under the RQFII Regulations impose restrictions
on investments and other operational aspects of investments which will restrict or affect the Fund’s investments.
RQFII Eligible Securities are generally subject to the following restrictions:
i.
each RQFII’s investment in one listed company should not exceed 10% of the total outstanding shares of that company;
and
ii.
the total shares held by all RQFIIs in the RQFII Eligible Securities of one listed company should not exceed 30 per cent
of the total outstanding shares of that company.
However,
strategic investments in listed companies listed on the Chinese Stock Exchanges in accordance with the “Measures
for the Administration of Strategic Investment of Foreign Investors in Listed Companies” are not subject to the above
limits. Such rules and restrictions imposed by the Chinese government on RQFIIs may have an adverse effect on the
Fund’s liquidity and performance. aAL
may select up to three PRC brokers (each a “PRC Broker”) to act on its behalf in each
of the Shanghai Stock Exchange and Shenzhen Stock Exchange. In the event of any default of either the relevant PRC
Broker or the custodian appointed in respect of the Fund (the “PRC Custodian”) (directly or through its delegate) in the
execution or settlement of any transaction or in the transfer of any funds or securities in the PRC, the Fund may encounter
delays in recovering its assets, which may in turn adversely impact the net asset value of the Fund.
Stock
Connect. In recent years, non-Chinese
investors have been permitted to make investments usually only available
to foreign investors through a quota license or by purchasing from specified brokers in locations that have stock connect
programs. China Stock Exchange-listed securities are available via brokers in Hong Kong through the Shanghai-Hong
Kong Stock Connect program, through the Shenzhen-Hong Kong Stock Connect Program, and may be available
in the future through additional stock connect programs as they are developed in different locations (collectively,
“Stock Connect Programs”). The Shenzhen and Shanghai Stock Connect Programs are securities trading and
clearing programs developed between the Stock Exchange of Hong Kong, the China Securities Depository and Clearing
Corporation Limited and either the Shanghai Stock Exchange or the Shenzhen Stock Exchange. They facilitate foreign
investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong. Investors through Stock Connect Programs
are subject to PRC regulations and Shanghai or Shenzhen Stock Exchange listing rules, among others. These
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 15
could
include limitations on trading or suspension of trading. The regulations governing Stock Connect Programs are relatively
new, untested and subject to changes which could adversely impact the Fund’s rights with respect to the securities.
As Stock Connect Programs are relatively new there are no assurances that the necessary systems to run the programs
will function properly.
Stock
Connect Programs are subject to aggregate and daily quota limitations on purchases and the Fund may experience
delays in transacting via Stock Connect Programs. Once the daily quota is reached, the remaining orders for that
day are rejected, however, the Fund would still be permitted to sell A-shares regardless of the daily quota. A-shares obtained
on Stock Connect Programs may only be sold, purchased or otherwise transferred through Stock Connect Programs.
Stock Connect Programs only operate when both PRC and Hong Kong markets are open for trading and when
banking services are available in both markets for the corresponding settlement dates. If one or both of the Chinese
and Hong Kong markets are closed on a U.S. trading day, the Fund may not be able to acquire or dispose of A-shares
through Stock Connect in a timely manner, which could adversely affect the Fund’s performance. Additionally, investments
through Stock Connect Programs are subject to various risks, including liquidity risk, currency risk, legal and regulatory
uncertainty risk, execution risk, operational risk, tax risk and credit risk.
Hong
Kong.
Investment in Hong Kong issuers may subject the Fund to legal, regulatory, and political risks, specific to Hong
Kong. Hong Kong is closely tied to China, economically and politically, following the UK’s 1997 handover of the former
colony to China to be governed as a Special Administrative Region. Changes to Hong Kong’s legal, financial, and monetary
system could negatively impact its economic prospects. Hong Kong’s evolving relationship with the central government
in Beijing has been a source of political unrest and may result in economic disruption. By treaty, China has committed
to preserve Hong Kong’s high degree of autonomy in certain matters until 2047. However, as demonstrated by
Hong Kong protests in recent years over political, economic, and legal freedoms, and the Chinese government’s response
to them, there continues to exist political uncertainty within Hong Kong. For example, in June 2020 China adopted
a new security law that severely limits freedom of speech in Hong Kong and expands police powers to seize electronic
devices and intercept communications of suspects. Widespread protests were held in Hong Kong in response to
the new law, and the United States imposed sanctions on certain Hong Kong officials for cracking down on pro-democracy
protests. There is no guarantee that additional protests will not arise in the future or whether the United States
will respond to such protests with additional sanctions. Further, any changes in the Chinese economy, trade regulations,
or control over Hong Kong may have an adverse impact on Hong Kong’s economy and thereby impact a fund.
India.
Political, economic, social and other factors in India may adversely affect the Fund’s performance. An emerging
market such as India has undergone and may continue to undergo rapid change and lack the social, political and
economic stability of more developed countries. The value of the Fund’s assets may be adversely affected by political,
economic, social and religious factors, changes in Indian law or regulations and the status of India’s relations with other
countries. In addition, the economy of India may differ favorably or unfavorably from the U.S. economy in such respects
as the rate of growth of gross domestic product, the rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position. Agriculture occupies a more prominent position in the Indian economy
than in the United States, and the Indian economy therefore is more susceptible to adverse changes in weather.
Moreover, the Indian economy remains vulnerable to natural disasters, such as droughts and monsoons. The Indian
government has exercised and continues to exercise significant influence over many aspects of the economy, and the
number of public sector enterprises in India is substantial. Accordingly, Indian government actions in the future could have
a significant effect on the Indian economy, which could affect private sector companies and the Fund, market conditions,
and prices and yields of securities in the Fund’s portfolio.
Further,
the economies of developing countries such as India generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries
with which they trade. The Indian economy also has been and may continue to be adversely affected by economic
conditions in the countries with which it trades.
There
is also the possibility of nationalization, expropriation or confiscatory taxation, political changes, government regulation,
social instability or diplomatic developments (including war or terrorist attacks). All of these factors could adversely
affect the economy of India, make the prices of Indian securities generally more volatile than the prices of securities
of companies in developed markets and increase the risk of loss to the Fund.
The
securities market in India is substantially smaller, less liquid and significantly more volatile than the securities market
in the United States. The relatively small market capitalizations of, and trading values on, Indian stock exchanges may
cause the Fund’s investments in securities listed on these exchanges to be comparatively less liquid and subject to greater
price volatility than comparable U.S. investments. In addition, Indian securities markets are less developed than U.S.
securities markets. Disclosure and regulatory standards are in many respects less stringent than U.S. standards. Issuers
in India are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly,
from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements
of an Indian issuer may not reflect its financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally accepted accounting principles.
There is substantially less publicly available information about Indian issuers than there is about U.S. issuers.
16 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
A
high proportion of the shares of many Indian issuers are held by a limited number of persons, which may limit the number
of shares available for investment by the Fund. In addition, further issuances, or the perception that such issuances
may occur, of securities by Indian issuers in which the Fund has invested could dilute the earnings per share of the
Fund’s investment and could adversely affect the market price of such securities. Sales of securities by such issuer’s major
stockholders, or the perception that such sales may occur, may also significantly and adversely affect the market price
of such securities and, in turn, the Fund’s investment. A limited number of issuers represent a disproportionately large
percentage of market capitalization and trading value. The limited liquidity of the Indian securities markets may also
affect the Fund’s ability to acquire or dispose of securities at the price and time that it desires.
Furthermore,
restrictions or controls applicable to foreign investment in the securities of issuers in India may also adversely
affect the Fund’s investments within the country. The availability of financial instruments with exposure to Indian
financial markets may be substantially limited by restrictions on foreign investors and subject to regulatory authorizations.
Foreign investors are required to observe certain investment restrictions, including limits on shareholdings, which
may impede a fund’s ability to invest in certain issuers or to fully pursue its investment objective. These restrictions may
also have the effect of reducing demand for, or limiting the liquidity of, such investments. There can be no assurance that
the Indian government will not impose restrictions on foreign capital remittances abroad or otherwise modify the exchange
control regime applicable to foreign investors in such a way that may adversely affect the ability of the Fund to repatriate
their income and capital.
Indian
stock exchanges have in the past experienced substantial fluctuations in the prices of their listed securities. They
have also experienced problems such as temporary exchange closures, broker defaults, settlement delays and broker
strikes that, if they occur again in the future, could affect the market price and liquidity of the Indian securities in which
the Fund invests. In addition, the governing bodies of the various Indian stock exchanges have from time to time imposed
restrictions on trading in certain securities, limitations on price movements and margin requirements. Disputes have
also occurred from time to time among listed companies, the stock exchanges and other regulatory bodies, and in some
cases those disputes have had a negative effect on overall market sentiment. The foregoing factors could impede the
ability of the Fund to effect portfolio transactions on a timely basis and could have an adverse effect on the net asset value
of the Fund’s shares of common stock and the price at which those shares trade.
There
is less regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants
than in the United States. Moreover, issuers of securities in India are not subject to the same degree of regulation
as are U.S. issuers with respect to such matters as insider trading rules, tender offer regulation, stockholder proxy
requirements and the timely disclosure of information. Legal principles relating to corporate affairs and the validity of
corporate procedures, directors’ fiduciary duties and liabilities and stockholders’ rights may differ from those that may
apply in other jurisdictions. Stockholders’
rights under Indian law may not be as extensive as those that exist under the laws
of the United States. The Fund may therefore have more difficulty asserting its rights as a stockholder of an Indian company
in which it invests than it would as a stockholder of a comparable American company. The Fund may also have difficulty
enforcing foreign judgments against Indian companies or their management.
Latin
America. The economies in
Latin America are considered emerging market economies. As a result, investing in Latin
America imposes risks greater than, or in addition to, the risks of investing in more developed foreign markets. Most economies
in Latin America have historically been characterized by high levels of inflation, including, in some cases, hyperinflation
and currency devaluations. In the past, these conditions have led to high interest rates, extreme measures by
governments to limit inflation, and limited economic growth. Although inflation in many countries has lessened, the economies
of the Latin American region continue to be volatile and characterized by high interest rates and unemployment.
In addition, the economies of many Latin American countries are sensitive to fluctuations in commodities prices
because exports of agricultural products, minerals and metals represent a significant percentage of Latin American
exports.
The
economies of many Latin American countries are heavily dependent on international trade and can be adversely
affected by trade barriers, exchange controls and other measures imposed or negotiated by the countries with
which they trade. Since the early 1990s most governments in the Latin American region have transitioned from protectionist
policies to policies that promote regional and global exposure. Many countries in the Latin American region have
reduced trade barriers and are parties to trade agreements, although there is no guarantee that this trend will continue.
Many countries in the Latin American region are dependent on the United States economy, and any declines in the
United States economy are likely to affect the economies throughout the Latin American region. Mexico is particularly vulnerable
to fluctuations in the United States economy because the majority of its exports are directed to the United States.
In addition, China is a major buyer of Latin America’s commodities and a key investor in South America, and therefore,
conditions in China may significantly impact the economy of the Latin American region.
Many
Latin American countries are dependent on foreign loans from developed countries and several Latin American
countries are among the largest debtors among emerging market economies. To the extent that there are rising
interest rates, some countries may be forced to restructure loans or risk default on their obligations, which may adversely
affect securities markets. Some central banks have recently eased their monetary policies in response to liquidity
shortages, but Latin American countries continue to face significant economic difficulties as a result of their high level
of indebtedness and dependence on foreign credit.
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 17
The
economies of certain Latin American countries have experienced high interest and inflation rates, economic volatility,
currency devaluations, government defaults and high unemployment rates. In addition, commodities (such as oil,
gas and minerals) represent a significant percentage of the region’s exports, and many economies in this region are particularly
sensitive to fluctuations in commodity prices. The economies of Latin American countries are heavily dependent
on trading relationships with key trading partners, including the U.S., Europe, Asia and other Latin American countries.
Adverse economic events in one country may have a significant adverse effect on other countries of this region.
In addition, in the past, certain Latin American economies have been influenced by changing supply and demand for
a particular currency, monetary policies of governments (including exchange control programs, restrictions on local exchanges
or markets and limitations on foreign investment in a country or on investment by residents of a country in other
countries), and currency devaluations and revaluations. For example, the government of Brazil imposes a tax on foreign
investment in Brazilian stocks and bonds, which may affect the value of the Fund’s investments in the securities of Brazilian
issuers.
Structural
Risk. Certain Latin American countries
are subject to a considerable degree of economic, political and social
instability, which could adversely affect investments in the Fund.
Economic
Risk. Certain Latin American countries
have experienced economic instability resulting from periods of high
inflation and currency devaluations.
Political
and Social Risk. Certain Latin American
countries have experienced periods of instability and social unrest in the
past. For example, Mexico has been destabilized by local insurrections, social upheavals and drug related violence.
Disparities of wealth, the pace and success
of democratization and capital market development and ethnic, religious
and racial disaffection may exacerbate social
unrest, violence and labor unrest in a number of Latin American countries.
Certain Latin American countries experience
significant unemployment in certain regions, as well as widespread
underemployment.
Event
Risk. Event risk is the
risk that a corporate event such as a restructuring, merger, leveraged buyout, takeover, or similar
action may cause a decline in market value or credit quality of the issuer’s stocks or bonds due to factors including an
unfavorable market response or a resulting increase in the issuer’s debt. Added debt may significantly reduce the credit
quality and market value of an issuer’s bonds.
Exchange-Traded
Funds (“ETFs”).
ETFs are ownership interests in investment companies, unit investment trusts, depositary
receipts and other pooled investment vehicles that are traded on an exchange and that hold a portfolio of securities
or other financial instruments (the “Underlying Assets”). The Underlying Assets are typically selected to correspond
to the securities that comprise a particular broad based sector or international index, or to provide exposure to
a particular industry sector or asset class, including precious metals or other commodities. “Short ETFs” seek a return
similar to the inverse, or a multiple of the
inverse, of a reference index. Short ETFs carry additional risks because their Underlying
Assets may include a variety of financial instruments, including futures and options on futures, options on securities
and securities indexes, swap agreements and forward contracts, and a short ETF may engage in short sales. An
ETF’s losses on short sales are potentially unlimited; however, the Fund’s risk would be limited to the amount it invested
in the ETF. Certain ETFs are actively managed
by a portfolio manager or management team that makes investment decisions
on Underlying Assets without seeking to replicate the performance of a reference index or industry sector or asset
class.
Unlike
shares of typical open-end management investment companies or unit investment trusts, shares of ETFs are designed
to be traded throughout the trading day and bought and sold based on market price rather than net asset value.
Shares can trade at either a premium or discount to net asset value. The portfolios held by ETFs are typically publicly
disclosed on each trading day and an approximation of actual net asset value is disseminated throughout the trading
day. Because of this transparency, the trading prices of ETFs tend to closely track the actual net asset value of the Underlying
Assets and the ETF will generally gain or lose value depending on the performance of the Underlying Assets. In the
future, as new products become available, the Fund may invest in ETFs that do not have this same level of transparency
and, therefore, may be more likely to trade at a larger discount or premium to actual net asset values.
Gains
or losses on the Fund’s investment in ETFs will ultimately depend on the purchase and sale price of the ETF. An active
trading market for an ETF’s shares may not develop or be maintained and trading of an ETF’s shares may be halted
if the listing exchange’s officials deem such action appropriate, the shares are delisted from the exchange or the activation
of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
The performance of an ETF will be reduced by transaction and other expenses, including fees paid by the ETF to
service providers. Investors in ETFs are eligible to receive their portion of income, if any, accumulated on the securities held
in the portfolio, less fees and expenses of the ETF.
An
investment in an ETF involves risks similar to investing directly in the Underlying Assets, including the risk that the value
of the Underlying Assets may fluctuate in accordance with changes in the financial condition of their issuers, the value
of securities and other financial instruments generally, and other market factors.
18 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
If
an ETF is a registered investment company (as defined in the 1940 Act), the limitations applicable to the Fund’s ability
to purchase securities issued by other investment companies apply absent exemptive relief. Rule 12d1-4 under the 1940
Act exempts certain ETFs that permit investments in those ETFs by other investment companies (such as the Fund) in
excess of these limits, subject to certain conditions. Some ETFs are not structured as investment companies and thus are
not regulated under the 1940 Act.
Focus
Risk. To the extent that
the Fund invests a greater proportion of its assets in the securities of a smaller number of
issuers, the Fund may be subject to greater volatility with respect to its investments than the fund that invests in a larger number
of securities.
Foreign
Commercial Paper. Commercial
paper is indexed to certain specific foreign currency exchange rates. The terms
of such commercial paper provide that its principal amount is adjusted upwards or downwards (but not below zero)
at maturity to reflect changes in the exchange rate between two currencies while the obligation is outstanding. The Fund
will purchase such commercial paper with the currency in which it is denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount or principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial paper entails the risk of loss of principal,
the potential for realizing gains as a result of changes in foreign currency exchange rate enables the Fund to hedge
or cross-hedge against a decline in the U.S. Dollar value of investments denominated in foreign currencies while providing
an attractive money market rate of return. The Fund will purchase such commercial paper for hedging purposes
only, not for speculation. The Fund believes that such investments do not involve the creation of a senior security,
but, in accordance with current federal securities laws, rules and staff positions, nevertheless will establish a segregated
account with respect to its investments in this type of commercial paper and maintain in such account cash not
available for investment or other liquid assets having a value equal to the aggregate principal amount of outstanding commercial
paper of this type.
Foreign
Currencies Risk. Because
investments in foreign securities usually will involve currencies of foreign countries, and
because the Fund may hold foreign currencies and forward contracts, futures contracts and options on foreign currencies
and foreign currency futures contracts, the value of the assets of the Fund as measured in U.S. Dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the
Fund may incur costs and experience conversion difficulties and uncertainties in connection with conversions between
various currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security.
The
strength or weakness of the U.S. Dollar against these currencies is responsible for part of the Fund’s investment performance.
If the U.S. Dollar falls in value relative to the Japanese yen, for example, the U.S. Dollar value of a Japanese stock
held by the Fund will rise even though the price of the stock remains unchanged. Conversely, if the U.S. Dollar rises in value
relative to the Japanese yen, the U.S. Dollar value of the Japanese stock will fall. Many foreign currencies have experienced
significant devaluation relative to the U.S. Dollar.
Although
the Fund values its assets daily in terms of U.S. Dollars, it does not intend to convert its holdings of foreign currencies
into U.S. Dollars on a daily basis. It will do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers typically do not charge a fee for conversion, they do realize a profit
based on the difference (the “spread”) between the prices at which they are buying and selling various currencies. Thus,
a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions (“FX
transactions”) either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through
entering into options or forward or futures contracts to purchase or sell foreign currencies.
In
general, the FX transactions executed for the Fund are divided into two main categories: (1) FX transactions in restricted
markets (“Restricted Market FX”) and (2) FX transactions in unrestricted markets (“Unrestricted Market FX”).
Restricted Market FX are required to be executed
by a local bank in the applicable market. Unrestricted Market FX are not required
to be executed by a local bank. The Adviser or a third party agent executes Unrestricted Market FX relating to trading
decisions. The Fund’s custodian executes all Restricted Market FX because it has local banks or relationships with local
banks in each of the restricted markets where custodial client accounts hold securities. Unrestricted Market FX relating
to the repatriation of dividends and/or income/expense items not directly relating to trading may be executed by
the Adviser or by the Fund’’ custodian due to the small currency amount and lower volume of such transactions. The Fund
and the Adviser have limited ability to negotiate prices at which certain FX transactions are customarily executed by
the Fund’s custodian, i.e., transactions in Restricted Market FX and repatriation transactions.
Foreign
Government Securities. Investment
in debt issued by foreign governments can involve a high degree of risk. Debt
securities issued by a foreign government are often supported by the full faith and credit of that foreign government.
These foreign governments may permit their subdivisions, agencies or instrumentalities to have the full faith and
credit of the foreign governments. The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental
entity’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 19
on
the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity’s
policy toward the International Monetary Fund (“IMF”), and the political constraints to which a governmental entity may
be subject. Periods of economic uncertainty may result in the illiquidity and increased price volatility of a foreign government’s
debt securities. A foreign government’s default on its debt securities may cause the value of securities held by
the Fund to decline significantly. The Fund may have limited recourse to compel payment in the event of a default.
Governmental
entities may also be dependent on expected disbursements from foreign governments, multilateral agencies
and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned on a governmental entity’s implementation
of economic reforms and/or economic performance and the timely service of such debtor’s obligations. Failure
to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties’ commitments to lend funds to the governmental entity, which may further
impair such debtor’s ability or willingness to service its debts in a timely manner. Consequently, governmental entities
may default on their sovereign debt. Holders of sovereign debt may be requested to participate in the rescheduling
of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in whole or in part.
To
the extent that the Fund invests in obligations issued by emerging market governments, the risks associated with such
sovereign debt investments are greater than those issued by developed countries. Sovereign obligors in emerging market
countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations
and other financial institutions. These obligors have in the past experienced substantial difficulties in servicing
their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements, and obtaining new credit for finance interest payments.
Holders of certain foreign sovereign debt securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no assurance that the foreign sovereign debt securities
in which the Fund may invest will not be subject to similar restructuring arrangements or to requests for new credit
which may adversely affect the Fund’s holdings.
Foreign
Securities. Investing in
foreign securities (including through the use of depositary receipts) involves certain special
considerations which typically are not associated with investing in U.S. securities. Since investments in foreign companies
will frequently be denominated in the currencies of foreign countries (these securities are translated into U.S. Dollars
on a daily basis in order to value the Fund’s shares), and since the Fund may hold securities and funds in foreign currencies,
the Fund may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations,
if any, and may incur costs in connection with conversions between various currencies. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers may not be subject to accounting,
auditing and financial reporting standards and practices comparable to those in the U.S. Most foreign stock markets,
while growing in volume of trading activity, have less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of comparable domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than in the United States and, at times, volatility of price
can be greater than in the United States. Additionally, a foreign jurisdiction may halt trading of securities for an extended
period of time, which poses liquidity, valuation and other risks. Additionally, a foreign jurisdiction may halt trading
of securities for an extended period of time, which poses liquidity, valuation and other risks. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S. exchanges, although each Fund endeavors
to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision
and regulation of securities exchanges, brokers and listed companies in foreign countries than in the United States.
Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery
of securities or in the recovery of the Fund’s assets held abroad) and expenses not present in the settlement of investments
in U.S. markets. Payment for securities without delivery may be required in certain foreign markets.
In
addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the value of the Fund’s investments in certain foreign countries.
Governments of many countries have exercised and continue to exercise substantial influence over many aspects
of the private sector through the ownership or control of many companies, including some of the largest in these countries.
As a result, government actions in the future could have a significant effect on economic conditions which may adversely
affect prices of certain portfolio securities. Foreign securities may be subject to foreign government taxes, higher
custodian fees, higher brokerage costs and dividend collection fees which could reduce the yield on such securities.
Foreign
economies may differ favorably or unfavorably from the U.S. economy in various respects, including growth of
gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments positions. Many foreign securities are less liquid and their prices more volatile than comparable U.S. securities.
From time to time, foreign securities may be difficult to liquidate rapidly without adverse price effects.
20 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
Legal
remedies available to investors in certain foreign countries may be more limited than those available with respect
to investments in the U.S. or in other foreign countries. The laws of some foreign countries may limit the Fund’s ability
to invest in securities of certain issuers organized under the laws of those foreign countries.
Of
particular importance, many foreign countries are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by protectionist trade policies, trade barriers,
managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the
U.S. and other countries with which they trade. These economies also have been and may continue to be negatively impacted
by economic conditions in the U.S. and other trading partners, which can lower the demand for goods produced
in those countries.
All
the risks above can be heightened under adverse economic, market, geopolitical and other conditions.
Frontier
Market Securities. The risks
associated with investments in frontier market countries include all the risks described
above for investments in “Foreign Securities” and “Emerging Markets Securities,” although the risks are magnified
for frontier market countries. Because frontier markets are among the smallest, least mature and least liquid of
the emerging markets, investments in frontier markets generally are subject to a greater risk of loss than are investments
in developed markets or traditional emerging markets. Frontier market countries have smaller economies, less
developed capital markets, greater market volatility, lower trading volume, more political and economic instability, greater
risk of a market shutdown and more governmental limitations on foreign investments than are typically found in more
developed markets.
Illiquid
Investments Risk. Pursuant
to Rule 22e-4 under the 1940 Act
(the “Liquidity Rule”), the
Fund may not invest more than 15% of its
net assets in illiquid investments. An illiquid investment is any investment that the Fund reasonably expects
cannot be sold or disposed of in the current market conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. Illiquid investments include repurchase agreements which
have a maturity of longer than seven days, time deposits maturing in more than seven days, and securities with a contractual
restriction on resale (“restricted securities”) or other factors limiting the marketability of the security. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice period. If a change in NAV
or other external events cause the Fund’s investments in illiquid investments to exceed the limit set forth above for the
Fund’s investment in illiquid investments, the Fund will act to cause the aggregate amount of such investments to come
within such limit as soon as reasonably practicable. In such event, however, the Fund would not be required to liquidate
any portfolio securities where the Fund would suffer a loss on the sale of such investments.
The
Fund may purchase investments that are not subject to legal or contractual restrictions on resale, but that are deemed
illiquid. Such investments may be illiquid, for example, because there is a limited trading market for them. The Fund
may be unable to sell a restricted or illiquid investment. In addition, it may be more difficult to determine a market value
for restricted or illiquid investments. Moreover, if adverse market conditions were to develop during the period between
the Fund’s decision to sell a restricted or illiquid investment and the point at which the Fund is permitted or able to
sell such investment, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This
investment practice, therefore, could have the effect of decreasing the level of liquidity of such Fund.
The
Adviser employs procedures and tests using third-party and internal data inputs that seek to assess and manage
the liquidity of the Fund’s portfolio holdings. These procedures and tests take into account the Fund’s investment strategy
and liquidity of portfolio investments during both normal and foreseeable stressed conditions, cash-flow projections
during both normal and reasonable foreseeable stressed conditions, relevant market, trading and other factors,
and monitor whether liquidity should be adjusted based on changed market conditions. These procedures and tests
are designed to assist the Fund in determining its ability to meet redemption requests in various market conditions. In
light of the dynamic nature of markets, there can be no assurance that these procedures and tests will enable the Fund
to ensure that it has sufficient liquidity to meet redemption requests.
The Liquidity Rule requires
the Fund to establish a liquidity risk management program. As required by the
Liquidity Rule, the Fund has implemented a liquidity risk management program, including classifying each investment as
a “highly liquid investment,” “moderately liquid investment,” “less liquid investment” or “illiquid
investment” (the “Liquidity Program”),
and the Board of Trustees, including a majority of the independent trustees, appointed the Adviser as the Liquidity
Risk Program administrator. If the limitation on illiquid investments is exceeded, other than by a change in market values,
the condition will be reported to the Board and, when required by the Liquidity Rule, to the SEC.
Impact
of Large Redemptions and Purchases of Fund Shares.
From time to time, shareholders of the Fund (which may include
affiliated and/or non-affiliated registered investment companies that invest in the Fund) may make relatively large
redemptions or purchases of Fund shares. These transactions may cause the Fund to have to sell securities or invest
additional cash, as the case may be. While it is impossible to predict the overall impact of these transactions over time,
there could be adverse effects on the Fund’s performance to the extent that the Fund may be required to sell securities
or invest cash at times, or in odd-lot amounts, when it would not otherwise do so. These transactions could also accelerate
the realization of taxable income if sales of securities resulted in capital gains or other income and could also increase
transaction costs, which may impact the Fund’s expense ratio. In addition, large redemption requests may exceed
the cash balance of the Fund and result in credit line borrowing fees or overdraft charges to the Fund until the sales
of portfolio securities necessary to cover the redemption request settle, which is typically a few days.
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 21
Indexed
Securities. Indexed securities
differ from other types of debt securities in which the Fund may invest in several
respects. First, the interest rate or, unlike other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference instruments (defined below), such as an
interest rate compared with a fixed interest rate or the currency exchange rates between two currencies (neither of which
need be the currency in which the instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S. Dollar denominated indexed security may vary
based on the exchange rate of two foreign currencies. The value of indexed securities is linked to currencies, interest rates,
commodities, indices or other financial indicators (“reference instruments”). An indexed security may be positively or
negatively indexed; that is, its value may increase or decrease if the value of the reference instrument increases. Further,
the change in the principal amount payable or the interest rate of an indexed security may be a multiple of the percentage
change (positive or negative) in the value of the underlying reference instrument(s).
Investment
in indexed securities involves certain risks. In addition to the credit risk of the security’s issuer and the normal
risks of price changes in response to changes in interest rates, the principal amount of indexed securities may decrease
as a result of changes in the value of reference instruments. Further, in the case of certain indexed securities in which
the interest rate is linked to a reference instrument, the interest rate may be reduced to zero, and any further declines
in the value of the security may then reduce the principal amount payable on maturity. Finally, indexed securities
may be more volatile than the reference instruments underlying the indexed securities.
Inflation/Deflation
Risk.
The Fund’s investments may be subject to inflation risk, which is the risk that the real value (i.e., nominal
price of the asset adjusted for inflation) of assets or income from investments will be less in the future because inflation
decreases the purchasing power and value of money (i.e., as inflation increases, the real value of the Fund’s assets
can decline). Inflation rates may change frequently and significantly as a result of various factors, including unexpected
shifts in the domestic or global economy and changes in monetary or economic policies (or expectations that
these policies may change). The Fund’s investments may not keep pace with inflation, which would adversely affect the
real value of Fund shareholders’ investment in the Fund. This risk is greater for fixed-income instruments with longer maturities.
Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effort
on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value
of the Fund’s assets.
Initial
Public Offerings (“IPOs”).
An IPO is a type of public offering where shares of stock in a company are sold to the general
public, on a securities exchange, for the first time. Through this process, a private company transforms into a public
company. IPOs are used by companies to raise expansion capital, to possibly monetize the investments of early private
investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital
to its public investors. The availability of IPOs may be limited and the Fund may not be able to buy any shares at the
offering price, or may not be able to buy as many shares at the offering price as it would like. Further, IPO prices often are
subject to greater and more unpredictable price changes than more established stocks.
Interests
in Publicly Traded Limited Partnerships.
Publicly traded limited partnerships represent equity interests in the assets
and earnings of the partnership’s trade or business. Unlike common stock in a corporation, limited partnership interests
or units have limited or no voting rights. However, many of the risks of investing in common stocks are still applicable
to investments in limited partnership interests. In addition, limited partnership interests are subject to risks not present
in common stock. For example, non-investment income generated from limited partnerships deemed not to be “publicly
traded” will not be considered “qualifying income” under the Internal Revenue Code and may trigger adverse tax consequences.
Also, since publicly traded limited partnerships are a less common form of organizational structure than corporations,
the limited partnership units may be less liquid than publicly traded common stock. Also, because of the difference
in organizational structure, the fair value of limited partnership units in the Fund’s portfolio may be based either upon
the current market price of such units, or if there is no current market price, upon the pro rata value of the underlying
assets of the partnership. Limited partnership units also have the risk that the limited partnership might, under certain
circumstances, be treated as a general partnership, giving rise to broader liability exposure to the limited partners for
activities of the partnership. Further, the general partners of a limited partnership may be able to significantly change the
business or asset structure of a limited partnership without the limited partners having any ability to disapprove any such
changes. In certain limited partnerships, limited partners may also be required to return distributions previously made
in the event that excess distributions have been made by the partnership, or in the event that the general partners, or
their affiliates, are entitled to indemnification.
Market
Events Risk. The market
values of securities or other assets will fluctuate, sometimes sharply and unpredictably,
due to changes in general market conditions, overall economic trends or events, governmental actions or intervention,
actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes
or other factors, political developments, investor sentiment and other factors that may or may not be related to the
issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected.
Economic, financial, public health, labor and other global market developments and disruptions, including
those arising out of political and geopolitical events, public health emergencies (such as the spread of infectious
diseases, pandemics and epidemics), natural/environmental or
man-made disasters, war, terrorism, social
unrest, recessions, inflation, rapid interest
rate changes, supply chain disruptions, governmental or quasi-governmental actions
(including sanctions and other similar measures) and other circumstances in one country or region could have
22 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
profound
impacts on global economies or markets. As a result, whether or not the fund invests in securities of issuers located
in or with significant exposure to the countries directly affected, the value and liquidity of the fund’s investments may
be negatively affected. In addition, any spread of an infectious illness, public health threat or similar issue could reduce
consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have
a significant impact on the world economy, which in turn could adversely affect the Fund’s investments.
U.S.
and global markets have experienced increased volatility, including as a result of the recent failures of certain U.S.
and non-U.S. banks, which could be harmful to the Fund and issuers in which it invests. Even if banks used by issuers in which
the Fund invests remain solvent, continued volatility in the banking sector could cause or intensify an economic recession,
increase the costs of capital and banking services or result in the issuers being unable to obtain or refinance indebtedness
at all or on as favorable terms as could otherwise have been obtained. Conditions in the banking sector are evolving,
and the scope of any potential impacts to the Fund and issuers, both from market conditions and also potential legislative
or regulatory responses, are uncertain. Such conditions and responses, as well as a changing interest rate environment,
can contribute to decreased market liquidity and decrease the value of certain holdings. Continued market volatility
and uncertainty and/or a downturn in market and economic and financial conditions, as a result of developments
in the banking industry or otherwise, could have an adverse impact on the Fund and issuers in which it invests.
Europe
– Recent Events.
A number of countries in Europe have experienced severe economic and financial difficulties.
Many non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure,
their debts; many other issuers have faced difficulties obtaining credit or refinancing existing obligations; financial
institutions have in many cases required government or central bank support, have needed to raise capital, and/or
have been impaired in their ability to extend credit; and financial markets in Europe and elsewhere have experienced extreme
volatility and declines in asset values and liquidity. These difficulties may continue, worsen or spread within and outside
Europe. Responses to the financial problems by European governments, central banks and others, including austerity
measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery
or have other unintended consequences. Further defaults or restructurings by governments and others of their debt
could have additional adverse effects on economies, financial markets and asset valuations around the world.
For
example, the uncertainties and potentially adverse
events related to the
United Kingdon’s exit from the European Union
(“Brexit”) could increase taxes
and costs of business and cause volatility in currency exchange rates and interest rates.
Brexit could adversely affect the performance of contracts in existence at the date of Brexit and European, UK or worldwide
political, regulatory, economic or market conditions and could contribute to instability in political institutions, regulatory
agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws
and regulations as a new relationship between the UK and EU is defined and the UK determines which EU laws to replace
or replicate. Any of these effects of Brexit, and others that cannot be anticipated, could adversely affect the price of
the Shares. The impact of Brexit on the Trust, the Trust’s service providers, and markets generally may not be fully known
for some time.
Economies
and financial markets throughout the world are becoming increasingly interconnected. As a result, whether
or not the
Fund invests in securities of issuers located
in or with significant exposure to countries experiencing economic
and financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected by such events.
In addition, any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact
on the world economy, which in turn could adversely affect the Fund’s investments.
Medium
Company, Small Company and Emerging Growth Securities.
Investing in securities of medium-sized companies,
small-sized, including micro-capitalization companies and emerging growth companies, may involve greater
risks than investing in the securities of larger, more established companies, including possible risk of loss. Also, because
these securities may have limited marketability, their prices may be more volatile than securities of larger, more established
companies or the market averages in general. Because medium-sized, small-sized and emerging growth companies
normally have fewer shares outstanding than larger companies, it may be more difficult for the Fund to buy or
sell significant numbers of such shares without an unfavorable impact on prevailing prices. Medium-sized, small-sized and
emerging growth companies may have limited product lines, markets or financial resources and may lack management
depth. In addition, medium-sized, small-sized and emerging growth companies are typically subject to wider
variations in earnings and business prospects than are larger, more established companies. There is typically less publicly
available information concerning medium sized, small-sized and emerging growth companies than for larger, more
established ones.
Money
Market Instruments and Associated Regulatory Risk.
The Fund may invest up to 20% of its net assets in short-term
investment grade money market obligations at the time of purchase. Money market instruments may include the
following types of instruments:
● |
obligations
issued or guaranteed as to interest and principal by the U.S. Government, its agencies, or instrumentalities, or
any federally chartered corporation, with remaining maturities of 397 days or less; |
● |
obligations
of sovereign foreign governments, their agencies, instrumentalities and political subdivisions, with remaining
maturities of 397 days or less; |
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 23
● |
obligations
of municipalities and states, their agencies and political subdivisions with remaining maturities of 397 days or
less; |
● |
asset-backed
commercial paper whose own rating or the rating of any guarantor is in one of the two highest categories
of any NRSRO; |
● |
bank
or savings and loan obligations; |
● |
certificates
of deposit maturing in one year or less; |
● |
commercial
paper (including asset-backed commercial paper), which are short-term unsecured promissory notes issued
by corporations in order to finance their current operations. It may also be issued by foreign governments, and states
and municipalities. Generally the commercial paper or its guarantor will be rated within the top two rating categories
by a NRSRO, or if not rated, is issued and guaranteed as to payment of principal and interest by companies which
at the date of investment have a high quality outstanding debt issue; |
● |
bank
loan participation agreements representing obligations of corporations having a high quality short-term rating, at
the date of investment, and under which the Fund will look to the creditworthiness of the lender bank, which is obligated
to make payments of principal and interest on the loan, as well as to creditworthiness of the borrower; |
● |
high
quality short-term (maturity in 397 days or less) corporate obligations, rated within the top two rating categories by
a NRSRO or, if not rated, deemed to be of comparable quality by the Adviser; |
● |
extendable
commercial notes, which differ from traditional commercial paper because the issuer can extend the maturity
of the note up to 397 days with the option to call the note any time during the extension period; and |
● |
unrated
short-term (maturing in 397 days or less) debt obligations that are determined by the Adviser to be of comparable
quality to the securities described above. |
The
SEC adopted changes to the rules that govern SEC registered money market funds in July 2023. These changes include,
among other things: (1) substantially increasing the required minimum levels of liquid assets a fund must hold; (2) allowing
a money market fund’s board or its delegate to charge liquidity fees when it determines such fee would be in the best
interests of the fund; (3) removing a fund’s ability to impose a temporary suspension of redemptions (except under extraordinary
circumstances as part of a liquidation); (4) substantially increasing the required minimum levels of liquid assets
a fund must hold; (5) allowing certain money market funds to engage in certain practices in order to maintain a stable
NAV in a negative interest rate environment; and (6) enhancing reporting requirements for all money market funds. These
changes may affect the performance, yield, and operating expenses of the Fund.
Operational
Risk. Your ability to transact
with the Fund or the valuation of your investment may be negatively impacted
because of the operational risks arising from factors such as processing errors and human errors, inadequate or
failed internal or external processes, failures in systems and technology, changes in personnel, and errors caused by third
party service providers or trading counterparties. Although the Fund attempts to minimize such failures through controls
and oversight, it is not possible to identify all of the operational risks that may affect the Fund or to develop processes
and controls that completely eliminate or mitigate the occurrence of such failures. The Fund and its shareholders
could be negatively impacted as a result.
Preferred
Stock. Preferred stocks,
like some debt obligations, are generally fixed income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a fixed rate when and as declared by the issuer’s board of directors,
but do not participate in other amounts available for distribution by the issuing corporation. Dividends on the preferred
stock may be cumulative, and all cumulative dividends usually must be paid prior to common shareholders of common
stock receiving any dividends. Because preferred stock dividends must be paid before common stock dividends,
preferred stocks generally entail less risk than common stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the same as the par or stated value, and are senior in right of payment
to common stock. Preferred stocks are, however, equity securities in the sense that they do not represent a liability
of the issuer and, therefore, do not offer as great a degree of protection of capital or assurance of continued income
as investments in corporate debt securities. Preferred stocks are generally subordinated in right of payment to all debt
obligations and creditors of the issuer, to
the extent proceeds are available after paying any more senior creditors, and
convertible preferred stocks may be subordinated to other preferred stock of the same issuer.
Private
Placements and Other Restricted Securities Risk.
Private placement and other restricted securities include securities
that have been privately placed and are not registered under the Securities Act of 1933 (“Securities
Act”), such as unregistered securities
eligible for resale without registration pursuant to Rule 144A (“Rule 144A Securities”) and privately
placed securities of U.S. and non-U.S. issuers offered outside of the U.S. without registration with the U.S. Securities
and Exchange Commission pursuant to Regulation S (“Regulation S Securities”).
Private
placements may offer attractive opportunities for investment not otherwise available on the open market.
Private
placements securities typically may be sold only to qualified institutional buyers (or, in the case of the initial sale
of certain securities, such as those issued in collateralized debt obligations or collateralized loan obligations, to accredited
investors (as defined in Rule 501(a) under the Securities
Act)), or in a privately negotiated transaction or to a limited
number of purchasers, or in limited quantities after they have been held for a specified period of time and other
24 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
conditions
are met pursuant to an exemption from registration. Rule 144A Securities and Regulation S Securities may be freely
traded among certain qualified institutional investors, such as the Fund, but their resale in the U.S. is permitted only in
limited circumstances.
Issuers
of restricted securities may not be subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration expenses. The Fund may be deemed to
be an “underwriter” for purposes of the Securities Act when selling restricted securities to the public and, in such event,
the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially inaccurate
or misleading. Private placements typically are subject to restrictions on resale as a matter of contract or under
federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under
adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities
only at prices lower than if such securities were more widely held. At times, it also may be more difficult to determine
the fair value of such securities for purposes of computing the Fund’s net asset value due to the absence of a trading
market.
Private
placements and restricted securities may be considered illiquid securities, which could have the effect of increasing
the level of the Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of purchase may subsequently
become illiquid. Restricted securities that are determined to be illiquid may not exceed the Fund’s limit on investments
in illiquid securities.
Disposing
of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Fund to sell them promptly at an acceptable price. The Fund may have to bear the extra expense of registering
the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations
typically are less readily available for these securities.
Real
Estate Investment Trusts.
REITs are pooled investment vehicles which invest primarily in income-producing real estate
or real estate related loans or interests. REITs are sometimes informally characterized as equity REITs, mortgage REITs
and hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from
the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest
payments. Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs.
Investment
in REITs may subject the Fund to risks associated with the direct ownership of real estate, such as decreases
in real estate values, overbuilding, increased competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws, casualty or condemnation losses, possible
environmental liabilities, regulatory limitations on rent and fluctuations in rental income. Equity REITs generally experience
these risks directly through fee or leasehold interests, whereas mortgage REITs generally experience these risks
indirectly through mortgage interests, unless the mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund’s investment in REITs. For instance, changes
in interest rates may hurt real
estate values or the values of underlying mortgage loans, therefore making REIT shares less attractive, more volatile and
less liquid than other income producing investments.
Certain
REITs have relatively small market capitalizations, which may tend to increase the volatility of the market price
of their securities. Furthermore, REITs are dependent upon specialized management skills, have limited diversification
and are, therefore, subject to risks inherent in operating and financing a limited number of projects. Like regulated
investment companies such as the Fund, REITs are not taxed on income distributed to shareholders provided that
they comply with certain requirements under the Internal Revenue Code. Each Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the expenses paid by the Fund. REITs are
dependent upon management skills, are not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects and illiquid markets. REITs are also subject to heavy cash flow dependency, defaults by borrowers
and the possibility of failing to qualify for tax-free pass-through of income under the Code, and to maintain exemption
from the registration requirements of the 1940 Act. By investing in REITs indirectly through the Fund, a shareholder
will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses
of the REITs. In addition, REITs depend generally on their ability to generate cash flow to make distributions to shareholders.
The management of a REIT may be subject to conflicts of interest with respect to the operation of the business
of the REIT and may be involved in real estate activities competitive with the REIT. REITs may own properties through
joint ventures or in other circumstances in which the REIT may not have control over its investments. REITs may incur
significant amounts of leverage.
Real
Estate Securities
Risk.
Although the Fund may not invest directly in real estate, the Fund may invest in equity securities
of issuers that are principally engaged in the real estate industry. The value of the shares of the Fund investing in
such issuers will be affected by factors affecting the value of real estate and the earnings of companies engaged in the real
estate industry. These factors include, among others: (1) changes in general economic and market conditions; (2) changes
in the value of real estate properties; (3) risks related to local economic conditions, overbuilding and increased competition;
(4) increases in property taxes and operating expenses; (5) changes in zoning laws; (6) casualty and
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 25
condemnation
losses; (7) variations in rental income, neighborhood values or the appeal of property to tenants; (8)
changes in interest rates;
and (9) changes in demographic trends and occupancy rates.
Many real estate companies utilize leverage,
which increases investment risk and could adversely affect a company’s operations and market value in periods
of rising interest rates. The value of securities of companies in the real estate industry may go through cycles of relative
under performance and out performance in comparison to equity securities markets in general.
|
There
are also special risks associated with particular sectors of real estate investments: |
|
Retail
properties. Retail properties
are affected by the overall health of the economy and may be adversely affected by,
among other things, the growth of alternative forms of retailing, bankruptcy, departure or cessation of operations
of a tenant, a shift in consumer demand due to demographic changes, changes in spending patterns and
lease terminations. |
|
Office
Properties. Office properties
are affected by the overall health of the economy, and other factors such as a downturn
in the businesses operated by their tenants, obsolescence and non-competitiveness. |
|
Hotel
Properties. The risks of
hotel properties include, among other things, the necessity of a high level of continuing capital
expenditures, competition, increases in operating costs which may not be offset by increases in revenues, dependence
on business and commercial travelers and tourism, increases in fuel costs and other expenses of travel,
and adverse effects of general and local economic conditions. Hotel properties tend to be more sensitive to adverse
economic conditions and competition than many other commercial properties. |
|
Healthcare
properties. Healthcare properties
and healthcare providers are affected by several significant factors, including
federal, state and local laws governing licenses, certification, adequacy of care, pharmaceutical distribution,
rates, equipment, personnel and other factors regarding operations, continued availability of revenue from
government reimbursement programs and competition on a local and regional basis. The failure of any healthcare
operator to comply with governmental laws and regulations may affect its ability to operate its facility or receive
government reimbursements. |
|
Multifamily
Properties. The value and
successful operation of a multifamily property may be affected by a number of
factors such as the location of the property, the ability of the management team, the level of mortgage rates, the presence
of competing properties, adverse economic conditions in the locale, oversupply and rent control laws or other
laws affecting such properties. |
|
Community
Centers. Community center
properties are dependent upon the successful operations and financial condition
of their tenants, particularly certain of their major tenants, and could be adversely affected by bankruptcy of
those tenants. In some cases a tenant may lease a significant portion of the space in one center, and the filing of bankruptcy
could cause significant revenue loss. Like others in the commercial real estate industry, community centers
are subject to environmental risks and interest rate risk. They also face the need to enter into new leases or renew
leases on favorable terms to generate rental revenues. Community center properties could be adversely affected
by changes in the local markets where their properties are located, as well as by adverse changes in national
economic and market conditions. |
|
Self-Storage
Properties. The value and
successful operation of a self-storage property may be affected by a number
of factors, such as the ability of the management team, the location of the property, the presence of competing
properties, changes in traffic patterns and effects of general and local economic conditions with respect
to rental rates and occupancy levels. |
|
Other
factors may contribute to the risk of real estate investments: |
|
Development
Issues. Certain real estate
companies may engage in the development or construction of real estate properties.
These companies in which the Fund invests (“portfolio companies”) are exposed to a variety of risks inherent
in real estate development and construction, such as the risk that there will be insufficient tenant demand to
occupy newly developed properties, and the risk that prices of construction materials or construction labor may rise
materially during the development. |
|
Lack
of Insurance. Certain of
the portfolio companies may fail to carry comprehensive liability, fire, flood, earthquake
extended coverage and rental loss insurance, or insurance in place may be subject to various policy specifications,
limits and deductibles. Should any type of uninsured loss occur, the portfolio company could lose its investment
in, and anticipated profits and cash flows from, a number of properties and, as a result, adversely affect the
Fund’s investment performance. |
|
Financial
Leverage. Global real estate
companies may be highly leveraged and financial covenants may affect the ability
of global real estate companies to operate effectively. |
|
Environmental
Issues. In connection with
the ownership (direct or indirect), operation, management and development
of real properties that may contain hazardous or toxic substances, a portfolio company may be considered
an owner, operator or responsible party of such properties and, therefore, may be potentially liable for removal
or remediation costs, as well as certain other costs, including governmental fines and liabilities for injuries to persons
and property. The existence of any such material environmental liability could have a material adverse effect
on the results of operations and cash flow of any such portfolio company and, as a result, the amount available
to make distributions on shares of the Fund could be reduced. |
26 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
|
Recent
Events. The value of real
estate is particularly susceptible to acts of terrorism and other changes in foreign and
domestic conditions. |
|
REIT
Issues. REITs are subject
to a highly technical and complex set of provisions in the Code. It is possible that the Fund
may invest in a real estate company which purports to be a REIT but which fails to qualify as a REIT. In the event of
any such unexpected failure to qualify as a REIT, the purported REIT would be subject to corporate level taxation, significantly
reducing the return to the Fund on their investment in such company. |
|
Financing
Issues. Financial institutions
in which the Fund may invest are subject to extensive government regulation. This
regulation may limit both the amount and types of loans and other financial commitments a financial institution can
make, and the interest rates and fees it can charge. In addition, interest and investment rates are highly sensitive and
are determined by many factors beyond a financial institution’s control, including general and local economic conditions
(such as inflation, recession, money supply and unemployment) and the monetary and fiscal policies of various
governmental agencies such as the Federal Reserve Board. These limitations may have a significant impact on
the profitability of a financial institution since profitability is attributable, at least in part, to the institution’s ability
to make financial commitments such as loans.
Profitability of a financial institution is largely dependent upon the availability
and cost of the institution’s funds, and can fluctuate significantly when interest rates change. |
Rights
Issues and Warrants. Rights
Issues give the right, to existing shareholders, to buy a proportional number of additional
securities at a given price (generally at a discount) within a fixed period (generally on a short term period) and are
offered at the company’s discretion.
Warrants
are securities that give the holder the right, but not the obligation, to subscribe for newly created equity issues
(consisting of common and preferred stock, convertible preferred stock and warrants that themselves are only convertible
into common, preferred or convertible preferred stock) of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Warrants are speculative and have no value if they are not exercised
before the expiration date.
The
equity issue underlying an equity warrant is outstanding at the time the equity warrant is issued or is issued together
with the warrant. At the time the Fund acquires an equity warrant convertible into a warrant, the terms and conditions
under which the warrant received upon conversion can be exercised will have been determined; the warrant received
upon conversion will only be convertible into a common, preferred or convertible preferred stock. Equity warrants
are generally issued in conjunction with an issue of bonds or shares, although they also may be issued as part of a
rights issue or scrip issue. When issued with bonds or shares, they usually trade separately from the bonds or shares after
issuance.
OTC
equity warrants are usually traded only by financial institutions that have the ability to settle and clear these instruments.
OTC warrants are instruments between the Fund and its counterparty (usually a securities dealer or bank) with
no clearing organization guarantee. Thus, when the Fund purchases an OTC warrant, the Fund relies on the counterparty
to fulfill its obligations to the Fund if the Fund decides to exercise the warrant.
Index
warrants are rights created by an issuer, typically a financial institution, entitling the holder to purchase, in the case
of a call, or sell, in the case of a put, an equity index at a certain level over a fixed period of time. Index warrant transactions
settle in cash.
Covered
warrants are rights created by an issuer, typically a financial institution, ordinarily entitling the holder to purchase
from the issuer of the covered warrant outstanding securities of another company (or in some cases a basket of
securities), which issuance may or may not have been authorized by the issuer or issuers of the securities underlying the
covered warrants. In most cases, the holder of the covered warrant is entitled on its exercise to delivery of the underlying
security, but in some cases the entitlement of the holder is to be paid in cash the difference between the value of
the underlying security on the date of exercise and the strike price. The securities in respect of which covered warrants are
issued are usually common stock, although they may entitle the holder to acquire warrants to acquire common stock.
Covered warrants may be fully covered or partially covered. In the case of a fully covered warrant, the issuer of the warrant
will beneficially own all of the underlying securities or will itself own warrants (which are typically issued by the issuer
of the underlying securities in a separate transaction) to acquire the securities. The underlying securities or warrants
are, in some cases, held by another member of the issuer’s group or by a custodian or other fiduciary for the holders
of the covered warrants.
Interest
rate warrants are rights that are created by an issuer, typically a financial institution, entitling the holder to purchase,
in the case of a call, or sell, in the case of a put, a specific bond issue or an interest rate index (Bond Index) at a certain
level over a fixed time period. Interest rate warrants can typically be exercised in the underlying instrument or settle
in cash.
Long
term options operate much like covered warrants. Like covered warrants, long term options are call options created
by an issuer, typically a financial institution, entitling the holder to purchase from the issuer outstanding securities of
another issuer. Long-term options have an initial period of one year or more, but generally have terms between three and
five years. Unlike U.S. options, long term European options do not settle through a clearing corporation that guarantees
the performance of the counterparty. Instead, they are traded on an exchange and subject to the exchange’s
trading regulations. The Fund may only acquire covered warrants, index warrants, interest rate warrants and
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 27
long
term options that are issued by entities deemed to be creditworthy by the Adviser. Investment in these instruments involves
the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or warrants
to acquire the underlying security (or cash in lieu thereof).
Secondary
Offerings. The
Fund may invest a portion of its assets in
shares secondary offerings. A secondary offering is
a registered offering of a large block of a security that has been previously issued to the public. A secondary offering can
occur when an investor sells to the public a large block of stock or other securities it has been holding in its portfolio. In a
sale of this kind, all of the profits go to the seller rather than the issuer. Secondary offerings can also originate when the issuer
issues new shares of its stock over and above those sold in its IPO, usually in order to raise additional capital.
However,
because an increase in the number of shares devalues those that have already been issued, many companies
make a secondary offering only if their stock prices are high or they are in need of capital. Secondary offerings
may have a magnified impact on the performance of the Fund with a small asset base. Secondary offering shares
frequently are volatile in price. Therefore, the Fund may hold secondary offering shares for a very short period of time.
This may increase the portfolio turnover rate of the Fund and may lead to increased expenses for the Fund, such as commissions
and transaction costs. In addition, secondary offering shares can experience an immediate drop in value if the
demand for the securities does not continue to support the offering price.
Securities
Lending. The Fund may lend
its portfolio securities to brokers, dealers and other financial institutions, provided
it receives collateral, with respect to each loan of U.S. and non-U.S. securities, equal to at least 100% of the value of
the portfolio securities loaned. Typically, the Fund will receive collateral, with respect to each loan of U.S. securities, equal
to at least 102% of the value of the portfolio securities loaned, and, with respect to each loan of non-U.S. securities, collateral
of at least 105% of the value of the portfolio securities loaned. At all times thereafter, the borrower shall be required
to mark to market such collateral on a daily basis so that the market value of such collateral does not fall below 100%
of the market value of the portfolio securities so loaned. By lending its portfolio securities, the Fund can increase its income
through the investment of the collateral. For the purposes of this policy, the Fund considers collateral consisting of cash,
U.S. Government securities or letters of credit issued by banks whose securities meet the standards for investment by
the Fund to be the equivalent of cash. From time to time, the Fund may return to the borrower or a third party which is unaffiliated
with it, and which is acting as a “placing broker,” a part of the interest earned from the investment of collateral received
for securities loaned.
The
SEC currently requires that the following conditions must be met whenever portfolio securities are loaned: (1) the
fund must receive from the borrower collateral equal to at least 100% of the value of the portfolio securities loaned; (2)
the borrower must increase such collateral whenever the market value of the securities loaned rises above the level of
such collateral; (3) the fund must be able to terminate the loan at any time; (4) the fund must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable on the loaned securities, and any increase
in market value; (5) the fund may pay only reasonable custodian fees in connection with the loan; and (6) while any
voting rights on the loaned securities may pass to the borrower, the fund’s board of directors/trustees must be able to
terminate the loan and regain the right to vote the securities if a material event adversely affecting the investment occurs.
These conditions may be subject to future modifications.
Loan
agreements involve certain risks in the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund’s ability to recover the loaned securities or dispose of the collateral for the loan. In addition,
there is the possibility of losses resulting from the investment of collateral where the market value of the collateral
falls below 100%. Such losses may include, but are not limited to, losses associated with deterioration in the credit
of the investments of collateral. These losses generally would be borne by the Fund lending its portfolio securities, which
would have a negative impact on the lending Fund’s performance.
Cash
received as collateral through loan transactions may be invested in other securities eligible for purchase by the Fund.
The investment of cash collateral subjects that investment, as well as the securities loaned, to market appreciation or
depreciation. The Fund is obligated to return the collateral to the borrower at the termination of the loan. The Fund could
suffer a loss in the event the Fund must return the cash collateral and there are losses on investments made with cash
collateral. The Fund’s securities lending program may be temporarily suspended if a Board and/or the Adviser determine
it to be in the best interests of the Fund’s shareholders.
The
collateral received from a borrower as a result of the Fund’s securities lending activities will be used to purchase both
fixed income securities and other securities with debt-like characteristics that are rated A1 or P1 (except as noted below)
on a fixed rate or floating rate basis, including but not limited to: (a) bank obligations, such as bank bills, bank notes,
certificates of deposit, commercial paper, deposit notes, loan participations, medium term notes, mortgage backed
securities, structured liquidity notes, and time deposits; (b) corporate obligations, such as commercial paper, corporate
bonds, investment agreements, funding agreements, or guaranteed investment contracts entered into with, or guaranteed
by, an insurance company, loan participations, master notes, medium term notes, and second tier commercial
paper (which must have a minimum rating of two of the following: A-2, P-2 and F-2); (c) sovereigns, such as commercial
paper, U.S. Government securities (including securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, establishments or the like), sovereign obligations of non-U.S. countries that
are members of the Organization for Economic Co-operation and Development of the European Union (including securities
issued or guaranteed as to principal and interest by the sovereign, its agencies, instrumentalities,
28 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
establishments
or the like) and supranational issuers; and (d) repurchase agreements, including reverse repurchase agreements
(which permitted collateral, in most cases, must have an investment grade rating from at least two NRSROs).
Except for the investment agreements, funding agreements or guaranteed investment contracts guaranteed by
an insurance company, master notes, and medium term notes (which are described below), these types of investments
are described elsewhere in the SAI. Collateral may also be invested in a money market mutual fund or short-term
collective investment trust.
Investment
agreements, funding agreements, or guaranteed investment contracts entered into with, or guaranteed by,
an insurance company are agreements where an insurance company either provides for the investment of the Fund’s
assets or provides for a minimum guaranteed rate of return to the investor.
Master
notes are promissory notes issued usually with large, creditworthy broker-dealers on either a fixed rate or floating
rate basis. Master notes may or may not be collateralized by underlying securities. If the master note is issued by an
unrated subsidiary of a broker-dealer, then an unconditional guarantee is provided by the issuer’s parent.
Medium
term notes are unsecured, continuously offered corporate debt obligations. Although medium term notes may
be offered with a maturity from one to ten years, in the context of securities lending collateral the maturity of the medium
term note will not generally exceed two years.
Securities
of Investment Companies.
To the extent permitted by the 1940 Act, the Fund may generally invest up to 10%
of its total assets, calculated at the time of investment, in the securities of other investment companies. No more than
5% of the Fund’s total assets may be invested in the securities of any one investment company nor may it acquire more
than 3% of the voting securities of any other investment company. For purposes of these limitations, the Fund would aggregate
its investments in any private placements with its investment company holdings, which would include ETF holdings
unless an exemption applies (as described in “Exchange-Traded Funds” above). Rule 12d1-4 under the 1940 Act permits
registered investment companies to acquire securities of another investment company in excess of these amounts,
subject to certain conditions. To the extent the Fund invests in another investment company, the Fund indirectly will
bear its proportionate share of any management fees paid by an investment company in which it invests in addition to
the advisory fee paid by the Fund. Some of the countries in which the Fund may invest may not permit direct investment
by outside investors. Investments in such countries may only be permitted through foreign government-approved
or government-authorized investment vehicles, which may include other investment companies. Each
Fund may not acquire securities of registered open-end investment companies or registered unit investment trusts in
reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
See
also “Exchange-Traded Funds” above.
“Special
Situations” Companies Risk.
“Special situations” with respect to a portfolio company include a change in management
or management policies, the acquisition of a significant equity position in the company by others, a merger
or reorganization, or the sale or spin-off of a division or subsidiary which, if resolved favorably, would improve the value
of the company’s stock. If the actual or prospective situation does not materialize as anticipated, the market price of
the securities of a special situation company may decline significantly. There can be no assurance that a special situation
that exists at the time of its investment will be consummated under the terms and within the time period contemplated.
Investments in “special situations” companies can present greater risks than investments in companies not
experiencing special situations.
Strategic
Transactions, Derivatives and Synthetic Investments.
The Fund may, but is not required to, utilize various other
investment strategies as described below for a variety of purposes, such as hedging various market risks, managing
the effective maturity or duration of the fixed income securities in the Fund’s portfolio or enhancing potential gain.
These strategies may be executed through the use of derivative contracts. In certain circumstances, the Fund may wish
to obtain the price performance of a security without actually purchasing the security in circumstances where, for example,
the security is illiquid, or is unavailable for direct investment or available only on less attractive terms. In such circumstances,
the Fund may invest in synthetic or derivative alternative investments (“Synthetic Investments”) that are based
upon or otherwise relate to the economic performance of the underlying securities. Synthetic Investments may include
swap transactions, notes or units with variable redemption amounts, and other similar instruments and contracts. Synthetic
Investments typically do not represent beneficial ownership of the underlying security, usually are not collateralized
or otherwise secured by the counterparty and may or may not have any credit enhancements attached to them.
In
the course of pursuing these investment strategies, the Fund may purchase and sell exchange-listed and OTC put and
call options on securities, equity and fixed income indices and other instruments, purchase and sell futures contracts and
options thereon, enter into various transactions such as swaps, caps, floors, collars, currency forward contracts, currency
futures contracts, currency swaps or options on currencies, or currency futures and various other currency transactions
(collectively, all the above are called “Strategic Transactions”). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory changes occur. Strategic Transactions
may be used subject to certain limits imposed by the 1940 Act to attempt to protect against possible changes
in the market value of securities held in or to be purchased for the Fund’s portfolio resulting from securities markets
or currency exchange rate fluctuations, to protect the Fund’s unrealized gains in the value of its portfolio securities,
to facilitate the sale of such securities for investment purposes, to manage the effective maturity or duration of
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INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 29
the
Fund’s portfolio, or to establish a position in the derivatives markets as a substitute for purchasing or selling particular securities.
Any or all of these investment techniques may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to utilize these Strategic Transactions successfully
will depend on the Adviser’s ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments.
Strategic Transactions will not be used to alter fundamental investment purposes and characteristics of the Fund,
and in accordance with current federal securities laws, rules, and staff positions, the Fund will segregate assets (or as
provided by applicable regulations, enter into certain offsetting positions) to cover its obligations under options, futures and
swaps to limit leveraging of the Fund.
Strategic
Transactions, including derivative contracts and Synthetic Investments, have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the extent the Adviser’s view as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions could result in losses greater than if they
had not been used. Synthetic Investments also involve exposure to the creditworthiness of the issuer of the underlying
security, changes in exchange rates and future governmental actions taken by the jurisdiction in which the underlying
security is issued, and counterparties involved. Use of put and call options may result in losses to the Fund, force
the sale or purchase of portfolio securities at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The use of currency transactions can result in the
Fund incurring losses as a result of a number of factors including the imposition of exchange controls, suspension of settlements,
or the inability to deliver or receive a specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Fund’s position. In addition, futures and options markets may not be liquid in all
circumstances and certain OTC options may have no markets. As a result, in certain markets, the Fund might not be able
to close out a transaction without incurring substantial losses, if at all. Although the use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an increase in value of such position. Finally, the daily
variation margin requirements for futures contracts and short options positions would create a greater ongoing potential
financial risk than would purchases of options (i.e., long options positions, when the exposure is limited to the cost
of the initial premium). Losses resulting from the use of Strategic Transactions would reduce NAV, and possibly income,
and such losses can be greater than if the Strategic Transactions had not been utilized.
Risks
of Strategic Transactions Inside the U.S.
It is possible that government regulation of various types of derivative instruments,
such as the currency and interest rate transactions, credit default swaps and options described herein, may limit
or prevent the Fund from using such instruments as part of its investment strategy, which could negatively impact the
Fund. For example, it is possible that developments in the derivatives market, including new regulatory requirements, could
limit or prevent the Fund’s ability to utilize derivatives as part of its investment strategy, terminate existing derivatives
or realize amounts to be received under such derivatives, which could negatively affect the Fund. Some derivatives
currently are, and more in the future will be, required to be centrally cleared, which affects how derivatives are transacted.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (the “Dodd-Frank Act”), resulted
in a comprehensive regulatory regime for derivatives that qualify as “swaps”, which are generally regulated by the
CFTC, and “security-based swaps”, which are generally regulated by the SEC. Foreign exchange forwards and spot foreign
exchange are generally exempt from this regulation. The Dodd-Frank Act created a new clearing and exchange-trading
requirements for OTC derivatives that are swaps or security-based swaps. The Dodd-Frank Act also requires
the CFTC, SEC and banking or prudential regulators, to establish capital requirements for certain regulated counterparties
(such as swap dealers), as well as requirements for such regulated counterparties to collect margin from and
post margin to counterparties, such as the Fund, to uncleared derivatives and to impose clearing and central trading requirements,
that also require margin posting by the Fund. The CFTC and banking or prudential regulators have adopted
margin rules for uncleared swaps and, in the case of prudential regulators, security-based swaps as well. Variation
margin requirements (in
some cases initial margin) have been implemented
by the CFTC and prudential regulators.
The SEC has also adopted a set of regulations that apply to security-based swaps, including dealer registration,
central clearing, business conduct and margin requirements that are expected to go into effect in the near future.
The Fund may incur additional costs in complying with the SEC rules because many of those rules differ from the rules
adopted for swaps by the CFTC and the prudential regulators.
If
a swap entered into by the Fund is required to be centrally cleared, Dodd-Frank and the CFTC’s regulations may also
require that the swap be executed on a regulated market facility such as a “swap execution facility” or “SEF”.
Similar regulatory requirements also
apply to security-based swaps that are subject to the jurisdiction of the SEC.
While
some provisions of the Dodd-Frank Act have either already been implemented through rulemaking by the CFTC
and/or the SEC, or by the banking or prudential regulators in the case of capital requirements and margin requirements
for uncleared swaps with respect to certain regulated counterparties, or must be implemented through
30 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
future
rulemaking by those and other federal agencies, and any regulatory or legislative activity may not necessarily have
a direct, immediate effect upon the Fund, it is possible that, when compliance with these rules is required, they could potentially
limit or completely restrict the ability of the Fund to use certain derivatives as a part of its investment strategy, increase
the cost of entering into derivatives transactions or require more assets of the Fund to be used for collateral in support
of those derivatives than is currently the case. Limits or restrictions applicable to the counterparties with which the
Fund engages in derivative transactions also could prevent the Fund from using derivatives or affect the pricing or other
factors relating to these transactions, or may change the availability of certain derivatives.
The
CFTC and the SEC continue to review the proposed and current regulatory requirements applicable to derivatives,
including swaps and security-based swaps. It is not certain at this time how the regulators may change these requirements
and such proposals may create barriers to the Fund’s use of certain types of investments.
As
described above, the Fund may also trade in currency forward contracts. There is less protection against defaults in
the forward trading of currencies since such contracts are currently not guaranteed by any clearing house. The Dodd-Frank
Act includes in the definition of “swaps” that are regulated by the CFTC most types of currency derivatives including
cash-settled or non-deliverable foreign currency forwards. Such currency derivatives may, in the future, be required
to be cleared by a clearinghouse and traded on a regulated exchange, and are now generally subject to the final
swap regulations adopted by the CFTC in connection with its authority under the Dodd-Frank Act. A limited category of
currency derivatives, namely physically-settled or deliverable foreign currency forwards and swaps, however, are excluded
from certain of the Dodd-Frank Act regulations as a result of a determination issued by the Secretary of the Treasury.
These foreign currency derivatives are not subject to the mandatory clearing or exchange-trading requirements
of the Dodd-Frank Act.
Risks
of Strategic Transactions Outside the U.S.
When conducted outside the U.S., Strategic Transactions may not be regulated
as rigorously as in the U.S. (which may depend on whether the Fund is executing trades with a CFTC or SEC registered
dealer), may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies and other instruments. The value of
such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund’s ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Combined
Transactions. The Fund may
enter into multiple transactions, including multiple options transactions, multiple
futures transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate transactions (“component” transactions),
instead of a single Strategic Transaction, as part of a single or combined strategy when, in the opinion of the
Adviser, it is in the best interests of the Fund to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions are normally entered into based on the
Adviser’s judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
Temporary
Investments. Generally the
Fund will be fully invested in accordance with its investment objective and strategies.
However, pending investment of cash balances or for other cash management purposes, or if the Adviser believes
that business, economic, political or financial conditions warrant, the Fund may invest, without limit, in cash or cash
equivalents, including: (1) foreign money market instruments (such as bankers’ acceptances, certificates of deposit, commercial
paper, short-term government and corporate obligations, and repurchase agreements); (2) obligations issued
or guaranteed by the U.S. Government its agencies and instrumentalities; (3) certificates of deposit, bankers’ acceptances,
and interest-bearing savings deposits of commercial banks; (4) prime quality commercial paper; (5) repurchase
agreements covering any of the securities in which the Fund may invest directly; (6) money market instruments;
and (7) high quality debt securities without equity features. Should this occur, the Fund will not be pursuing and
may not achieve its investment objective or may miss potential market upswings.
In
addition, pending the investment of cash balances or for other cash management purposes, the Fund may invest without
limit in other instruments, including but not limited to derivatives that provide exposure to markets or companies in
which the Fund may invest and in shares of other investment companies that invest in securities in which the Fund may invest,
subject to the limits of the 1940 Act.
U.S.
Government Securities. There
are two broad categories of U.S. Government-related debt instruments: (a) direct obligations
of the U.S. Treasury, and (b) securities issued or guaranteed by U.S. Government agencies.
Examples
of direct obligations of the U.S. Treasury are Treasury Bills, Notes, Bonds and other debt securities issued by the
U.S. Treasury. These instruments are backed by the “full faith and credit” of the United States. They differ primarily in
interest rates, the length of maturities and
the dates of issuance. Treasury bills have original maturities of one year or less. Treasury
notes have original maturities of one to ten years and Treasury bonds generally have original maturities of greater
than ten years.
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 31
Some
agency securities are backed by the full faith and credit of the United States (such as Maritime Administration Title
XI Ship Financing Bonds and Agency for International Development Housing Guarantee Program Bonds) and others are
backed only by the rights of the issuer to borrow from the U.S. Treasury (such as Federal Home Loan Bank Bonds and Fannie
Mae), while still others, such as the securities of the Federal Farm Credit Bank, are supported only by the credit of the
issuer. With respect to securities supported only by the credit of the issuing agency or by an additional line of credit with
the U.S. Treasury, there is no guarantee that the U.S. Government will provide support to such agencies and such securities
may involve risk of loss of principal and interest. U.S. Government Securities may include “zero coupon” securities
that have been stripped by the U.S. Government of their unmatured interest coupons and collateralized obligations
issued or guaranteed by a U.S. Government agency or instrumentality.
Interest
rates on U.S. Government obligations may be fixed or variable. Interest rates on variable rate obligations are adjusted
at regular intervals, at least annually, according to a formula reflecting then current specified standard rates, such
as 91-day U.S. Treasury bill rates. These adjustments generally tend to reduce fluctuations in the market value of the securities.
The
government guarantee of the U.S. Government Securities in the Fund’s portfolio does not guarantee the NAV of the
shares of the Fund. There are market risks inherent in all investments in securities and the value of an investment in the
Fund will fluctuate over time. Normally, the value of investments in U.S. Government Securities varies inversely with changes
in interest rates. For example, as interest rates rise the value of investments in U.S. Government Securities will tend
to decline, and as interest rates fall the value of the Fund’s investments will tend to increase. In addition, the potential for
appreciation in the event of a decline in interest rates may be limited or negated by increased principal prepayments with
respect to certain mortgage-backed securities, such as GNMA Certificates. Prepayments of high interest rate mortgage-backed
securities during times of declining interest rates will tend to lower the return of the Fund and may even
result in losses to the Fund if some securities were acquired at a premium. Moreover, during periods of rising interest rates,
prepayments of mortgage-backed securities may decline, resulting in the extension of the Fund’s average portfolio maturity.
As a result, the Fund’s portfolio may experience greater volatility during periods of rising interest rates than under
normal market conditions.
TIPS
Bonds. Treasury Inflation-Protected
Securities (“TIPS”) are fixed income securities issued by the U.S. Treasury whose
principal value is periodically adjusted according to the rate of inflation. The U.S. Treasury uses a structure that accrues
inflation into the principal value of the bond. Inflation-indexed securities issued by the U.S. Treasury have maturities
of five, ten or thirty years, although it is possible that securities with other maturities will be issued in the future. TIPS
bonds typically pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted amount. For
example, if the Fund purchased an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return coupon
(payable 1.5% semi-annually), and inflation over the first six months was 1%, the mid-year par value of the bond would
be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second
half of the year resulted in the whole year’s inflation equaling 3%, the end-of-year par value of the bond would be $1,030
and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If
the periodic adjustment rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these securities (calculated with respect to a smaller principal amount)
will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in
the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of
the bonds is not guaranteed and will fluctuate.
The
value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates
in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to
rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-indexed
bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might
rise, leading to a decrease in value of inflation-indexed bonds.
While
these securities are expected to be protected from long-term inflationary trends, short-term increases in inflation
may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes
in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not
reflected in the bond’s inflation measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer Price Index for Urban Consumers (“CPI-U”),
which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and energy. There can be no assurance that
the CPI-U will accurately measure the real rate of inflation in the prices of goods and services.
Any
increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though
investors do not receive their principal until maturity.
When-Issued
Securities and Delayed-Delivery.
The Fund may purchase equity and debt securities on a “when-issued,”
“delayed-delivery” or “forward delivery” basis. The price of such securities, which may be expressed in yield
terms, is fixed at the time the commitment to purchase is made, but delivery and payment for the securities takes place
at a later date. During the period between purchase and settlement, no payment is made by the Fund to the issuer
32 ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
and
no interest accrues to the Fund. When the Fund purchases such securities, it immediately assumes the risks of ownership,
including the risk of price fluctuation. Failure to deliver a security purchased on this basis may result in a loss or missed
opportunity to make an alternative investment.
To
the extent that assets of the Fund are held in cash pending the settlement of a purchase of securities, the Fund would
earn no income. While such securities may be sold prior to the settlement date, the Fund intends to purchase them with
the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time the Fund makes
the commitment to purchase a security on this basis, it will record the transaction and reflect the value of the security
in determining its NAV. The market value of the securities may be more or less than the purchase price. In accordance
with current federal securities laws, rules, and staff positions, the Fund will establish a segregated account in which
it will maintain cash and liquid assets equal in value to commitments for such securities.
When
the Fund engages in when-issued or delayed-delivery transactions, it relies on the other party to consummate
the trade. Failure of the seller to do so may result in the Fund incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
When
the Fund enters into a delayed delivery transaction, a when-issued transaction or a forward transaction, the Fund
may be required to provide collateral to cover potential losses of the counterparty, due to changes in the value of the
security, in the event that the event that the transaction is unable to settle (e.g., in the event of a default on the Fund). Similarly,
the counterparty may be required to provide collateral to cover the potential losses of the Fund, due to changes in
the value of the security, in the event that the transaction is unable to settle (e.g., the seller fails to deliver the security). The
Fund may reduce the amount of liquid assets it will segregate to the extent it provides such collateral.
Rule
18f-4 under the 1940 Act, which became fully effective in August 2022, provides that funds may invest in securities
on a when-issued or forward-settling basis, or with a non-standard settlement cycle. These transactions are
not deemed
to involve a senior security, and thus generally do
not require the Fund to maintain a “segregated account” when
engaging in these types of transactions, subject to certain conditions and any other restrictions that the Fund has adopted.
There
can be no assurance that the securities subject to a standby commitment will be issued and the value of the security,
if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, the Fund may bear the risk of a decline in the value of such security
and may not benefit from appreciation in the value of the security during the commitment period if the security is
not ultimately issued.
The
purchase of a security subject to a standby commitment agreement and the related commitment fee will be recorded
on the date on which the security can reasonably be expected to be issued, and the value of the security will thereafter
be reflected in the calculation of the Fund’s NAV. The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the commitment fee will be recorded as income on the expiration
date of the standby commitment.
Portfolio
Turnover
The
portfolio turnover rate for the Fund is calculated by dividing the lesser of purchases and sales of portfolio securities
for the year by the monthly average value of the portfolio securities, excluding securities whose maturities at the
time of purchase were one year or less. Portfolio turnover may involve the payment by the Fund of brokerage and other
transaction costs, on the sale of securities, as well as on the investment of the proceeds in other securities. The greater
the portfolio turnover, the greater the transaction costs to the Fund, which could have an adverse effect on the Fund’s
total rate of return. In addition, funds with high portfolio turnover rates may be more likely than low-turnover funds to
generate capital gains that must be distributed to shareholders as taxable income.
The
table
below shows the Fund’s portfolio turnover rate for the fiscal year ended
October 31, 2023.
|
|
Fund
|
2023
|
EM
SMA Completion Fund |
30.12%
|
ADDITIONAL
INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES 33
INVESTMENT
RESTRICTIONS
Fundamental
Investment Restrictions:
The
following are fundamental investment restrictions of the Fund which cannot be changed without the vote of the majority
of the outstanding shares of the Fund for which a change is proposed. The vote of the majority of the outstanding
shares means the vote of (A) 67% or more of the voting securities present at a meeting, if the holders of more
than 50% of the outstanding voting securities are present or represented by proxy or (B) a majority of the outstanding
voting securities, whichever is less.
● |
May
not borrow money or issue senior securities, except that each Fund may sell securities short, enter into reverse repurchase
agreements and may otherwise borrow money and issue senior securities as and to the extent permitted by
the 1940 Act or any rule, order or interpretation thereunder. |
● |
May
not act as an underwriter of another issuer’s securities, except to the extent that the Fund may be deemed an underwriter
within the meaning of the Securities Act in connection with the purchase and sale of portfolio securities. |
● |
May
not purchase or sell commodities or commodities contracts, except to the extent disclosed in the current Prospectus
or SAI of the Fund. |
● |
May
not purchase the securities of any issuer if, as a result, 25% or more (taken at current value) of the Fund’s total assets
would be invested in the securities of issuers, the principal activities of which are in the same industry. This limitation
does not apply to securities issued by the U.S. Government or its agencies or instrumentalities or securities of other
investment companies. The following industries are considered separate industries for purposes of this investment
restriction: electric, natural gas distribution, natural gas pipeline, combined electric and natural gas, and telephone
utilities, captive borrowing conduit, commercial mortgage, residential mortgage, equipment finance, premium
finance, leasing finance, consumer finance and other finance. |
● |
May
not lend any security or make any other loan, except that the Fund may in accordance with its investment objective
and policies (i) lend portfolio securities, (ii) purchase and hold debt securities or other debt instruments, including
but not limited to loan participations and subparticipations, assignments, and structured securities, (iii) make loans
secured by mortgages on real property, (iv) enter into repurchase agreements, and (v) make time deposits with financial
institutions and invest in instruments issued by financial institutions, and enter into any other lending arrangement
as and to the extent permitted by the 1940 Act or any rule, order or interpretation thereunder. |
● |
May
not purchase or sell real estate, except that the Fund may (i) acquire real estate through ownership of securities or
instruments and sell any real estate acquired thereby, (ii) purchase or sell instruments secured by real estate (including
interests therein), and (iii) purchase or sell securities issued by entities or investment vehicles that own or deal
in real estate (including interests therein). |
For
purposes of the fundamental policy restricting investments in an issuer if, as a result, 25% or more of the Fund’s total assets
would be invested in the securities of issuers, the principal activities of which are in the same industry, the Fund will, as
a non-fundamental policy, consider commercial mortgage and residential mortgage to be a single industry (notwithstanding
the statement defining separate industries contained in the policy). In addition, notwithstanding the statement
defining separate industries contained in the policy, the Fund may elect to consider certain of such industries as
part of the same industry to be consistent with a third party industry classification system (e.g., BICS, GICS or Barclays Live),
and may otherwise define industries consistent with applicable law and SEC guidance. Further, the Fund will endeavor
to consider the concentration policy of underlying investment companies when determining the Fund’s compliance
with its concentration policy.
The
Following are the Non-Fundamental Operating Policies of the Fund Listed Below Which May Be Changed by the Board
of Trustees of the Trust Without Shareholder Approval:
As
a matter of non-fundamental policy, the Fund may not:
● |
acquire
any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net
assets in illiquid investments that are assets (that is, investments that the Fund reasonably expects cannot be sold in
current market conditions in seven calendar days without significantly changing the market value of the investments).
|
● |
acquire
securities of registered open-end investment companies or registered unit investment trusts in reliance on Sections
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. |
With
respect to the Fund:
If
any percentage restriction or requirement described above is satisfied at the time of investment, a later increase or
decrease in such percentage resulting from a change in NAV will not constitute a violation of such restriction or requirement.
However, should a change in NAV or other external events cause the Fund’s investments in illiquid securities including
repurchase agreements with maturities in excess of seven days, to exceed the limit set forth above for such Fund’s
investment in illiquid securities, the Fund will act to cause the aggregate amount of such securities to come within such
limit as soon as reasonably practicable. In such event, however, such Fund would not be required to liquidate any portfolio
securities where the Fund would suffer a loss on the sale of such securities.
34 INVESTMENT
RESTRICTIONS
The
investment objective of the Fund is not fundamental and may be changed by the Board of Trustees without shareholder
approval.
Internal
Revenue Code Restrictions
In
addition to the investment restrictions above, the Fund must be diversified according to Code requirements. Specifically,
at each tax quarter end, the Fund’s holdings must be diversified so that (a) at least 50% of the market value of
its total assets is represented by cash, cash items (including receivables), U.S. Government securities, securities of other U.S.
regulated investment companies, and other securities, such other securities limited so that no one issuer has a value greater
than 5% of the value of the Fund’s total assets and that the Fund holds no more than 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of the Fund’s assets is invested in the securities (other
than those of the U.S. Government or other U.S. regulated investment companies) of any one issuer or of two or more
issuers of which the Fund holds 20% or more of the voting stock and which are engaged in the same, similar, or related
trades or businesses or the securities of one or more qualified publicly traded partnerships (defined as a partnership
whose interests are traded on an established securities market or are readily tradable on a secondary market,
unless 90% or more of such partnership’s gross income is derived from its business of investing in stock, securities or
currencies).
INVESTMENT
RESTRICTIONS 35
DISCLOSURE
OF PORTFOLIO HOLDINGS
The
Board of Trustees has adopted a policy on selective disclosure of portfolio holdings in accordance with regulations
that seek to ensure that disclosure of information about portfolio securities is in the best interest of Fund shareholders
and to address the conflicts between the interests of Fund shareholders and its service providers. The policy provides
that divulging non-public portfolio holdings information to selected parties is permissible only when the Fund has legitimate
business purposes for doing so and the recipients are subject to a duty of confidentiality, including a duty not to trade
on the non-public information. In addition, the disclosure of the Fund’s portfolio securities is permitted only where it is
consistent with the anti-fraud provisions of the federal securities laws and the Trust’s or the Adviser’s or a Sub-adviser’s
fiduciary duties. The Trust, the Adviser,
a Sub-adviser or any agent, or any employee thereof (a “Fund Representative”) may
not disclose the Fund’s portfolio holdings information to any person other than in accordance with the policy. For purposes
of the policy, “portfolio holdings information” means the Fund’s actual portfolio holdings, as well as non-public
information about its trading strategies or
pending transactions. Neither the Fund nor a Fund Representative may solicit or
accept any compensation or other consideration in connection with the disclosure of portfolio holdings information. A Fund
Representative may provide portfolio holdings information to third parties if such information has been included in the
Fund’s public filings with the SEC or is disclosed on the Fund’s publicly accessible website. The parties receiving such
information may include ratings agencies,
individual or institutional investors, or intermediaries that sell shares of the Fund.
The
Fund posts onto the Trust’s internet site its securities holdings and its top ten portfolio holdings as of the end of each
month. Such portfolio holdings are available no earlier than 7 business days after the end of the previous month for equity
funds and no earlier than 15 business days after the end of the previous month for fixed income funds. The Fund’s complete
schedule of portfolio holdings for the second and fourth quarters of each fiscal year are included in the Fund’s semi-annual
and annual reports to shareholders. Each Fund files its complete schedule of portfolio holdings with the SEC quarterly.
The Fund’s full portfolio holdings as of its first and third fiscal quarters will be made publicly available 60 days after
the end of each quarter on www.sec.gov.
If
a Fund Representative seeks to disclose portfolio holdings information that is not publicly available to specific recipients
pursuant to circumstances not specifically addressed by the policy, the Fund Representative must obtain approval
from the Trust’s Chief Compliance Officer prior to such disclosure. Exceptions to the portfolio holdings release policy
described above can only be authorized by the Trust’s Chief Compliance Officer and will be made only when:
● |
The
Fund has a legitimate business purpose and it is in the best interest of the Fund to release portfolio holdings information
in advance of release to all shareholders or the general public; and |
● |
The
recipient of the information provides written assurances that the non-public portfolio holdings information will remain
confidential and that persons with access to the information will be prohibited from trading based on the information.
|
In connection with providing services to the Fund, the Fund’s service providers may receive portfolio holdings
information in advance of general release on an as needed basis. The service providers that may receive portfolio holdings information
include:
|
|
|
Service
Provider |
Service
|
Holdings
Access |
abrdn
Inc. |
Investment
management and administrator |
Complete
list on intraday basis with no lag |
abrdn Investments
Limited and abrdn Asia
Limited |
Investment
management |
Holdings
under Sub-adviser’s management on
intraday basis with no lag |
KPMG
LLP |
Independent
registered public accounting firm
|
Complete
list on annual basis with no lag |
State
Street Bank and Trust Company |
Custodian,
fund accountant, sub-administrator
|
Complete
list on intraday basis with no lag |
Charles
River Development |
Order
and execution management system |
Complete
list on intraday basis with no lag |
Citibank
NA and its affiliates |
Providers
of certain middle-and back-office services
to the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Lipper
Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Morningstar,
Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Bloomberg,
L.P. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
FactSet
Research Systems, Inc. |
Performance
and portfolio analytics reporting
for the Adviser and Sub-advisers |
Complete
list on monthly basis with no lag |
Morgan
Stanley Capital International, Inc. |
Stock
index provider |
Complete
list on daily basis with one day lag |
ICE
Data Services |
Valuation
services |
Complete
list on monthly basis with no lag |
ISS
Governance |
Proxy
voting service |
Complete
list on annual basis with no lag |
36 DISCLOSURE
OF PORTFOLIO HOLDINGS
In
addition, certain third parties are provided with nonpublic holdings information by the Adviser or another service provider
on an ad hoc basis. These third parties may include: broker-dealers, borrowers of the Funds’ portfolio securities, tax
agent services, pricing services and legal counsel.
The
service providers are subject to express or implied duties to keep all portfolio holdings information that is not publicly
available confidential and not to trade on such information. In addition, non-public portfolio holdings information may
be provided to mutual fund rating or ranking services or portfolio analytics services prior to such information becoming
publicly available so long as (i) such disclosure is subject to confidentiality agreement and trading restrictions or
(ii) the entity to which portfolio holdings information will be provided (a) has adopted policies and/or procedures that seek
to ensure that such information will remain confidential and restrict the entity and its employees from trading on the information
and (b) prior to disclosure, the Trust’s Chief Compliance Officer receives in writing a copy of such policies and/or
procedures and determines they are acceptable.
The
Trust’s Chief Compliance Officer conducts periodic reviews of compliance with the policy and provides annually a
report to the Board of Trustees regarding the operation of the policy, exceptions and waivers granted under the policy and
any material changes recommended as a result of such review. Additionally, the Trust’s Chief Compliance Officer will
provide quarterly reports to the Board of Trustees listing persons or entities with whom the Trust or the Adviser has entered
into Confidentiality Agreements with respect to Trust business during the quarter. The policy also provides that in the
event of a violation of the policy, the Board will receive a report at its next quarterly meeting about any disclosures that
were made concerning the Trust’s portfolio holdings which will describe to whom and under what circumstances such
disclosure was made.
DISCLOSURE
OF PORTFOLIO HOLDINGS 37
Board
of Trustees and Officers of the Trust
|
|
|
|
|
TRUSTEES
WHO ARE NOT INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE* |
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE** |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Radhika
Ajmera****
Year
of Birth: 1964 |
Trustee
since 2020 |
Ms.
Ajmera was appointed Chair of abrdn
Japan Equity Fund Inc in 2017, having
served as a director since 2014. She
has been an independent nonexecutive
director of abrdn Asia-Pacific
Income Fund VCC since 2015.
She is also an independent non-executive
director of abrdn Funds since
2020 and abrdn Global Income Fund
Inc, abrdn Asia-Pacific Income Fund
Inc and abrdn Australia Equity Fund
Inc since 2021. She has over 20 years’
experience in fund management,
predominantly in emerging
markets. She has also held a number
of UK closed end fund non-executive
directorships. Ms. Ajmera
is a graduate of the London School
of Economics. |
5
RICs consisting of 23
Portfolios |
None.
|
P.
Gerald Malone****
Year
of Birth: 1950 |
Trustee
since December 2007
Chairman
of the Board
|
Mr.
Malone is, by profession, a lawyer of
over 40 years. Currently, he is a nonexecutive
director of a number of U.S.
companies, including Medality Medical
(medical technology company)
since 2018. He is also Chairman
of many of the open and closed
end funds in the Fund Complex. He
previously served as a non-executive
director of U.S. healthcare
company Bionik Laboratories
Corp. (2018 - July 2022), as
Independent Chairman of UK companies
Crescent OTC Ltd (pharmaceutical
services) until February
2018; and fluidOil Ltd. (oil services)
until June 2018; U.S. company
Rejuvenan llc (wellbeing services)
until September 2017 and as chairman
of UK company Ultrasis plc (healthcare
software services company)
until October 2014. Mr. Malone
was previously a Member of Parliament
in the U.K. from 1983 to 1997
and served as Minister of State for
Health in the U.K. government from 1994
to 1997. |
9
RICs consisting of 27
Portfolios |
None.
|
Rahn
K. Porter****
Year
of Birth: 1954 |
Trustee
since September 2016
|
Mr.
Porter is the Principal at RPSS Enterprises
(consulting and advisory) since
2019. He was the Chief Financial and
Administrative Officer of The Colorado
Health Foundation from 2013
to 2021. Mr. Porter was formerly the
CFO of Telenet, Inc. and Nupremis, Inc.
He also served as Treasurer of Qwest
Communications, Inc. and MediaOne
Group. Mr. Porter was previously
a board member and audit chair
for BlackRidge Financial Inc. and Community
First Bancshares, Inc. |
2
RICs consisting of 20
Portfolios |
Director
of Century Link Investment
Management Company
since 2006, Director
of BlackRidge Financial
Inc. from 2004 to 2019.
|
38 BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST
|
|
|
|
|
TRUSTEES
WHO ARE NOT INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE* |
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE** |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Warren
C. Smith****
Year
of Birth: 1955 |
Trustee
since December 2007
|
Mr.
Smith has been a founding partner of
MRB Partners Inc. (independent investment
research and consultancy firm)
since 2010. He has been a Director
of abrdn Asia-Pacific Income Fund
VCC (Canadian investment fund)
since 1993. |
1
RIC consisting of 19
Portfolios |
None.
|
|
|
|
|
|
TRUSTEES
WHO ARE INTERESTED PERSONS (AS DEFINED IN THE 1940 ACT) OF THE TRUST (“INDEPENDENT TRUSTEES”) |
NAME,
ADDRESS, AND YEAR OF
BIRTH |
POSITION(S)
HELD, LENGTH OF
TIME SERVED AND TERM OF
OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
NUMBER
OF PORTFOLIOS IN
FUND COMPLEX OVERSEEN
BY TRUSTEE**
|
OTHER
DIRECTORSHIPS HELD BY TRUSTEE
DURING PAST 5 YEARS***
|
Stephen
Bird****,†
Year
of Birth: 1967 |
Trustee
since June 2021
|
Mr.
Bird joined the Board of abrdn plc in
July 2020 as Chief Executive- Designate,
and was formally appointed
Chief Executive Officer in September
2020. Previously, Mr. Bird served
as chief executive officer of global
consumer banking at Citigroup from
2015, retiring from the role in November
2019. His responsibilities encompassed
all consumer and commercial
banking businesses in 19 countries,
including retail banking and wealth
management, credit cards, mortgages,
and operations and technology
supporting these businesses.
Prior to this, Mr. Bird was chief
executive for all of Citigroup’s Asia
Pacific business lines across 17 markets
in the region, including India and
China. Mr. Bird joined Citigroup in 1998,
and during his 21 years with the company
he held a number of leadership
roles in banking, operations and
technology across its Asian and Latin
American businesses. Before this, he
held management positions in the UK
at GE Capital – where he was director
of UK operations from 1996 to 1998
– and at British Steel. |
15
RICs consisting of 33
Portfolios |
None.
|
* |
Each
Trustee holds office for an indefinite term until his successor is elected and qualified. |
** |
The
abrdn Fund Complex consists of the Trust, which currently consists of 19 portfolios, abrdn Asia-Pacific Income Fund, Inc., abrdn Global
Income Fund, Inc., abrdn Australia Equity
Fund, Inc., abrdn Emerging Markets Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity Fund, Inc., abrdn Income
Credit Strategies Fund, abrdn Global Dynamic Dividend Fund, abrdn Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund,
abrdn Global Infrastructure
Income Fund, abrdn National Municipal Income Fund, abrdn Healthcare Investors, abrdn Life Sciences Investors, abrdn Healthcare
Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 Portfolios). |
*** |
Directorships
held in (1) any other investment companies registered under the 1940 Act, (2) any company with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or (3) any company subject to the
requirements of Section 15(d) of the Exchange
Act. |
**** |
Each
Trustee may be contacted by writing to the Trustee c/o abrdn Inc., 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, Attn:
Megan Kennedy. |
† |
Mr.
Bird is considered to be an “interested person” of the Trust as defined in the 1940 Act because of his affiliation with
the Adviser. |
BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST 39
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Alan
Goodson**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1974 |
President
and Chief Executive Officer
(Since
2022) |
Currently,
Executive Director, Product & Client Solutions
– Americas for abrdn Inc., overseeing Product
Management & Governance, Product Development
and Client Solutions for registered and
unregistered investment companies in the U.S., Brazil
and Canada. Mr. Goodson is Director and Vice
President of abrdn Inc. and joined abrdn Inc. in 2000.
|
Joseph
Andolina**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1978 |
Vice
President and Chief Compliance Officer
(Since
2017) |
Currently,
Chief Risk Officer – Americas for abrdn Inc.
and serves as the Chief Compliance Officer for abrdn
Inc. Prior to joining the Risk and Compliance Department,
he was a member of abrdn Inc.’s Legal
Department, where he served as US Counsel since
2012. |
Michael
Marsico**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1980 |
Treasurer,
Chief Financial Officer and Principal
Accounting Officer
(Since
2023) |
Currently,
Senior Product Manager for abrdn Inc. Mr.
Marsico joined abrdn Inc. as a Fund Administrator
in 2014. |
Megan
Kennedy**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1974 |
Secretary
and Vice President
(Since
2009) |
Currently,
Senior Director, Product Governance for abrdn
Inc. Ms. Kennedy joined abrdn Inc. in 2005. |
Lucia
Sitar**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1971 |
Vice
President
(Since
2008) |
Currently,
Vice President and Head of Product Management
and Governance for abrdn Inc. since 2020.
Previously, Ms. Sitar was Managing U.S. Counsel
for abrdn Inc. She joined abrdn Inc. as U.S. Counsel
in July 2007. |
Ben
Moser**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1979 |
Vice
President
(Since
2018) |
Currently,
Head of Commercial Operations, Americas
for abrdn Inc. Mr. Moser joined abrdn Inc. in
July 2008. |
Katie
Gebauer**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1986 |
Vice
President
(Since
2023) |
Currently,
Chief Compliance Officer – ETFs and serves
as the Chief Compliance Officer for abrdn ETFs
Advisors LLC. Ms. Gebauer joined abrdn Inc. in 2014.
|
Sharon
Ferrari**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1977 |
Vice
President
(Since
2022) |
Currently,
Director, Product Management for abrdn
Inc. Prior to that she was a Senior Fund Administration
Manager for abrdn Inc. Ms. Ferrari joined
the company in June 2008. |
40 BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Heather
Hasson**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1982 |
Vice
President
(Since
2022) |
Currently,
Senior Product Solutions and Implementation
Manager for abrdn Inc. Ms. Hasson joined
the company in November 2006. |
Brian
Kordeck**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1978 |
Vice
President
(Since
2022) |
Currently,
Senior Product Manager for abrdn Inc. Mr.
Kordeck joined abrdn Inc. as a Senior Fund Administrator
in 2013. |
Katherine
Corey**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1985 |
Vice
President
(Since
2023) |
Currently,
Senior Legal Counsel - Product Governance
for abrdn Inc. Prior to joining abrdn Inc.
in 2013, Ms. Corey was an associate at Faegre Drinker
Biddle & Reath LLP in Philadelphia. |
Andrew
Kim**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1983 |
Vice
President
(Since
2022) |
Currently,
Senior Product Governance Manager for
abrdn Inc. Mr. Kim joined abrdn Inc. as a Product Manager
in 2013. |
Robert
Hepp**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1986 |
Vice
President
(Since
2022) |
Currently,
Senior Product Governance Manager for
abrdn Inc. Mr. Hepp joined abrdn Inc. as a Senior Paralegal
in 2016. |
Matt
Kence**
abrdn
Inc. 28 State Street 17th
floor Boston, MA
02109
Year
of Birth: 1974 |
Vice
President
(Since
2022) |
Currently,
Investment Director for abrdn Inc. |
George
Westervelt**
abrdn
Inc. 28 State Street 17th
floor Boston, MA
02109
Year
of Birth: 1977 |
Vice
President
(Since
2022) |
Currently,
Head of Global High Yield and Head of U.S.
High Yield Research for abrdn Inc. |
Ben
Ritchie**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1980 |
Vice
President
(Since
2022) |
Currently
Head of the Developed Markets Equity team
at abrdn. |
BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST 41
|
|
|
OFFICERS
OF THE TRUST |
NAME,
ADDRESS, AND YEAR OF BIRTH |
POSITION(S)
HELD, LENGTH OF TIME SERVED AND TERM
OF OFFICE*
|
PRINCIPAL
OCCUPATION DURING PAST 5 YEARS |
Svitlana
Gubriy**
abrdn
Inc. 1 George Street Edinburgh EH2
2LL
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently
Head of Indirect Real Assets at abrdn. |
Josh
Duitz**
abrdn
Inc. 875 Third Ave 4th
Floor, Suite 403 New
York, NY 10022
Year
of Birth: 1970 |
Vice
President
(Since
2022) |
Currently,
Head of Global Income at abrdn, Inc. Mr. Duitz
joined abrdn Inc. In 2018 from Alpine Woods Capital
Investors LLC where he was a Portfolio Manager.
|
Jonathan
Mondillo**
abrdn
Inc. 875 Third Ave 4th
Floor, Suite 403 New
York, NY 10022
Year
of Birth: 1983 |
Vice
President
(Since
2022) |
Currently,
Head of U.S. Fixed Income. He joined the firm
in 2018. Previously he managed mutual funds at
Alpine Woods Capital Investors, LLC. |
Devan
Kaloo**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently,
Global Head of Public Markets, Equities for
abrdn. Mr. Kaloo joined abrdn in 2000 as part of the
Asian equities team in Singapore. |
Chris
Colarik**
abrdn
Inc. 1900 Market
Street Suite 200 Philadelphia,
PA 19103
Year
of Birth: 1972 |
Vice
President
(Since
2022) |
Currently
Head of U.S. Smaller Companies at abrdn Inc.
He joined the firm in March 2023. Previously, he was
a portfolio manager at Glenmede Investment Management.
|
Nick
Robinson**
abrdn
Investments Limited 280
Bishopsgate London,
E2M 4AG
Year
of Birth: 1978 |
Vice
President
(Since
2022) |
Currently,
Senior Investment Director on the Global Emerging
Markets Equity team at abrdn since 2016.
Previously, Mr. Robinson was a Director and Head
of Brazilian Equities of abrdn’s operations in Sao
Paulo, Brazil from 2009 to 2016. Currently, Senior
Investment Director on the Global Emerging Markets
Equity team at abrdn since 2016. Previously,
Mr. Robinson was a Director and Head of
Brazilian Equities of abrdn’s operations in Sao Paulo,
Brazil from 2009 to 2016. |
* |
Each
officer holds office for an indefinite term at the pleasure of the Board of Trustees and until his or her successor is elected and qualified. |
** |
Ms.
Kennedy, Mr. Goodson, Mr. Andolina, Ms. Sitar, Mr. Moser, Ms. Gebauer,
Ms. Ferrari, Ms. Hasson, Mr. Kordeck, Mr.
Marsico, Ms. Corey, Mr. Kim,
Mr. Hepp, Mr. Kence,
Mr. Westervelt, Mr. Ritchie, Ms. Gubriy, Mr. Duitz, Mr. Kaloo, Mr. Colarik
and Mr. Robinson
hold officer position(s) in one or more of the following:
abrdn Asia-Pacific Income Fund, Inc., abrdn Australia Equity Fund, Inc., abrdn Global Income Fund, Inc., abrdn Emerging Markets Equity
Income Fund, Inc., The India Fund, Inc., abrdn
Japan Equity Fund, Inc., abrdn Income Credit Strategies Fund, abrdn Global Dynamic Dividend Fund, abrdn
Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund,
abrdn Global Infrastructure Income Fund, abrdn National Municipal Income
Fund, abrdn Healthcare Investors, abrdn Life Sciences Investors, abrdn Healthcare Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 portfolios),
each of which may also be deemed to be a part of the same “Fund Complex” as the Trust. |
Responsibilities
of the Board of Trustees
The
business and affairs of the Trust are managed under the direction of its Board of Trustees subject to the laws of the
State of Delaware and the Trust’s Amended and Restated Agreement and Declaration of Trust. The Board of Trustees sets
and reviews policies regarding the operation of the Trust, and directs the officers to perform the daily functions of the Trust.
Additional
Information about the Board of Trustees
The
Board believes that each Trustee’s experience, qualifications, attributes or skills on an individual basis and in combination
with those of the other Trustees lead to the conclusion that the Trustee possesses the requisite experience, qualifications,
attributes and skills to serve on the Board. The Board believes that the Trustees’ ability to review critically,
42 BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST
evaluate,
question and discuss information provided to them; to interact effectively with the Adviser, Sub-advisers,
other service providers, counsel and independent
auditor; and to exercise effective business judgment in the performance of their
duties, support this conclusion. The Board has also considered the contributions that each Trustee can make to the Board
and the Funds. A Trustee’s ability to perform his duties effectively may have been attained through the Trustee’s executive,
business, consulting, and/or legal positions; experience from service as a Trustee of the Trust and other funds/portfolios
in the abrdn fund complex, other investment funds, public companies, or non-profit entities or other organizations;
educational background or professional training or practice; and/or other life experiences. In this regard, the
following specific experience, qualifications, attributes and/or skills apply as to each Trustee in addition to the information
set forth in the table above: Ms. Ajmera, financial services, investment management and executive experience
and board experience with investment management and fund companies; Mr. Bird, investment management
experience as the Chief Executive Officer of abrdn plc and executive experience with other financial services
and banking companies; Mr. Malone, legal background and public service leadership experience, board experience
with other public and private companies, and executive and business consulting experience; Mr. Porter, financial,
accounting and executive experience with other companies and board experience with investment management
and fund companies; and
Mr. Smith, experience as managing editor and director of a financial publications
firm.
The
Board believes that the significance of each Trustee’s experience, qualifications, attributes or skills is an individual
matter (meaning that experience important for one Trustee may not have the same value for another) and that
these factors are best evaluated at the Board level, with no single Trustee, or particular factor, being indicative of Board
effectiveness. In its periodic self-assessment of the effectiveness of the Board, the Board considers the complementary
individual skills and experience of the individual Trustees in the broader context of the Board’s overall composition
so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and experience to oversee
the business of the Trust. References to the qualifications, attributes and skills of Trustees are pursuant to requirements
of the SEC, do not constitute holding out the Board or any Trustee as having any special expertise or experience,
and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
Board
and Committee Structure
The
Board of Trustees is composed of four
Independent Trustees and one Interested Trustee, Stephen Bird. The Board
has appointed Mr. Malone, an Independent Trustee, as Chairman. The Chairman presides at meetings of the Trustees,
participates in the preparation of the agenda for meetings of the Board, and acts as a liaison between the Independent
Trustees and the Trust’s management between Board meetings. Except for any duties specified herein, the designation
of the Chairman does not impose on such Trustee any duties, obligations or liability that is greater than the duties,
obligations or liability imposed on such person as a member of the Board, generally.
The
Board holds regular quarterly meetings each year to consider and address matters involving the Trust and its Funds.
The Board also may hold special meetings to address matters arising between regular meetings. The Independent
Trustees also meet outside the presence of management in executive session at least quarterly and have engaged
separate, independent legal counsel to assist them in performing their oversight responsibilities.
The
Board has established a committee structure that includes an Audit Committee
and Nominating and Corporate Governance Committee
(each discussed in more detail below) to assist the Board in the oversight and direction of the business
affairs of the Funds, and from time to time may establish informal ad hoc committees or working groups to review
and address the practices of the Funds with respect to specific matters. The Committee system facilitates the timely
and efficient consideration of matters by the Trustees, and facilitates effective oversight of compliance with legal and
regulatory requirements and of the Funds’ activities and associated risks. The standing Committees currently conduct
an annual review of their charters, which includes a review of their responsibilities and operations. The Nominating
and Corporate Governance Committee and the Board as a whole also conduct an annual evaluation of the performance
of the Board, including consideration of the effectiveness of the Board’s committee structure. Each Committee
is comprised entirely of Independent Trustees. The Board reviews its structure regularly and believes that its leadership
structure, including having a super-majority of Independent Trustees, coupled with an Independent Trustee as Chairman,
is appropriate because it allows the Board to exercise informed and independent judgment over the matters under
its purview and it allocates areas of responsibility among the Committees and the full Board in a manner that enhances
efficient and effective oversight.
The
Audit Committee
is comprised of Ms. Ajmera and Messrs. Malone, Porter
and Smith. Mr. Porter serves as Chair of the
Audit Committee
as well as the Audit Committee
Financial Expert. The purposes of the Audit Committee
are to: (a) annually select, retain or terminate,
and recommend to the Trustees for their ratification, the selection, retention or termination
of the Trust’s independent auditor
and, in connection therewith, to evaluate the terms of the engagement (including
compensation of the independent auditor) and
the qualifications and independence of the independent auditor;
(b) review in advance, and consider approval of, any and all proposals by Management
or the Adviser that the Trust, the
Adviser or their affiliated persons, employ
the independent auditor to render permissible non-audit services to the
Trust and to consider whether such services are consistent with the independent auditor’s independence; (c) meet periodically
with the Trust’s independent auditor and
Management, including private meetings, as necessary (i) to review the
arrangements for and scope of the annual audit and any special audits, and the fees proposed to be charged in
BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST 43
connection
with such services, (ii) review and discuss
the Trust’s annual audited financial statements,
(iii) to discuss any matters
of concern relating to the Trust’s financial statements,
including any adjustments to such statements recommended
by the independent auditor,
or the results of said audit(s), including matters required to be discussed by PCAOB
Auditing Standard 1301,and Management’s response to such matters,
(iv) to consider the
independent auditor’s comments with
respect to the Trust’s financial policies,
procedures and internal accounting controls and Management’s
responses thereto, (v)
to review the form of opinion the independent auditor proposes to render to the Board and shareholders,
and (vi) to review the performance of the independent auditor;
(d) review and discuss policies with respect to
risk assessment and risk management
with respect to the Fund; (e) set
clear hiring policies when the Trust considers hiring
employees or former employees of the independent auditor; (f) report its activities to the full Board on a regular basis
and to make such recommendations with respect to the above and other matters as the Audit Committee may deem
necessary or appropriate; (g) review annually
with management and with
the independent auditors
their separate evaluations of the adequacy
and effectiveness of the Trust’s system of internal controls; and
(h) consider the independent
auditor’s comments with respect to the Trust’s financial policies, procedures and
internal accounting controls
and Management’s responses thereto. The function of the Audit Committee is oversight; it is the responsibility of the
Trust’s management and to the extent delegated to the Adviser and Administrator, such Adviser and Administrator
to maintain appropriate systems for accounting
and internal controls.
It is the responsibility of the Trust’s independent auditor
to plan and carry out a proper audit. The independent auditor is directly
accountable to the Audit
Committee and must report
directly to the Audit Committee. Each of the
members is
able to understand basic financial statements, including
the Fund’s balance sheet, income statement and statement of cash flows
and are not interested persons of the Trust,
as defined in the 1940 Act.
The Audit Committee met 4 times during the fiscal year ended October 31, 2023.
The
Nominating and Corporate Governance Committee (“Nominating Committee”) is comprised of Ms. Ajmera and
Messrs. Malone, Porter and Smith. Mr. Malone serves as Chair of the Nominating Committee.
The Nominating Committee
has the following responsibilities: (1) to select and nominate all persons for election or appointment as Trustees
of the Trust (provided that nominees for independent Trustee are recommended for selection and approval by all
of the incumbent independent Trustees then serving on the Board); (2) to review, discuss, and make recommendations
to the Board, relating to those issues that pertain to the effectiveness of the Board in carrying out its responsibilities
in governing the Fund and overseeing the management of the Fund, including: (a) composition of the Board,
including size, areas of expertise represented, tenure of the directors, including term limits and/or age limits, (b) committee
assignments, (c) the role of the Board’s committees, including the scope of each committee’s responsibilities, and
(d) the role of the Independent Directors, including periodic review of governance policies adopted by the Board; and
(3) to implement (or cause to be implemented) an annual evaluation of the performance of the Board and the organization
and effectiveness of its committees. The Nominating Committee reports to the full Board with recommendations
of any appropriate changes to the Board.
The
Nominating Committee will consider nominees recommended by shareholders. When considering whether to add
additional or substitute Trustees to the Board of Trustees of the Trust, the Trustees take into account any proposals for candidates
that are properly submitted to the Trust’s Secretary. Shareholders wishing to present one or more candidates for
Trustee for consideration may do so by submitting a signed written request to the Trust’s Secretary at attn: Secretary, abrdn
Funds, 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, which includes the following information: (i) name
and address of shareholder and, if applicable, name of broker or record holder; (ii) number of shares owned; (iii) name
of Fund(s) in which shares are owned; (iv) whether the proposed candidate(s) consent to being identified in any proxy
statement utilized in connection with the election of Trustees; (v) the name and background information of the proposed
candidates and (vi) a representation that the candidate or candidates are willing to provide additional information
about themselves, including assurances as to their independence. The Nominating Committee met 2 times during
the fiscal year ended October 31, 2023.
The
Funds are subject to a number of risks, including, among others, investment, compliance, operational and valuation
risks. Risk oversight forms part of the Board’s general oversight of the Funds and is addressed as part of various Board
and Committee activities. The Board has adopted, and periodically reviews, policies and procedures designed to address
these risks. Different processes, procedures and controls are employed with respect to different types of risks. Day-to-day
risk management functions are subsumed within the responsibilities of the Adviser, who carries out the Trust’s
investment management and business affairs, and also by the Funds’ Sub-advisers,
as applicable, and other service providers
in connection with the services they provide to the Funds. Each of the Adviser, Sub-advisers
and other service providers have their own,
independent interest in risk management, and their policies and methods of risk management
will depend on their functions and business models. As part of its regular oversight of the Trust, the Board, directly
and/or through a Committee, interacts with and reviews reports from, among others, the Adviser, Sub-advisers,
and the Trust’s other service providers
(including the Trust’s distributor and transfer agent), the Trust’s Chief Compliance Officer,
the Trust’s independent registered public accounting firm, legal counsel to the Trust, and internal auditors, as appropriate,
relating to the operations of the Trust. The Board also requires the Adviser to report to the Board on other matters
relating to risk management on a regular and as-needed basis. The Board recognizes that it may not be possible to
identify all of the risks that may affect the Trust or to develop processes and controls to eliminate or mitigate their occurrence
or effects. The Board may, at any time and in its discretion, change the manner in which it conducts risk oversight.
44 BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST
Ownership
of Shares of abrdn Funds
As
of December 31, 2023,
the Trustees held shares of the Fund
and of the abrdn Family of Investment Companies as indicated
below.
|
|
|
INDEPENDENT
TRUSTEES |
Name
|
Fund/Dollar
Range of Fund Shares Owned |
Aggregate
Dollar Range of Shares Owned
in Registered Investment Companies
Overseen by Trustee in the
Family of Investment Companies*
|
Radhika
Ajmera |
None
|
$10,001
- $50,000 |
P.
Gerald Malone |
None
|
$50,001-$100,000
|
Rahn
K. Porter |
None
|
$50,001-$100,000
|
Warren
C. Smith |
None
|
$10,001
- $50,000 |
|
|
|
INTERESTED
TRUSTEE |
Name
|
Fund/Dollar
Range of Fund Shares Owned |
Aggregate
Dollar Range of Shares Owned in Registered Investment
Companies Overseen by Trustee in the Family of Investment
Companies* |
Stephen
Bird |
None
|
$50,001-$100,000
|
* |
As
of December 31, 2023,
the Family of Investment Companies consisted of the Trust, which contained 19
portfolios and abrdn ETFs (consisting of 3 portfolios);
however, each Trustee did not serve on the Board of every fund in such Family of Investment Companies. Ownership information is provided
with respect to only those funds that each Trustee oversaw as of December 31, 2023. |
As
of January 31, 2024,
the Officers and Trustees, as a group, owned of record and beneficially less than 1% of the Fund’s
shares.
Compensation
of Trustees
|
|
|
|
|
INDEPENDENT
TRUSTEES |
Name
of Trustee |
Aggregate
Compensation from
the Trust
|
Pension
Retirement Benefits
Accrued as Part
of Trust Expenses
|
Estimated
Annual Benefits
Upon Retirement
|
Total
Compensation from
the Fund Complex*
|
Radhika
Ajmera |
$114,211
|
None
|
None
|
$336,421
|
P.
Gerald Malone |
$135,045
|
None
|
None
|
$613,816
|
Rahn
K. Porter |
$133,221
|
None
|
None
|
$191,096
|
Steven
N. Rappaport(1)
|
$107,413
|
None
|
None
|
$182,926
|
Warren
C. Smith |
$120,721
|
None
|
None
|
$149,601
|
(1) |
Mr.
Rappaport retired from the Board effective September 8, 2023. |
|
|
|
|
|
INTERESTED
TRUSTEE |
Name
|
Aggregate
Compensation from the Trust
|
Pension
Retirement Benefits Accrued as Part
of Trust Expenses |
Estimated
Annual Benefits Upon Retirement
|
Total
Compensation from the Fund Complex*
|
Stephen
Bird |
None
|
None
|
None
|
None
|
* |
As
of October 31, 2023,
the abrdn Fund Complex consisted of the Trust, which contained 19
portfolios, as well as abrdn Asia-Pacific Income Fund, Inc., abrdn
Global Income Fund, Inc., abrdn Australia
Equity Fund, Inc., abrdn Emerging Markets Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity
Fund, Inc., abrdn Income
Credit Strategies Fund, abrdn Global Dynamic
Dividend Fund, abrdn Global
Premier Properties Fund, abrdn Total Dynamic
Dividend Fund, abrdn
Global Infrastructure Income Fund, abrdn National Municipal Income Fund, abrdn Healthcare Investors, abrdn Life Sciences
Investors, abrdn Healthcare Opportunities Fund, abrdn World Healthcare Fund
and abrdn ETFs (consisting of 3 portfolios). |
The
Trust does not maintain any pension or retirement plans for the Officers or Trustees of the Trust.
Code
of Ethics
Federal
law requires the Trust, the Adviser and Sub-advisers and its principal underwriter to adopt codes of ethics which govern
the personal securities transactions of their respective personnel. Accordingly, each such entity has adopted a Code
of Ethics pursuant to which their respective personnel may invest in securities for their personal accounts (including securities
that may be purchased or held by the Trust). Copies of these Codes of Ethics are on file with the SEC and are available
to the public.
Proxy
Voting Policies and Procedures
Regulations
under the federal securities laws require the Trust, the Adviser and Sub-advisers to adopt procedures for voting
proxies (“Proxy Voting Policies and Procedures”) and to provide a summary of those Proxy Voting Policies and Procedures
used to vote the securities held by the Fund. The Trust has adopted proxy voting policies and procedures that
BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST 45
delegate
the responsibility for proxy voting to the Adviser and Sub-advisers, as applicable. The Adviser and Sub-advisers have
adopted proxy voting policies and procedures, which have been reviewed and approved by the Fund’s Board, to ensure
the proper and timely voting of the proxies on behalf of the Fund. Moreover, the Adviser will assist the Fund in the preparation
of the Fund’s complete proxy voting record on Form N-PX for the twelve-month period ended June 30, which must
be filed with the SEC by no later than August 31 of each year. Any material changes to the proxy voting policies and procedures
of the Fund or the Adviser and Sub-advisers will be submitted to the Board for approval or review, as the case may
be. For additional information, please see the Adviser’s and Sub-advisers’ proxy voting policies and procedures attached
hereto as Appendix C. Also attached hereto in Appendix C is the Adviser’s and Sub-advisers’ Listed Company Stewardship
Guidelines, which among other things, expands upon how the Adviser and Sub-advisers approach environmental,
social and governance issues when engaging with company management and voting proxies.
Information
about how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended
June 30 is available after August 31 of the relevant year (1) without charge, upon request, by calling 866-667-9231 and
(2) on the SEC’s website at http://www.sec.gov.
46 BOARD
OF TRUSTEES AND OFFICERS OF THE TRUST
INVESTMENT
ADVISORY AND OTHER SERVICES
Trust
Expenses
The
Trust pays the compensation of the Trustees who are not employees of abrdn, or its affiliates, and all expenses (other
than those assumed by the Adviser), including governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust; investment advisory fees and any Rule 12b-1 fees; fees under the Trust’s
Fund Administration and Transfer Agency Agreements, which includes the expenses of calculating the Fund’s NAV; fees
and expenses of independent certified public accountants and legal counsel to the Trust and to the Independent Trustees;
expenses of preparing, printing, and mailing shareholder reports, notices, proxy statements, and reports to governmental
offices and commissions; expenses connected with the execution, recording, and settlement of portfolio security
transactions; short sale dividend expenses; insurance premiums; administrative services fees under an Administrative
Services Plan; fees and expenses of the custodian for all services to the Trust; expenses of shareholder meetings;
and expenses relating to the issuance, registration, and qualification of shares of the Trust. The Adviser may, from
time to time, agree to voluntarily or contractually waive advisory fees, and if necessary reimburse expenses, in order to
limit total operating expenses for the Fund and/or classes, as described below.
Investment
Adviser and Sub-advisers
Under
the Investment Advisory Agreement with the Trust, abrdn manages the Fund in accordance with the policies and
procedures established by the Trustees.
Except
as described below, the Adviser manages the day-to-day investments of the assets of the Fund. For the Fund,
the Adviser also provides investment management evaluation services in initially selecting and monitoring on an ongoing
basis the performance of the Sub-advisers who manage the investment portfolio of a particular Fund. The Adviser
is also authorized to select and place portfolio investments on behalf of the sub-advised Fund; however, the Adviser
does not intend to do so as a routine matter at this time.
The
Fund is sub-advised by abrdn Investments Limited (“aIL”)
and abrdn Asia Limited (“aAL”),
each an affiliate of the Adviser. The Adviser
and Sub-advisers are each wholly-owned subsidiaries of abrdn (Holdings) PLC. abrdn (Holdings) PLC
is a wholly-owned subsidiary of abrdn plc (“abrdn”). abrdn plc, its affiliates and subsidiaries are referred to herein as
the abrdn Group. abrdn, combined with its
subsidiaries and affiliates, manages approximately
$467.4
billion in assets as of December
31, 2023. abrdn provides asset management
and investment solutions for clients and customers worldwide and
also have a strong position in the pensions and savings market.
In
rendering investment advisory services, the Adviser, aAL
and aIL may use the resources of investment
adviser subsidiaries of abrdn plc. These affiliates
have entered into a memorandum of understanding/personnel sharing procedures
pursuant to which investment professionals from each affiliate may render portfolio management and research
services to U.S. clients of the abrdn plc affiliates, including the Fund, as associated persons of the Adviser or Sub-adviser.
No remuneration is paid by the Fund with respect to the memorandum of understanding/personnel sharing arrangements.
abrdn
Inc.
abrdn
pays the compensation of the officers of the Trust employed by abrdn. abrdn also furnishes, at its own expense,
all necessary administrative services, office space, equipment, and clerical personnel for servicing the investments
of the Trust and maintaining its investment advisory facilities, and executive and supervisory personnel for managing
the investments and effecting the portfolio transactions of the Trust. In addition, abrdn pays, out of its legitimate
profits, broker-dealers, trust companies, transfer agents and other financial institutions in exchange for their selling
of shares of the Trust’s series or for recordkeeping or other shareholder related services.
The
Investment Advisory Agreement also specifically provides that abrdn, including its directors, officers, and employees,
shall not be liable for any error of judgment, or mistake of law, or for any loss arising out of any investment, or for
any act or omission in the execution and management of the Trust, except for 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 Agreement.
The Agreement continues in effect for an initial period of no more than two years, and thereafter shall continue
automatically for successive annual periods provided such continuance is specifically approved at least annually
by the Trustees, or by vote of a majority of the outstanding voting securities of the Trust, and, in either case, by a majority
of the Trustees who are not parties to the Agreement or interested persons of any such party. The Agreement terminates
automatically in the event of its “assignment,” as defined under the 1940 Act. It may be terminated as to the Fund
without penalty by vote of a majority of the outstanding voting securities of that Fund, or by either party, on not less than
60 days’ written notice. The Agreement further provides that abrdn may render similar services to others.
abrdn
Inc., located at 1900 Market Street, Suite 200, Philadelphia, Pennsylvania 19103, is indirectly owned by abrdn plc.
Stephen Bird, Trustee of the Trust, is the CEO of abrdn plc.
The
Fund does not pay the Adviser an advisory fee in return for the advisory services that the Adviser provides to the Fund.
INVESTMENT
ADVISORY AND OTHER SERVICES 47
Limitation
of Fund Expenses
The
“Trust and the Adviser have entered into a written contract pursuant to which the Adviser has agreed to reimburse
the Fund’s operating expenses (excluding certain expenses, including any taxes, interest, brokerage fees, Acquired
Fund Fees and Expenses, and extraordinary expenses). This contractual arrangement may not be terminated before
February 28,
2025 without the approval of the Independent
Trustees.
Please
note that the waiver of fees will cause the total return and yield of the Fund to be higher than they would otherwise
be in the absence of such a waiver.
Investment
Advisory Fees
The
Fund does not pay the Adviser an advisory fee in return for the advisory services that the Adviser provides to the Fund.
Therefore, there were no investment advisory fees paid by the Fund to the Adviser (which includes amounts paid by the
Adviser to the Sub-adviser(s)) for the fiscal year ended October 31, 2023.
Sub-advisers
aIL,
a Scottish Company, and aAL,
a Singapore corporation, each serve as Sub-adviser to the Fund. aIL
and aAL are both
affiliates of the Adviser. aIL’s
registered office is located at 10 Queen’s Terrace, Aberdeen, Scotland AB10 1YG. aAL
is located at 21 Church Street, #01-01 Capital
Square Two, Singapore 049480.
Under
the sub-advisory agreements among the Trust, the Adviser and each Sub-adviser, and subject to the supervision
of the Adviser and the Trustees, each of the Sub-advisers manages the assets of the Fund in accordance with the
Fund’s investment objectives and policies. Each Sub-adviser makes investment decisions for the Fund and in connection
with such investment decisions places purchase and sell orders for securities.
Sub-advisory
Fees
The
Sub-Advisers do not receive a sub-advisory fee for the investment management services they provide to the Fund.
Multi-Manager
Structure
On
September 22, 2008, the Adviser and the Trust received an exemptive order from the SEC for a multi-manager structure
which allows the Adviser, subject to the approval of the Board of Trustees, to hire, replace or terminate unaffiliated
sub-advisers without the approval of shareholders. The order also allows the Adviser to revise a sub-advisory agreement
with an unaffiliated sub-adviser without shareholder approval. If a new unaffiliated sub-adviser is hired, the change
would be communicated to shareholders within 90 days of such change, and all changes would be approved by the
Trust’s Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust or the Adviser.
The multi-manager structure is intended to facilitate the efficient operation of the Fund and afford the Trust increased
management flexibility.
The
Adviser provides investment management evaluation services to the Fund principally by performing initial due diligence
on prospective sub-advisers for the Fund and thereafter monitoring the performance of the sub-adviser through
quantitative and qualitative analysis as well as periodic in-person, telephonic and written consultations with the sub-adviser.
The Adviser has responsibility for communicating performance expectations and evaluations to the sub-adviser
and ultimately recommending to the Trust’s Board of Trustees whether the sub-adviser’s contract should be renewed,
modified or terminated; however, the Adviser does not expect to recommend frequent changes of sub-advisers.
The Adviser will regularly provide written reports to the Trust’s Board of Trustees regarding the results of its evaluation
and monitoring functions. Although the Adviser will monitor the performance of the sub-advisers, there is no certainty
that the sub-adviser or the Fund will obtain favorable results at any given time. The Adviser does not currently rely
on the manager of managers order with respect to its management of the Fund.
Portfolio
Managers
Appendix
A contains the following information regarding the portfolio managers identified in the Fund’s Prospectus: (i)
a description of the portfolio manager’s compensation structure and (ii) information regarding other accounts managed
by the portfolio manager and potential conflicts of interest that might arise from the management of multiple accounts.
Information relating to each portfolio manager’s ownership in the Fund as of October 31, 2023
is set forth in the chart below.
|
|
|
Portfolio
Manager |
|
Dollar
Range of Fund Shares Owned |
Kristy
Fong |
|
None
|
Joanne
Irvine |
|
None
|
Devan
Kaloo |
|
None
|
Nick
Robinson |
|
None
|
Gabriel
Sacks |
|
None
|
48 INVESTMENT
ADVISORY AND OTHER SERVICES
Distributor
The
Trust and Aberdeen Fund Distributors LLC (the “distributor” or “AFD”) have entered into a distribution agreement
whereby AFD will act as principal underwriter
for the Trust’s shares. The principal business address of AFD is 1900 Market Street,
Suite 200, Philadelphia, Pennsylvania 19103. AFD is affiliated with the Fund’s Adviser.
Under
the distribution agreement, the distributor must use reasonable efforts, consistent with its other business, in connection
with the continuous offering of shares of the Trust.
The
distributor has no obligation to sell any specific quantity of Fund shares. Unless otherwise terminated, the distribution
agreement has an initial term of two years and thereafter will remain in effect from year to year for successive
annual periods if approved at least annually by (i) the Trust’s Board of Trustees or by the vote of a majority of the
outstanding shares of that Fund, and (ii) the vote of a majority of the Trustees of the Trust who are not parties to the distribution
agreement or interested persons (as defined in the 1940 Act) of any party to the distribution agreement, cast in
person at a meeting called for the purpose of voting on such approval. The distribution agreement may be terminated in
the event of any assignment, as defined in the 1940 Act.
The
distributor may enter into arrangements with various financial institutions through which a shareholder may purchase
or redeem shares. The distributor may enter into agreements with selected broker-dealers, banks or other financial
institutions for distribution of shares of the Fund. If applicable to a class of the Trust’s Shares as described below, the
distributor may receive distribution fees from the Fund as authorized by the Distribution and Service Plan described below.
The distributor did not receive any fees or commissions from the Fund for the fiscal year ended October 31, 2023.
Fund
Administration
Under
the terms of the Fund Administration Agreement, abrdn Inc. provides various administrative and accounting services,
including daily valuation of the Fund’s shares, preparation of financial statements, tax returns, and regulatory reports,
and presentation of quarterly reports to the Board of Trustees. abrdn Inc. is located at 1900 Market Street, Suite 200,
Philadelphia, Pennsylvania 19103. The Trust shall pay fees to abrdn Inc., as set forth directly below, for the provision of services
to the Fund. Fees will be computed daily and payable monthly on the first business day of each month, or as otherwise
set forth below.
Asset-Based
Annual Fee
|
|
Fund
Asset Level |
Aggregate
Fee as a Percentage of Fund Net Assets |
All
Assets |
0.08%
|
The
asset-based fees are subject to an annual minimum fee equal to the number of Funds of the Trust (excluding those funds
for which abrdn Inc. does not serve as administrator) multiplied by $25,000.
Fund
Administration Fees
During
the fiscal year ended October 31, 2023, the Fund paid $163 in fund administration fees.
Transfer
Agent
The
Trust has entered into a Transfer Agency and Service Agreement with SS&C GIDS, Inc. (”SS&C”),
333 West 11th Street, Kansas City, Missouri
64105, whereby SS&C provides transfer agent and dividend disbursement agent services.
Sub-Administrator,
Custodian and Fund Accountant
The
Trust has entered into an Amended and Restated Master Custodian Agreement (the “Custody Agreement”) with State
Street, which is located at 1 Heritage Drive, 3rd Floor, North Quincy, MA 02171, whereby State Street provides custody
and fund accounting services for the Fund. abrdn has entered into a Sub- Administration Agreement with State Street
whereby State Street will provide certain administration services to the Fund. For the administration services provided
by State Street to the Fund, abrdn pays State Street an asset-based fee that is calculated based on the assets of certain
registered and unregistered funds and segregated accounts advised by the Adviser and its affiliates, plus certain out-of-pocket
expenses, subject to a minimum fee.
Securities
Lending Activity
Pursuant
to a Securities Lending Authorization Agreement with the Trust, on behalf of the Fund, Securities Finance Trust
Company (“eSecLending”), acts as securities lending agent for the Fund. The services eSecLending may provide to the
Fund, pursuant to the agreement, primarily include the following:
(1) |
selecting
borrowers from an approved list of borrowers; |
(2) |
negotiating
the terms of securities loans, including the amount of fees, and executing a securities lending agreement
as agent on behalf of the Fund with each such borrower; |
(3) |
monitoring
the daily value of the loaned securities and directing the payment of additional collateral or the return of excess
collateral, as necessary; |
(4) |
investing
cash collateral received in connection with any loaned securities; |
INVESTMENT
ADVISORY AND OTHER SERVICES 49
(5) |
arranging
for the collection of any interest, dividends or other distributions or other payments of any kind on loaned securities
and payment of the same to the Fund; |
(6) |
maintaining
separate records for securities loaned; |
(7) |
in
the event of default by a borrower with respect to any securities loan, using the collateral or the proceeds of the liquidation
of collateral to purchase replacement securities of the same issuer, class, quantity and denomination as the
loaned securities; and |
(8) |
terminating
securities loans and arranging for the return of loaned securities to the Fund at loan termination. |
The
Fund conducted no securities lending activities and received no income and fees/compensation related to the securities
lending activities for the fiscal year ended October 31, 2023.
Legal
Counsel
Dechert,
LLP, 1900 K Street, NW, Washington, DC 20006-1110, serves as the Trust’s legal counsel. Faegre Drinker Biddle
& Reath LLP, One Logan Square, Philadelphia, Pennsylvania 19103, serves as legal counsel to the Independent Trustees.
Independent
Registered Public Accounting Firm
KPMG
LLP serves as the independent registered public accounting firm for the Trust.
50 INVESTMENT
ADVISORY AND OTHER SERVICES
BROKERAGE
ALLOCATION
The
Adviser (or a Sub-adviser)
is responsible for decisions to buy and sell securities and other investments for the Fund,
the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any.
In transactions on stock and commodity exchanges in the United States, these commissions are negotiated, whereas
on foreign stock and commodity exchanges these commissions are generally fixed and are generally higher than
brokerage commissions in the United States. In the case of securities traded on the OTC markets or for securities traded
on a principal basis, there is generally no commission, but the price includes a spread between the dealer’s purchase
and sale price. This spread is the dealer’s profit. In underwritten offerings, the price includes a disclosed, fixed commission
or discount. Most short term obligations are normally traded on a “principal” rather than agency basis. This may
be done through a dealer (e.g., a securities firm or bank) who buys or sells for its own account rather than as an agent
for another client, or directly with the issuer.
Except
as described below, the primary consideration in portfolio security transactions is best execution of the transaction
(i.e., execution at a favorable price and in the most effective manner possible). “Best execution” encompasses
many factors affecting the overall benefit obtained by the client account in the transaction including, but not
necessarily limited to, the price paid or received for a security, the commission charged, the promptness, available liquidity
and reliability of execution, the confidentiality and placement accorded the order, and customer service. Therefore,
“best execution” does not necessarily mean obtaining the best price alone but is evaluated in the context of all the
execution services provided. Both the Adviser and the Sub-advisers
(if applicable) have complete freedom as to the markets
in and the broker-dealers through which they seek this result.
Subject
to the primary consideration of seeking best execution and as discussed below, securities may be bought or sold
through broker-dealers who have furnished statistical, research, corporate access, and other information or services to
the Adviser or Sub-advisers
(if applicable). SEC regulations provide a “safe harbor” that allows an investment adviser to pay
for research and brokerage services with commission dollars generated by client transactions. On September 12, 2017,
abrdn announced a change to the payment for research model, such that abrdn would absorb all research costs directly
(i.e., pays for research from its profits and losses) to coincide with the new MiFID II legislation which went into effect
on January 3, 2018. As a result, abrdn does not use soft dollars and has been paying “execution only” commission rates
since the start of 2017, paying for research for equities out of its assets.
There
may be occasions when portfolio transactions for the Fund are executed as part of concurrent authorizations to
purchase or sell the same security for trusts or other accounts (including other mutual funds) served by the Adviser or Sub-adviser
(if applicable) or by an affiliated company thereof. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to the Fund, they are affected only when the Adviser or the Sub-advisers
(if applicable) believes that to do so is in the interest of the Fund. When such concurrent authorizations occur,
the executions will be allocated in an equitable manner.
In
purchasing and selling investments for the Fund, it is the policy of the Adviser and the Sub-advisers
(if applicable) to seek best execution through
responsible broker-dealers. The determination of what may constitute best execution in a securities
transaction by a broker involves a number of considerations, including the overall direct net economic result to the
Fund (involving both price paid or received and any commissions and other costs paid), the efficiency with which the transaction
is effected, the ability to effect the transaction at all when a large block is involved, the availability of the broker
to stand ready to execute possibly difficult transactions in the future, the professionalism of the broker, and the financial
strength and stability of the broker. These considerations are judgmental and are weighed by the Adviser and the
Sub-advisers
(if applicable) in determining the overall reasonableness of securities executions and commissions paid.
In selecting broker-dealers, the Adviser and the Sub-advisers
(if applicable) will consider various relevant factors, including,
but not limited to, the size and type of the transaction; the nature and character of the markets for the security or
asset to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker-dealer’s
firm; the broker-dealer’s execution services, rendered on a continuing basis; and the reasonableness of any
commissions.
As
discussed under “General Information about the Fund’s Portfolio Instruments and Investment Policies – Foreign Currencies”
above, with respect to FX transactions, different considerations or circumstances may apply, particularly with
respect to Restricted Market FX. FX transactions executed for the Fund are divided into two main categories: (1) Restricted
Market FX and (2) Unrestricted Market FX. Restricted Market FX are required to be executed by a local bank in the
applicable market. Unrestricted Market FX are not required to be executed by a local bank. The Adviser, Sub-advisers or
third-party agent execute Unrestricted Market FX relating to trading decisions. The Fund’s custodian executes all Restricted
Market FX because it has local banks or relationships with local banks in each of the restricted markets where custodial
client accounts hold securities. Unrestricted Market FX relating to the repatriation of dividends and/or income/expense
items not directly relating to trading may be executed by the Adviser or Sub-advisers or by the Fund’s custodian due
to the small currency amount and lower volume of such transactions. The Fund, the Adviser and the Sub-advisers have
limited ability to negotiate prices at which certain FX transactions are customarily executed by the Fund’s custodian,
i.e., transactions in Restricted Market FX and repatriation transactions.
The
Adviser and each Sub-adviser may cause the Fund to pay a broker-dealer a commission that is in excess of the commission
another broker-dealer would have received for executing the transaction if it is determined to be consistent with
the Adviser’s or Sub-advisers’ obligation to seek best-execution pursuant to the standards described above.
Under
the 1940 Act, “affiliated persons” of a Fund are prohibited from dealing with it as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. However, each Fund
may purchase securities from underwriting syndicates of which a Sub-adviser (if applicable) or any of its affiliates, as
defined in the 1940 Act, is a member under certain conditions, in accordance with Rule 10f-3 under the 1940 Act.
The
Fund contemplates that, consistent with the policy of seeking to obtain best execution, brokerage transactions may
be conducted through “affiliated brokers or dealers,” as defined in rules under the 1940 Act. Under the 1940 Act, commissions
paid by the Fund to an “affiliated broker or dealer” in connection with a purchase or sale of securities offered
on a securities exchange may not exceed the usual and customary broker’s commission. Accordingly, it is the Fund’s
policy that the commissions to be paid to an affiliated broker-dealer must, in the judgment of the Adviser or the appropriate
Sub-adviser (if applicable), be (1) at least as favorable as those that would be charged by other brokers having
comparable execution capability and (2) at least as favorable as commissions contemporaneously charged by such
broker or dealer on comparable transactions for the broker’s or dealer’s unaffiliated customers. The Adviser and the Sub-advisers
do not necessarily deem it practicable or in the Fund’s best interests to solicit competitive bids for commissions
on each transaction. However, consideration regularly is given to information concerning the prevailing level of
commissions charged on comparable transactions by other brokers during comparable periods of time.
Neither
the Fund nor the Adviser has an agreement or understanding with a broker-dealer, or other arrangements to
direct the Fund’s brokerage transactions to a broker-dealer because of the research services such broker provides to the
Fund or the Adviser. While the Adviser does not have arrangements with any broker-dealers to direct such brokerage transactions
to them because of research services provided, the Adviser may receive research services from such broker-dealers.
The dollar
amount of transactions and related commissions for transactions paid to a broker from which the
Adviser or Sub-Adviser also received research services for the
fiscal year ended October 31, 2023
are summarized in the
table below:
|
|
Total
Dollar Amount of Transactions^ |
Total
Commissions Paid on Such Transactions^ |
$516,220
|
$335
|
During
the fiscal year ended October 31, 2023, the following brokerage commissions were paid by the Fund:
|
Year
ended October 31, |
2023
|
$343
|
During
the fiscal year ended October 31, 2023, the Fund held investments in securities of its regular broker-dealers (as
defined in Rule 10b-1 under the 1940 Act) as follows:
|
|
Approximate
Aggregate Value of Issuer’s Securities Owned by the Fund as of Fiscal Year Ended
October 31, 2023 |
Name
of Broker or Dealer |
$55,518
|
Samsung
Securities Co., Ltd |
ADDITIONAL
INFORMATION ON PURCHASES AND SALES
Shares
of the Fund have not been registered for sale outside of the United States and its territories. However, the Fund
may accept investments from non- U.S. affiliates of the Adviser.
Shares
of the fund are purchased at net asset value without a sales charge or other fee.
Redemptions
Generally,
the Fund will issue payment for shares that you redeem within two business days after your redemption request
is received in good order. The Fund may delay forwarding redemption proceeds for up to seven days (i) if the investor
redeeming shares is engaged in excessive trading, or (ii) if the amount of the redemption request otherwise would
be disruptive to efficient portfolio management or would adversely affect the Fund.
In-Kind
Redemptions
The
Fund generally plans to redeem their shares for cash with the following exceptions. As described in the Prospectus,
the Fund reserves the right, in circumstances where in its sole discretion it determines that cash redemption payments
would be undesirable, taking into account the best interests of all Fund shareholders, to honor any redemption request
by transferring some of the securities held by the Fund directly to you (an “in-kind redemption”). The Fund may process
a shareholder’s redemption request with an in-kind distribution at any time, subject to the conditions outlined below,
but may be more likely to do so under stressed conditions where the Fund is unable to distribute cash, or for redemptions
to large institutional investors that are equipped to receive the in-kind distribution in a way that does not adversely
affect either such shareholder, the Fund or the remaining shareholders.
The
Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the specific Fund’s NAV during any 90-day period for any
one shareholder.
The
Trust’s Board of Trustees has adopted procedures for redemptions in-kind by a shareholder including affiliated and
unaffiliated persons of the Fund. Affiliated persons of the Fund include shareholders who are affiliates of the Adviser and
shareholders of the Fund owning 5% or more of the outstanding shares of that Fund. These procedures provide that a
redemption in-kind shall be effected at approximately the shareholder’s proportionate share of the distributing Fund’s current
net assets, so that redemptions will not result in the dilution of interests of the remaining shareholders. The procedures
also require that the distributed securities be valued in the same manner as they are valued for purposes of computing
the distributing Fund’s NAV and that any redemption in-kind made by an affiliated party does not favor such affiliate
to the detriment of any other shareholder. Use of the redemption in-kind procedures will allow a Fund to avoid having
to sell significant portfolio assets to raise cash to meet the shareholder’s redemption request - thus limiting the potential
adverse effect on the distributing Fund’s NAV.
Medallion
Signature Guarantee
A
medallion signature guarantee may be required in certain instances as requested by Fund. The Fund, at its discretion,
may waive the requirement for a signature guarantee.
ADDITIONAL
INFORMATION ON PURCHASES AND SALES 53
VALUATION
OF SHARES
Under
normal circumstances, the NAV per share for the Fund is determined as of the close of regular trading on the New
York Stock Exchange (the “Exchange”) (usually 4 p.m. Eastern Time) on each day that the Exchange is open (a “Business
Day”) and on such other days as the Board of Trustees determines (together, the “Valuation Time”). However, to the
extent that the Fund’s investments are traded in markets that are open when the Exchange is closed, the value of the Fund’s
investments may change on days when shares cannot be purchased or redeemed.
The
Fund will not compute NAV on customary business holidays, including New Year’s Day, Martin Luther King, Jr. Day,
Presidents’ Day, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, or the days when such holidays are observed and other days when the Exchange
is regularly closed. Fixed income Fund shares may be priced on days that the Exchange is closed if the Securities
Industry and Financial Markets Association (“SIFMA”) recommends that the bond markets remain open for all or
part of the day. On any business day when the SIFMA recommends that the bond markets close early, a fixed income Fund
reserves the right to close at or prior to the SIFMA recommended closing time. If a fixed income Fund does so, it will cease
granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit
will be given to the next business day.
The
Fund reserves the right not to determine its NAV when: (i) the Fund has not received any orders to purchase, sell or
exchange shares and (ii) changes in the value of that Fund’s portfolio do not affect that Fund’s NAV.
Under
normal circumstances, the offering price for orders received in good form before the close of the Exchange, on
each business day the Exchange is open for trading, will be based upon calculation of the NAV at the close of regular trading
on the Exchange. For orders received in good form after the close of regular trading on the Exchange, or on a day on
which the Exchange is not open for trading, the offering price is based upon NAV at the close of the Exchange on the next
day thereafter on which the Exchange is open for trading. The NAV of a share of the Fund on which offering and redemption
prices are based is the Total Net Assets (“TNA”) of the Fund, divided by the number of shares outstanding, with
the result adjusted to the nearer cent. The TNA of the Fund is determined by subtracting the liabilities of the Fund from
the value of its assets (chiefly composed of investment securities). The NAV per share of a class is computed by adding
the value of all securities and other assets in the Fund’s portfolio allocable to such class, deducting any liabilities allocable
to such class and any other liabilities charged directly to that class and dividing by the number of shares outstanding
in such class.
The
Fund values its securities at current market value or fair value, consistent with regulatory requirements. “Fair value”
is defined in the Fund’s Valuation
and Liquidity Procedures as the price that could be received to sell an asset or paid to transfer
a liability in an orderly transaction between willing market participants without a compulsion to transact at the measurement
date. Pursuant to Rule 2a-5 under the 1940 Act, the Board of Trustees designated the Adviser as the valuation
designee (“Valuation Designee”) for the Fund to perform the fair value determinations relating to Fund investments
for which market quotations are not readily available.
Equity
securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on
which the security is traded at the “Valuation Time”, subject to application, when appropriate, of the valuation factors
described in the paragraph below. The Valuation
Time is as of the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of the bid/ask
quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ are valued
at the NASDAQ official closing price. Open-end mutual funds are valued at the respective net asset value as reported
by such company. The prospectuses for the registered open-end management investment companies in which
a Fund invests explain the circumstances under which those companies will use fair value pricing and the effects of
using fair value pricing. Closed-end funds and ETFs are valued at the market price of the security at the Valuation Time.
Foreign
equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying
valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent
pricing service provider. These valuation factors are used when pricing a Fund’s portfolio holdings to estimate
market movements between the time foreign markets close and the time a Fund values such foreign securities. These
valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates,
and local exchange opening and closing prices of each security. When prices with the application of valuation factors
are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices of the securities
on their primary markets. Valuation factors are not utilized if the independent pricing service provider is unable to
provide a valuation factor or if the valuation factor falls below a predetermined confidence threshold.
Long-term
fixed income securities are valued at the last quoted or evaluated bid price on the valuation date provided
by an independent pricing service provider approved by the Fund’s Board of Trustees. If there are no current day
bids, the security is valued at the previously applied bid. Pricing services generally price debt securities assuming orderly
transactions of an institutional “round lot” size, and the strategies employed by the Adviser generally trade in round lot
sizes. In certain circumstances, fixed income securities may be held or transactions may be conducted in smaller, “odd
lot” sizes. Odd lots may trade at lower or occasionally higher prices than institutional round lot trades. Short-term
fixed
income securities (such as commercial paper and U.S. treasury bills) having a remaining maturity of 60 days or less are
valued at the last quoted or evaluated bid price on the valuation date provided by an independent pricing service, or on
the basis of amortized cost if it represents the best approximation for fair value.
Derivative
instruments are generally valued according to the following procedures. Forward currency exchange contracts
are generally valued based on the current spot exchange rates and the forward exchange rate points (ex. 1-month,
3-month) that are obtained from an approved pricing agent. Based on the actual settlement dates of the forward
contracts held, an interpolated value of the forward points is combined with the spot exchange rate to derive the valuation.
Futures contracts are generally valued at the most recent settlement price as of NAV determination. Swap agreements
are generally valued by an approved pricing agent based on the terms of the swap agreement (including future
cash flows). When market quotations or exchange rates are not readily available, or if the Adviser concludes that such
market quotations do not accurately reflect fair value, the fair value of a Fund’s assets are determined in good faith in
accordance with the Valuation Procedures.
The
time at which transactions and Fund shares are priced and the time by which orders must be received may be changed
in case of an emergency or if regular trading on the Exchange and/or the bond markets are stopped at a time other
than their regularly scheduled closing time. In the event the Exchange and/or the bond markets do not open for business,
the Trust may, but is not required to, open one or more Funds for purchase, redemption and exchange transactions
if the Federal Reserve wire payment system is open.
The
Trust may suspend the right of redemption for such periods as are permitted under the 1940 Act and under the following
unusual circumstances: (a) when the New York Stock Exchange is closed (other than weekends and holidays) or
trading is restricted; (b) when an emergency exists, making disposal of portfolio securities or the valuation of net assets not
reasonably practicable; or (c) during any period when the SEC has by order permitted a suspension of redemption for
the protection of shareholders.
ADDITIONAL
INFORMATION
Description
of Shares
The
Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest
of the Fund and to divide or combine such shares into a greater or lesser number of shares without thereby exchanging
the proportionate beneficial interests in the Trust. Each share of the Fund represents an equal proportionate interest
in that Fund with each other share. The Trust reserves the right to create and issue a number of different funds. Shares
of the Fund would participate equally in the earnings, dividends, and assets of that particular fund. Upon liquidation
of the Fund, shareholders are entitled to share pro rata in the net assets of such Fund available for distribution to
shareholders.
The
Trust presently includes the Fund as a series of shares of beneficial interest, without par value and with a single share
class.
You
have an interest only in the assets of the Fund whose shares you own. Shares of a particular class are equal in all respects
to other shares of that class. In the event of liquidation of the Fund, shares of the same class will share pro rata in the
distribution of the net assets of the Fund with all other shares of that class. All shares are without par value and when issued
and paid for, are fully paid and nonassessable by the Trust. Shares may be exchanged or converted as described in
this Statement of Additional Information and in the Prospectus but will have no other preference, conversion, exchange or
preemptive rights.
Voting
Rights
Shareholders
of each class of shares have one vote for each share held and a proportionate fractional vote for any fractional
share held. An annual or special meeting of shareholders to conduct necessary business is not required by the Declaration
of Trust, the 1940 Act or other authority except, under certain circumstances, to amend the Declaration of Trust,
the Investment Advisory Agreement, fundamental investment objectives, fundamental investment policies and fundamental
investment restrictions, to elect and remove Trustees, to reorganize the Trust or any series or class thereof and
to act upon certain other business matters. In regard to sale of assets; the change of fundamental investment objectives,
policies and restrictions; the approval of an Investment Advisory Agreement; or any other matter for which a shareholder
vote is sought, the right to vote is limited to the holders of shares of the particular Fund affected by the proposal.
In addition, holders of shares subject to a Rule 12b-1 fee will vote as a class and not with holders of any other class
with respect to the approval of the Distribution Plan.
To
the extent that such a meeting is not required, the Trust does not intend to have an annual or special meeting of shareholders.
56 ADDITIONAL
INFORMATION
ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND
Buying
a Dividend
If
you are a taxable investor and invest in the Fund shortly before the record date of a taxable distribution, the distribution
will lower the value of the Fund’s shares by the amount of the distribution, and you will in effect receive some of
your investment back, but in the form of a taxable distribution.
Dividends
from Taxable Income
The
Fund may earn taxable income from many sources, including income from temporary investments, discount from
stripped obligations or their coupons, income from securities loans or other taxable transactions, and ordinary income
from the sale of market discount bonds. If you are a taxable investor, any distributions by the Fund from this income
will be taxable to you as ordinary income, whether you receive them in cash or in additional shares.
Distribution
of Net Investment Income
The
Fund receives income generally in the form of dividends and interest on its investments. This income, less expenses
incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to you.
If you are a taxable investor, any distributions by a Fund from such income (other than qualified dividend income received
by individuals) will be taxable to you at ordinary income tax rates, whether you receive them in cash or in additional
shares. Distributions from qualified dividend income will be taxable to individuals at long-term capital gain rates,
provided certain holding period requirements are met by you and the Fund. See the discussion below under the heading,
“Qualified Dividend Income for Individuals.”
Distributions
of Capital Gains
The
Fund may realize a capital gain or loss in connection with sales or other dispositions of its portfolio securities. Distributions
derived from the excess of net short-term capital gain over net long-term capital loss will be taxable to you as
ordinary income. Distributions paid from the excess of net long-term capital gain over net short-term capital loss will be
taxable to you as long-term capital gain, regardless of how long you have held your shares in the Fund. Any net short-term
or long-term capital gain realized by the Fund (net of any capital loss carryovers) generally will be distributed once
each year, and may be distributed more frequently, if necessary, in order to reduce or eliminate federal excise or income
taxes on the Fund.
For
U.S. federal income tax purposes, the Fund is generally permitted to carry forward a net capital loss in any taxable
year to offset its own capital gains. These amounts are available to be carried forward to offset future capital gains
to extent permitted by the Code and applicable tax regulations. Any such loss carryforwards will retain their character
as short-term or long-term. In the event that the Fund were to experience an ownership change as defined for federal
income tax purposes, the Fund’s loss carryforwards may be subject to limitation.
As of October 31, 2023, for U.S. federal income tax purposes,
the Fund has capital loss carryforwards available to offset capital gains, if any, to the extent provided by the Treasury regulations,
which do not expire:
Fund |
Amount |
Expires |
EM
SMA Completion Fund |
$8,709 |
Unlimited
(Short-Term) |
Post-October
Losses
In
determining its net capital gain, including also in connection with determining the amount available to support a capital gain
dividend, its taxable income and its earnings and profits, a Fund generally may also elect to treat part or all of any post-October
capital loss (defined as any net capital loss attributable to the portion, if any, of the taxable year after October
31 or, if there is no such loss, the net long-term capital loss or net short-term capital loss attributable to any such portion
of the taxable year) or late-year ordinary loss (generally, the sum of its (i) net ordinary loss, if any, from the sale, exchange
or other taxable disposition of property, attributable to the portion, if any, of the taxable year after October 31, and
its (ii) other net ordinary loss, if any, attributable to the portion, if any, of the taxable year after December 31) as if incurred
in the succeeding taxable year.
Medicare
Contribution Tax
A
3.8% Medicare contribution tax will be imposed on net investment income, among other things, including interest, dividends,
and net gain from investments, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly),
and of estates and trusts.
Returns
of Capital
If
a Fund’s distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the
distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of
capital distribution generally will not be taxable, but will reduce each shareholder’s cost basis in a Fund and result in a higher
reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.
Any return of capital in excess of your basis, however, is taxable as a capital gain.
Investments
in Foreign Securities
The
next four paragraphs describe tax considerations that are applicable to the Fund to the extent that it invests in foreign
securities.
ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND 57
Effect
of foreign withholding taxes.
The Fund may be subject to foreign withholding taxes on income from certain foreign
securities. This, in turn, could reduce the Fund’s distributions paid to you. Tax conventions between certain countries
and the United States may reduce or eliminate those foreign taxes in some cases.
Effect
of foreign debt investments on distributions.
Realized gains and losses from the sale of debt securities are treated
as ordinary income or loss for federal income tax purposes by the Fund, to the extent attributable to foreign exchange
gains or losses. These gains when distributed are taxable to you as ordinary income, and any losses reduce a Fund’s
ordinary income otherwise available for distribution to you. This treatment could increase or decrease a Fund’s ordinary
income distributions to you and may cause some or all of the Fund’s previously distributed income to be classified
as a return of capital.
Pass-through
of foreign tax credits. If more
than 50% of the Fund’s total assets at the end of a fiscal year is invested in foreign
securities or, at the close of each quarter, is at least 50% invested in other regulated investment companies, the Fund
may elect to pass through to you your pro rata share of foreign taxes paid by the Fund. If this election is made, the Fund
may report more taxable income to you than it actually distributes. You will then be entitled either to deduct your share
of these taxes in computing your taxable income (if you itemize your income tax deductions) or to claim a foreign tax
credit for these taxes against your U.S. federal income tax (subject to limitations for certain shareholders). The Fund will
provide you with the information necessary to complete your personal income tax return if it makes this election. The amount
of any foreign tax credits available to you (as a result of the pass-through to you of your pro rata share of foreign taxes paid by a Fund) will be reduced if you receive foreign dividends from the Fund reported as qualified dividend income
subject to taxation at long-term capital gain rates. Shareholders in these circumstances should talk with their personal
tax advisors about their foreign tax credits and the procedures that they should follow to claim these credits on their
personal income tax returns. The Fund engaging in securities lending with respect to a security paying income subject
to foreign taxes may not be able to pass through to its shareholders the ability to take a foreign tax credit for those taxes.
In addition, a shareholder of a Fund may lose the ability to use foreign tax credits passed through by the Fund if the Fund
shares are loaned pursuant to a securities lending agreement.
PFIC
securities. The Fund may invest
in securities of foreign entities that could be deemed for tax purposes to be passive
foreign investment companies (“PFICs”). In general, a PFIC is any foreign corporation if 75% or more of its gross income
for its taxable year is passive income, or 50% or more of its average assets (by value) are held for the production of
passive income. When investing in PFIC securities, the Fund intends to mark-to-market these securities and recognize any
unrealized gains as ordinary income at the end of the Fund’s fiscal and excise (described below) tax years. Deductions
for losses are allowable only to the extent of any current or previously recognized gains. These gains (reduced
by allowable losses) are treated as ordinary income that the Fund is required to distribute, even though it has not
sold or received dividends from these securities. You should also be aware that the designation of a foreign security as
a PFIC security would cause its income dividends to fall outside of the definition of qualified foreign corporation dividends.
These dividends generally will not qualify for the reduced rate of taxation on qualified dividends for individuals when
distributed to you by the Fund. In addition, if a Fund is unable to identify an investment as a PFIC and thus does not make
a mark-to-market election, the Fund may be subject to U.S. federal income tax (the effect of which could be mitigated
by making a mark-to-market election in a year prior to the sale) on a portion of any “excess distribution” or gain
from the disposition of such shares even if such income is distributed as a taxable dividend by the Fund 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.
Information
on the Amount and Tax Character of Distributions
The
Fund will inform you of the amount of your ordinary income and capital gain dividends at the time they are paid and
will advise you of their tax status for federal income tax purposes shortly after the end of each calendar year, including
the portion of the distributions that on average are comprised of exempt-interest income, taxable income and the
portion of exempt-interest income that is a tax preference item when determining the alternative minimum tax. If you have
not held Fund shares for a full year, a Fund may report and distribute to you, as exempt-interest income, taxable income,
or capital gains a percentage of income that may not be equal to the actual amount of this type of income earned
during the period of your investment in the Fund. Taxable distributions declared by a Fund in October, November or December to shareholders
of record in such a month but paid in January are taxable to you as if they were paid in December.
Election
to be Taxed as a Regulated Investment Company
The
Fund intends to elect or has elected to be treated as a regulated investment company under Subchapter M of the
Code. The Fund has qualified as a regulated investment company for its most recent fiscal year and intends to continue
to so qualify. As a regulated investment company, the Fund generally is not subject to entity-level federal income
tax on the income and gains it distributes to you. The Board of Trustees reserves the right not to distribute a Fund’s net
long-term capital gain or not to maintain the qualification of the Fund as a regulated investment company if it determines
such a course of action to be beneficial to shareholders. If net long-term capital gain is retained, a Fund would
be taxed on the gain at the highest corporate tax rate, and the shareholders of the Fund would be notified that they
are entitled to a credit or refund for the tax paid by the Fund. If a Fund fails to qualify as a regulated investment company,
the Fund would be subject to federal and possibly state corporate taxes on its taxable income and gain, and distributions
to you would be taxed as dividend income to the extent of the Fund’s earnings and profits.
58 ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND
In
order to qualify as a regulated investment company for federal income tax purposes, each Fund must meet certain
asset diversification, income, and distribution specific requirements, including:
(i)
the Fund must derive at least 90% of its gross income in each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of stock or securities or foreign currencies, other income
(including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies and net income derived from interests in “qualified publicly traded partnerships”
(i.e., partnerships that are traded on an established securities market or tradable on a secondary market, other
than partnerships that derive 90% of their income from interest, dividends, capital gains, and other traditionally permitted
mutual fund income);
(ii)
the Fund must diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (a) at least 50% of
the market value of the Fund’s assets is represented by cash, securities of other regulated investment companies, U.S. Government
securities and other securities, with such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer and (b)
not more than 25% of the value of its assets is invested in the securities (other than U.S. Government securities or securities
of other regulated investment companies) of any one issuer, any two or more issuers of which 20% or more of the
voting stock is held by the Fund and that are determined to be engaged in the same or similar trades or businesses or related
trades or businesses or in the securities of one or more qualified publicly traded partnerships; and
(iii)
the Fund must distribute to its shareholders at least the sum of (i) 90% of its “investment company taxable income”
(i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus
certain adjustments, and (ii) 90% of its net tax-exempt income for the taxable year. The Fund will be subject to income
tax at regular corporation rates on any taxable income or gains that it does not distribute to its shareholders.
Excise
Tax Distribution Requirements
To
avoid a 4% federal excise tax, the Code requires the Fund to distribute to you by December 31 of each year, at a minimum,
the following amounts: 98% of its taxable ordinary income earned during the calendar year; 98.2% of its capital gain
net income earned during the twelve-month period ending October 31; and 100% of any undistributed amounts from
the prior year. The Fund intends to declare and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes.
Sales
and Redemption of Fund Shares
Sales
and redemptions (including redemptions in kind) of Fund shares are taxable transactions for federal and state income
tax purposes. If you sell your Fund shares, whether you receive cash, the IRS requires you to report any gain or loss on
your sale. If you owned your shares as a capital asset, any gain or loss that you realize generally is a capital gain or loss, and
is long-term or short-term, depending on how long you owned your shares.
Redemption
at a Loss Within Six Months of Purchase.
Any loss incurred on the sale or exchange of Fund shares owned
for six months or less will be disallowed to the extent of any exempt-interest dividends paid to you with respect to your
Fund shares, and any remaining loss will be treated as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares.
Wash
Sales. All or a portion of any
loss that you realize on the sale of your Fund shares is disallowed to the extent that you
buy other shares in the Fund (through reinvestment of dividends or otherwise) within 30 days before or after your sale.
Any loss disallowed under these rules is added to your tax basis in the new shares.
U.S.
Government Securities
The
income earned on certain U.S. Government securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to dividends paid to you from interest earned on these securities, subject
in some states to minimum investment or reporting requirements that must be met by a Fund. The income on Fund
investments in certain securities, such as repurchase agreements collateralized by U.S. Government obligations, commercial
paper and federal agency-backed obligations (e.g., Ginnie Mae or Fannie Mae securities), generally does not
qualify for tax-free treatment. The rules on exclusion of this income are different for corporations.
Qualified
Dividend Income for Individuals
For
individual shareholders, a portion of the dividends paid by a Fund may be qualified dividends eligible for taxation at
long-term capital gain rates. This reduced rate generally is available for dividends paid by a Fund out of dividends earned
on the Fund’s investment in stocks of domestic corporations and qualified foreign corporations. Dividends from PFICs
are not eligible to be treated as qualified dividend income. Either none or only a nominal portion of the dividends paid
by certain Funds will be qualified dividend income because they invest primarily in non-qualified foreign securities. Income
dividends earned by the Funds on non-qualified foreign securities will continue to be taxed at the higher ordinary income
tax rate. A Fund’s entry into securities lending transactions may cause the replacement income earned on the loaned
securities to fall outside the definition of qualified dividend income. In addition, if a Fund’s shares are loaned pursuant
to a securities lending arrangement, dividends paid while the shares are held by the borrower may not be qualified
dividend income.
ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND 59
Both
a Fund and the investor must meet certain holding period requirements to qualify Fund dividends for this treatment.
Specifically, a Fund must hold the stock for at least 61 days during the 121-day period beginning 60 days before
the stock becomes ex-dividend (or, in the case of certain preferred stock, for at least 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). Similarly, investors must hold their Fund shares for at least 61 days during the 121-day
period beginning 60 days before the Fund distribution goes ex-dividend (or, in the case of certain preferred stock dividends paid by the Fund, for at least 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). The ex-dividend date is the first date following
the declaration of a dividend on which the purchaser of stock is not entitled to receive the dividend payment. When
counting the number of days you held your Fund shares, include the day you sold your shares but not the day you acquired
these shares.
While
the income received in the form of a qualified dividend is taxed at the same rates as long-term capital gains, such
income will not be considered as a long-term capital gain for other federal income tax purposes. For example, you will
not be allowed to offset your long-term capital losses against qualified dividend income on your federal income tax return.
Any qualified dividend income that you elect to be taxed at these reduced rates also cannot be used as investment
income in determining your allowable investment interest expense. For other limitations on the amount of or use
of qualified dividend income on your income tax return, please contact your personal tax advisor.
After
the close of its fiscal year, a Fund will report the portion of its ordinary dividend income that meets the definition of
qualified dividend income taxable at reduced rates. If 95% or more of a Fund’s income is from qualified sources, it will be
allowed to report 100% of its ordinary income distributions as qualified dividend income.
Dividends-Received
Deduction for Corporations
For
corporate shareholders, a portion of the dividends paid by a Fund may qualify for the dividends-received deduction.
The portion of dividends paid by a Fund that qualifies for the corporate dividends-received deduction will be reported
each year in a notice mailed to the Fund’s shareholders, and cannot exceed the gross amount of dividends received
by the Fund from domestic (U.S.) corporations that would have qualified for the dividends-received deduction in the
hands of the Fund if the Fund was a regular corporation. Either none or only a nominal portion of the dividends paid by
certain Funds will be eligible for the corporate dividends-received deduction because they invest primarily in foreign securities.
A Fund’s entry into securities lending transactions may cause the replacement income earned on the loaned securities
to fail to qualify for the dividends received deduction. In
addition, if a Fund’s shares are loaned pursuant to a securities
lending arrangement, dividends paid while the shares are held by the borrower may not qualify for the dividends
received deduction. In addition, if a Fund’s shares are loaned pursuant to a securities lending arrangement, dividends
paid while the shares are held by the borrower may not qualify for the dividends received deduction.
The
availability of the dividends-received deduction is subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction. The amount that a Fund may report as eligible
for the dividends-received deduction will be reduced or eliminated if the shares on which the dividends earned by
the Fund were debt-financed or held by the Fund for less than a minimum period of time, generally 46 days during a 91-day
period beginning 45 days before the stock becomes ex-dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before the stock becomes ex-dividend). Similarly, if your Fund shares are debt-financed or
held by you for less than a 46-day period (or, in the case of certain preferred stock dividends paid by the Fund, a 91-days period) then the dividends-received deduction for Fund dividends on your shares may
also be reduced or eliminated.
Section
199A Dividends for Individuals
For
tax years beginning before January 1, 2026, a Fund may report “section 199A dividends” eligible for a 20% “qualified
business income” deduction for non-corporate US shareholders to the extent the Fund’s income is derived from ordinary
REIT dividends, reduced by allocable Fund expenses. In order for a Fund’s dividends to be eligible for the qualified business
income deduction, the Fund must meet certain holding period requirements with respect to the shares on which the
Fund received the eligible dividends, and the shareholder must meet certain holding period requirements with respect
to the Fund shares.
Section
163(j) Interest Dividends
Certain
distributions reported by a Fund as section 163(j) interest dividends may be treated as interest income by shareholders
for purposes of the tax rules applicable to interest expense limitations under Code section 163(j). Such treatment
by the shareholder is generally subject to holding period requirements and other potential limitations, although the
holding period requirements are generally not applicable to dividends declared by money market funds and certain other
funds that declare dividends daily and pay such dividends on a monthly or more frequent basis. The amount that a Fund
is eligible to report as a Section 163(j) dividend for a tax year is generally limited to the excess of the Fund’s business interest
income over the sum of the Fund’s (i) business interest expense and (ii) other deductions properly allocable to the
Fund’s business interest income.
Alternative
Minimum Tax
Interest
on certain private activity bonds, while exempt from regular U.S. federal income tax, is a preference item for you
when determining your alternative minimum tax under the Code and under the income tax provisions of several states.
Private activity bond interest could subject you to or increase your liability under the federal and state alternative minimum
taxes, depending on your personal or corporate tax position. If you are a person defined in the Code as a substantial
user (or person related to a user) of a facility financed by private activity bonds, you should consult with your tax
adviser before buying shares of the Fund.
60 ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND
Treatment
of Interest on Debt Incurred to Hold Fund Shares
Interest
on debt you incur to buy or hold Fund shares may not be deductible for U.S. federal income tax purposes. Indebtedness
may be allocated to shares of a Fund even though not directly traceable to the purchase of such shares.
Loss
of Status of Securities as Tax-Exempt
Failure
of the issuer of a tax-exempt security to comply with certain legal or contractual requirements relating to the security
could cause interest on the security, as well as Fund distributions derived from this interest, to become taxable, perhaps
retroactively to the date the security was issued. In such a case, the Fund may be required to report to the IRS and
send to shareholders amended Forms 1099 for a prior taxable year in order to report additional taxable income. This, in
turn, could require shareholders to file amended federal and state income tax returns for such prior year to report and pay
tax and interest on their pro rata share of the additional amount of taxable income.
Investment
in Complex Securities
The
Fund may invest in complex securities (e.g., futures, options, forward currency contracts, short-sales, PFICs, etc.) that
may be subject to numerous special and complex tax rules. These rules could affect whether gain or loss recognized by
a Fund is treated as ordinary or capital, or as interest or dividend income. These rules could also accelerate the recognition
of income to the
Fund (possibly causing the Fund to sell securities to raise the cash for necessary distributions).
These rules could defer theFund’s
ability to recognize a loss, and, in limited cases, subject theFund
to U.S. federal income tax on income from
certain foreign securities. These rules could, therefore, affect the amount, timing, or character
of the income distributed to you by the
Fund. For example:
Derivatives.
The
Fund may be permitted to invest in certain options, futures or forward currency contracts to hedge the
Fund’s portfolio or for any other permissible purposes consistent with the
Fund’s investment objective. If the
Fund makes these investments, it could be
required to mark-to-market these contracts and realize any unrealized gains and losses
at its fiscal year end even though it continues to hold the contracts. Under these rules, gains or losses on the contracts
generally would be treated as 60% long-term and 40% short-term gains or losses, but gains or losses on certain foreign
currency contracts would be treated as ordinary income or losses. In determining its net income for excise tax purposes,
the
Fund also would be required to mark-to-market these contracts annually as of October 31 (for capital gain net
income and ordinary income arising from certain foreign currency contracts), and to realize and distribute any resulting
income and gains.
Tax
straddles. The
Fund’s investment in options, futures, forwards, or foreign currency contracts (or in substantially similar
or related property) in connection with certain hedging transactions could cause it to hold offsetting positions in securities.
If the
Fund’s risk of loss with respect to specific securities in its portfolio is substantially diminished by the fact that
it holds other securities, the Fund could be deemed to have entered into a tax “straddle” or to hold a “successor
position” that would require any loss
realized by it to be deferred for tax purposes.
Short
sales and securities lending transactions.
The
Fund’s entry into a short sale transaction or an option or other contract
could be treated as the “constructive sale” of an “appreciated financial position,” causing it to realize
gain, but not loss, on the position. Additionally,
the
Fund’s entry into securities lending transactions may cause the replacement income
earned on the loaned securities to fall outside of the definition of qualified dividend income and to fail to qualify for
the dividends received deduction. This replacement income generally will not be eligible for reduced rates of taxation on
qualified dividend income, and, to the extent that debt securities are loaned, will generally not qualify as qualified interest
income for foreign withholding tax purposes.
Convertible
debt. Convertible debt is ordinarily
treated as a “single property” consisting of a pure debt interest until conversion,
after which the investment becomes an equity interest. If the security is issued at a premium (i.e., for cash in excess
of the face amount payable on retirement), the creditor-holder may amortize the premium over the life of the bond.
If the security is issued for cash at a price below its face amount, the creditor-holder must accrue original issue discount
in income over the life of the debt.
Securities
purchased at discount. The Fund
may be permitted to invest in securities issued or purchased at a discount
such as zero coupon, deferred interest or payment-in-kind (PIK) bonds that could require it to accrue and distribute
income not yet received. Similar requirements may apply to securities purchased with market discount. If it invests
in these securities, the
Fund could be required to sell securities in its portfolio that it otherwise might have continued
to hold in order to generate sufficient cash to make these distributions.
Credit
default swap agreements. The
Fund may be permitted to enter into credit default swap agreements. The rules
governing the tax aspects of swap agreements that provide for contingent nonperiodic payments of this type are in a
developing stage and are not entirely clear in certain aspects. Accordingly, while the
Fund intends to account for such transactions
in a manner deemed to be appropriate, the IRS might not accept such treatment. The Fund intends to monitor
developments in this area. Certain requirements that must be met under the Code in order for the
Fund to qualify as a regulated investment
company may limit the extent to which the
Fund will be able to engage in credit default swap
agreements.
ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND 61
Investment
in taxable mortgage pools (excess inclusion income).
The Fund may invest in U.S.-REITs that hold residual interests
in real estate mortgage investment conduits (“REMICs”) or which are, or have certain wholly-owned subsidiaries that
are, “taxable mortgage pools.” A portion of the
Fund’s income from a U.S.- REIT that is attributable to the REIT’s residual
interest in a REMIC or equity interests in a taxable mortgage pool (referred to in the Code as an excess inclusion) will
be subject to federal income tax in all events. The excess inclusion income of a regulated investment company, such as
the
Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received
by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest
or, if applicable, taxable mortgage pool directly. In general, excess inclusion income allocated to shareholders (i) cannot
be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated
business taxable income (“UBTI”) to entities (including a qualified pension plan, an individual retirement account,
a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an
entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return
and pay tax on such income, and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction in U.S. federal
withholding tax. In addition, if at any time during any taxable year a “disqualified organization” (which generally includes
certain cooperatives, governmental entities and tax-exempt organizations that are not subject to tax on UBTI) is a
record holder of a share in a regulated investment company, then the regulated investment company will be subject to a
tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations.
The
rules concerning excess inclusion income are complex and unduly burdensome in their current form, and the Fund
is awaiting further guidance from the IRS on how these rules are to be implemented. Shareholders should talk to their
tax advisors about whether an investment in the
Fund is a suitable investment given the potential tax consequences of
the Fund’s receipt and distribution of excess inclusion income.
Investments
in securities of uncertain tax character.
The
Fund may invest in securities the U.S. federal income tax treatment
of which may not be clear or may be subject to recharacterization by the IRS. To the extent the tax treatment of
such securities or the income from such securities differs from the tax treatment expected by the
Fund, it could affect the timing or character
of income recognized by the Fund, requiring the Fund to purchase or sell securities, or otherwise change
its portfolio, in order to comply with the tax rules applicable to regulated investment companies under the Code.
Backup
Withholding
By
law, the
Fund must withhold 24% of your taxable distributions and redemption proceeds unless you provide your correct
social security or taxpayer identification number, certify that this number is correct, certify that you are not subject
to backup withholding and certify that you are a U.S. person (including a U.S. resident alien). A Fund also must withhold
if the IRS instructs it to do so. The special U.S. tax certification requirements applicable to non-U.S. investors are described
under the “Non-U.S. Investors” heading below.
Non-U.S.
Investors
Non-U.S.
investors (shareholders who, as to the United States, are nonresident alien individuals, foreign trusts or estates,
foreign corporations, or foreign partnerships) may be subject to U.S. withholding and estate tax and are subject to
special U.S. tax certification requirements. Non-U.S. investors should consult their tax advisors about the applicability of U.S.
tax withholding and the use of the appropriate forms to certify their status. In addition, non-U.S. investors may also be subject
to U.S. federal withholding tax on deemed income resulting from any election by a Fund to treat qualified foreign taxes
it pays as passed through to shareholders (as described above), but may not be able to claim a U.S. tax credit or deduction
with respect to such taxes.
In
general. The United States imposes
a flat 30% withholding tax (or a withholding tax at a lower treaty rate) on U.S. source
dividends, including on income dividends paid to you by a Fund, but not on capital gain dividends. Properly reported
dividends received by a non-U.S. investor are generally exempt from U.S. federal withholding tax when they (i) are
paid in respect of the Fund’s “qualified net interest income” (generally, the Fund’s U.S. source interest
income, reduced by expenses that are allocable
to such income), or (ii) are paid in connection with the Fund’s “qualified short-term capital gains”
(generally, the excess of the Fund’s net short-term capital gain over the Fund’s long-term capital loss for such taxable
year). However, depending on the circumstances, the Fund may report all, some or none of the Fund’s potentially eligible
dividends as such qualified net interest income or as qualified short-term capital gains, and a portion of the Fund’s distributions
(e.g., interest from non-U.S. sources or any foreign currency gains) would be ineligible for this potential exemption
from withholding. However, notwithstanding such exemptions from U.S. withholding at the source, any dividends
and distributions of income and capital gains, including the proceeds from the sale of your Fund shares, will be subject
to backup withholding if you fail to properly certify that you are not a U.S. person.
Exempt-interest
dividends. In general, exempt-interest
dividends reported by the Fund and paid from net tax-exempt
income are not subject to U.S. withholding tax.
Capital
gain dividends. In general,
a capital gain dividend reported by the
Fund and paid from its net long-term capital
gains, other than long- or short-term capital gains realized on disposition of U.S. real property interests (see the discussion
below), are not subject to U.S. withholding tax unless you are a nonresident alien individual present in the United States
for a period or periods aggregating 183 days or more during the calendar year.
62 ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND
Investment
in U.S. real property. The
Fund may invest in equity securities of corporations that invest in U.S. real property,
including U.S. Real Estate Investment Trusts (“U.S.-REITs”). The sale of a U.S. real property interest by a Fund, or by
a U.S.-REIT in which the Fund invests, may
trigger special tax consequences to the Fund’s non-U.S. shareholders.
In
general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. shareholder in respect
of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, or
upon the sale or other disposition of Fund shares.
Distributions
that the
Fund reports as “short-term capital gain dividends” or “long-term capital gain dividends” will not be
treated as such to a recipient foreign shareholder if the distribution is attributable to gain received from the sale or exchange
of U.S. real property or an interest in a U.S. real property holding corporation and a Fund’s direct or indirect interests
in U.S. real property exceeded certain levels. Instead, if the foreign shareholder has not owned more than 5% of the
outstanding shares of a Fund at any time during the one year period ending on the date of distribution, such distributions
will be subject to 30% withholding by a Fund and will be treated as ordinary dividends to the foreign shareholder;
if the foreign shareholder owned more than 5% of the outstanding shares of a Fund at any time during the one
year period ending on the date of the distribution, such distribution will be treated as real property gain subject to 21%
withholding tax and could subject the foreign shareholder to U.S. filing requirements. Additionally, if a Fund’s direct or indirect
interests in U.S. real property were to exceed certain levels, a foreign shareholder realizing gains upon redemption from
the
Fund could be subject to the 21% withholding tax and U.S. filing requirements unless more than 50% of a Fund’s shares
were owned by U.S. persons at such time or unless the foreign person had not held more than 5% of a Fund’s outstanding
shares throughout either such person’s holding period for the redeemed shares or, if shorter, the previous five
years.
In
addition, the same rules apply with respect to distributions to a foreign shareholder from a Fund and redemptions of
a foreign shareholder’s interest in a Fund attributable to gain from the sale or exchange of U.S. real property or an interest
in a U.S. real property holding corporation, if a Fund’s direct or indirect interests in U.S. real property were to exceed
certain levels.
The
rules laid out in the previous two paragraphs, other than the withholding rules, will apply notwithstanding a Fund’s
participation in a wash sale transaction or its payment of a substitute dividend.
Provided
that 50% or more of the value of a Fund’s stock is held by U.S. shareholders, distributions in kind of U.S. real property
interests (including securities in a U.S. real property holding corporation, unless such corporation is regularly traded
on an established securities market and the Fund has held 5% or less of the outstanding shares of the corporation during
the five-year period ending on the date of distribution), in redemption of a foreign shareholder’s shares of the Fund will
cause the Fund to recognize gain. If the Fund is required to recognize gain, the amount of gain recognized will equal to
the fair market value of such interests over the Fund’s adjusted bases to the extent of the greatest foreign ownership percentage
of the Fund during the five-year period ending on the date of redemption.
Shares
of a Fund held by a non-U.S. shareholder at death will be considered situated within the United States and subject
to the U.S. estate tax, if applicable.
Because
the Fund expects to invest less than 50% of its assets at all times, directly or indirectly, in U.S. real property interests,
the Fund expects that neither gain on the sale or redemption of Fund shares nor Fund dividends and distributions
would be subject to the reporting and tax withholding rules described above.
U.S
tax certification rules. Special
U.S. tax certification requirements apply to non-U.S. shareholders both to avoid U.S. backup
withholding and to obtain the benefits of any treaty between the United States and the shareholder’s country of residence.
In general, a non-U.S. shareholder must provide a Form W-8BEN (or other applicable Form W-8) to establish that
you are not a U.S. person, to claim that you are the beneficial owner of the income and, if applicable, to claim a reduced
rate of, or exemption from, withholding as a resident of a country with which the United States has an income tax treaty.
A Form W-8BEN provided without a U.S. taxpayer identification number will remain in effect for a period beginning on
the date signed and ending on the last day of the third succeeding calendar year unless an earlier change of circumstances
makes the information on the form incorrect.
Withholding.
A 30% withholding tax is currently imposed on dividends and certain other types of income paid to (i) foreign
financial institutions including non-U.S. investment funds unless they agree to collect and disclose to the IRS information
regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities, unless they certify
certain information regarding their direct and indirect U.S. owners. To avoid withholding, foreign financial institutions
will need to (i) enter into agreements with the IRS that state that they will provide the IRS information, including the
names, addresses and taxpayer identification numbers of direct and indirect U.S. account holders, comply with due diligence
procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to
U.S. accounts maintained, agree to withhold tax on certain payments made to non-compliant foreign financial institutions
or to account holders who fail to provide the required information, and determine certain other information as to
their account holders, or (ii) in the event that an intergovernmental agreement and implementing legislation is adopted,
provide local revenue authorities with similar account holder information. Other foreign entities will need to either
provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no
substantial U.S. ownership unless certain exceptions apply.
ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND 63
The
tax consequences to a non-U.S. shareholder entitled to claim the benefits of an applicable tax treaty may be different
from those described herein. Non- U.S. shareholders are urged to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in a Fund, including the applicability of foreign tax.
Reporting
If
a shareholder recognizes a loss with respect to the Fund’s shares of $2 million or more for an individual shareholder or
$10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886.
Direct owners of portfolio securities are in many cases exempted from this reporting requirement, but under current
guidance, shareholders of a regulated investment company are not exempted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders
should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Effect
of Future Legislation; Local Tax Considerations
The
foregoing general discussion of U.S. federal income tax consequences is based on the Code and the regulations issued
thereunder as in effect on the date of this Statement of Additional Information. In addition, future legislative or administrative
changes or court decisions may significantly change the conclusions expressed herein, and any such changes
or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and
local taxation of ordinary income, qualified dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending
on each shareholder’s particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. Shareholders are urged to consult their tax advisors as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
This
discussion of “ADDITIONAL GENERAL TAX INFORMATION FOR THE FUND” is not intended or written to be used as tax advice
and does not purport to deal with all U.S. federal tax consequences applicable to all categories of investors, some of which
may be subject to special rules. You should consult your own tax advisor regarding your particular circumstances before
making an investment of the Fund.
64 ADDITIONAL
GENERAL TAX INFORMATION FOR THE FUND
MAJOR
SHAREHOLDERS
Persons
or organizations beneficially owning more than 25% of the outstanding shares of a Fund are presumed to “control”
the Fund within the meaning of the 1940 Act. As a result, those persons or organizations could have the ability to take
action with respect to the
Fund without the consent or approval of other shareholders.
As
of January 31, 2024,
the following shareholders were shown in the Trust’s records as owning more than 25% of the
Fund’s shares. The Trust does not know
of any other person who owns beneficially more than 25% of the
Fund’s shares except as set forth below.
|
|
|
|
|
|
|
Fund
|
Shareholder
|
Percent
of the Fund
Total Assets Held by
the Shareholder
|
abrdn
EM SMA Completion Fund |
ABRDN PORTFOLIO INVESTMENTS
US INC
|
FBO
NAILS ASII EMERGING MKT EQ ADR
|
1900
MARKET STREET STE 200
|
PHILADELPHIA PA
19103-3527 |
|
100%
|
FINANCIAL
STATEMENTS
KPMG
is the Fund’s independent registered public accounting firm. KPMG audits
the Fund’s annual financial statements. The
audited financial statements and financial highlights of the Fund for its fiscal year ended October 31, 2023, as set forth
in the Fund’s annual report to shareholders, including the report of KPMG, are incorporated by reference into this SAI. A
copy of the annual report may be obtained
upon request and without charge by writing to abrdn Funds c/o SS&C GIDS, Inc.
at 430
W. 7th
Street, Ste. 219534, Kansas City, MO 64105-1407
or by calling 866-667-9231.
APPENDIX
A - PORTFOLIO MANAGERS
DESCRIPTION
OF COMPENSATION STRUCTURE
As
used in this Appendix, abrdn Inc. (“Adviser”), abrdn Investments Limited (“aIL”)
and abrdn Asia Limited (“aAL”)
(collectively referred to as “abrdn”)
abrdn’s
remuneration policies are designed to support its business strategy as a leading international asset manager.
The objective is to attract, retain and reward talented individuals for the delivery of sustained, superior returns for
abrdn’s clients and shareholders. abrdn operates in a highly competitive international employment market, and aims to
maintain its strong track record of success in developing and retaining talent.
abrdn’s
policy is to recognize corporate and individual achievements each year through an appropriate annual bonus
scheme. The bonus is a single, fully discretionary variable pay award. The aggregate value of awards in any year is dependent
on the group’s overall performance and profitability. Consideration is also given to the levels of bonuses paid in
the market. Individual awards, which are payable to all members of staff, are determined by a rigorous assessment of achievement
against defined objectives.
The
variable pay award comprises a mixture of cash and a deferred award based on the size of the award. Deferred awards
are by default abrdn shares, with an option to put up to 50% of deferral into funds. Overall compensation packages
are designed to be competitive relative to the investment management industry.
Base
Salary
abrdn’s
policy is to pay a fair salary commensurate with the individual’s role, responsibilities and experience, and having
regard to the market rates being offered for similar roles in the asset management sector and other comparable companies.
Any increase is generally to reflect inflation and is applied in a manner consistent with other abrdn employees;
any other increases must be justified by reference to promotion or changes in responsibilities.
Annual
Bonus
The
Remuneration Committee determines the key performance indicators that will be applied in considering the overall
size of the bonus pool. In line with practices amongst other asset management companies, individual bonuses are not
subject to an absolute cap. However, the aggregate size of the bonus pool is dependent on the group’s overall performance
and profitability. Consideration is also given to the levels of bonuses paid in the market. Individual awards are
determined by a rigorous assessment of achievement against defined objectives, and are reviewed and approved by the
Remuneration Committee.
abrdn
has a deferral policy which is intended to assist in the retention of talent and to create additional alignment of executives’
interests with abrdn’s sustained performance and, in respect of the deferral into funds, managed by abrdn, to align
the interest of asset managers with our clients.
Staff
performance is reviewed formally at least once a year. The review process evaluates the various aspects that the
individual has contributed to abrdn, and specifically, in the case of portfolio managers, to the relevant investment team.
Discretionary bonuses are based on client service, asset growth and the performance of the respective portfolio manager.
Overall participation in team meetings, generation of original research ideas and contribution to presenting the
team externally are also evaluated.
In
the calculation of a portfolio management team’s bonus, abrdn takes into consideration investment matters (which
include the performance of funds, adherence to the company investment process, and quality of company meetings)
as well as more subjective issues such as team participation and effectiveness at client presentations through KPI
scorecards. To the extent performance is factored in, such performance is not judged against any specific benchmark
and is evaluated over the period of a year - January to December. The pre- or after-tax performance of an individual
account is not considered in the determination of a portfolio manager’s discretionary bonus; rather the review process
evaluates the overall performance of the team for all of the accounts the team manages.
Portfolio
manager performance on investment matters is judged over all of the accounts the portfolio manager contributes
to and is documented in the appraisal process. A combination of the team’s and individual’s performance is considered
and evaluated.
Although
performance is not a substantial portion of a portfolio manager’s compensation, abrdn also recognizes that
fund performance can often be driven by factors outside one’s control, such as (irrational) markets, and as such pays
attention to the effort by portfolio managers to ensure integrity of our core process by sticking to disciplines and processes
set, regardless of momentum and ‘hot’ themes. Short-terming is thus discouraged and trading-oriented managers
will thus find it difficult to thrive in the abrdn environment. Additionally, if any of the aforementioned undue risks were
to be taken by a portfolio manager, such trend would be identified via abrdn’s dynamic compliance monitoring system.
APPENDIX
A - PORTFOLIO MANAGERS 67
In
rendering investment management services, the Adviser may use the resources of additional investment adviser subsidiaries
of abrdn plc. These affiliates have entered into a memorandum of understanding (“MOU”) pursuant to which investment
professionals from each affiliate may render portfolio management, research or trading services to abrdn clients.
Each investment professional who renders portfolio management, research or trading services under a MOU or personnel
sharing arrangement (“Participating Affiliate”) must comply with the provisions of the Advisers Act, the 1940 Act,
the Securities Act, the Exchange Act, and the Employee Retirement Income Security Act of 1974, and the laws of states
or countries in which the Adviser does business or has clients. No remuneration is paid by the Fund with respect to the
MOU/personnel sharing arrangements.
OTHER
MANAGED ACCOUNTS
The
following chart summarizes information regarding accounts for which each portfolio manager has day-to-day management
responsibilities. Accounts are grouped into the following three categories: (1) registered investment companies;
(2) other pooled investment vehicles; and (3) other accounts. To the extent that any of these accounts pay advisory
fees that are based on account performance (“performance-based fees”), information on those accounts is provided
separately. The figures in the chart below for the category of “registered investment companies” do not include the
Fund. The “Other Accounts Managed” represents the accounts managed by the teams of which the portfolio manager
is a member.
|
|
Name
of Portfolio Manager |
Number
of Other Accounts Managed by Each Portfolio Manager and
Total Assets (in millions) by Category (as of October 31, 2023) |
Kristy
Fong |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
|
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Joanne
Irvine |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
|
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Devan
Kaloo |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
|
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Nick
Robinson |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
|
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
Gabriel
Sacks |
Registered
Investment Companies: 8 accounts, $3,894.26 total assets |
|
Other
Pooled Investment Vehicles: 16 accounts, $6,021.32 total assets |
|
Other
Accounts: 16 accounts, $5,492.72 total assets |
POTENTIAL
CONFLICTS OF INTEREST
abrdn
(abrdn Inc., abrdn
Investments Limited and abrdn Asia Limited)
The
portfolio managers’ management of “other accounts” may give rise to potential conflicts of interest in connection
with their management of a Fund’s investments, on the one hand, and the investments of the other accounts, on
the other. The other accounts may have the same investment objective as the Fund. Therefore, a potential conflict of interest
may arise as a result of the identical investment objectives, whereby the portfolio manager could favor one account
over another. However, the Adviser believes that these risks are mitigated by the fact that: (i) accounts with like investment
strategies managed by a particular portfolio manager are generally managed in a similar fashion, subject to exceptions
to account for particular investment restrictions or policies applicable only to certain accounts, differences in cash
flows and account sizes, and similar factors; and (ii) portfolio manager personal trading is monitored to avoid potential
conflicts. In addition, the Adviser has adopted trade allocation procedures that require equitable allocation of trade
orders for a particular security among participating accounts.
In
some cases, another account managed by the same portfolio manager may compensate abrdn based on the performance
of the portfolio held by that account. The existence of such a performance-based fee may create additional
conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities.
Another
potential conflict could include instances in which securities considered as investments for the Fund also may
be appropriate for other investment accounts managed by the Adviser or its affiliates. Whenever decisions are made
to buy or sell securities by the Fund and one or more of the other accounts simultaneously, the Adviser may aggregate
the purchases and sales of the securities and will allocate the securities transactions in a manner that it believes
to be equitable under the circumstances. As a result of the allocations, there may be instances where the Fund will
not participate in a transaction that is allocated among other accounts. While these aggregation and allocation
68 APPENDIX
A - PORTFOLIO MANAGERS
policies
could have a detrimental effect on the price or amount of the securities available to the Fund from time to time, it is
the opinion of the Adviser that the benefits from the policies outweigh any disadvantage that may arise from exposure to
simultaneous transactions. The Trust has adopted policies that are designed to eliminate or minimize conflicts of interest,
although there is no guarantee that procedures adopted under such policies will detect each and every situation in
which a conflict arises.
With
respect to non-discretionary model delivery accounts and discretionary SMA acounts, abrdn will utilize a third-party
service provider to deliver model portfolio recommendations and model changes to the Sponsors. abrdn seeks
to treat clients fairly and equitably over time, by delivering model changes to our service provider and investment instructions
for our other discretionary accounts to our trading desk, where possible, simultaneously or approximately at the
same time. For certain strategies, delivery to our service provider will occur at end of day. The service provider will then
deliver the model changes to each Sponsor on a when-traded, randomized full rotation schedule. All Sponsors will be
included in the rotation schedule, including SMA and UMA.
While UMA accounts are invested in the same strategies as, and
may perform similarly to, SMA accounts, there are expected to be performance differences between them. There will
be performance dispersions between UMAs and other types of accounts because abrdn does not have discretion over
trading and there may be client specific restrictions for SMA accounts.
Certain
operational differences in the trade execution process and timing of cash flows for mutual funds may result in
abrdn having already commenced trading for its discretionary client accounts before the model delivery and SMA accounts
have executed abrdn’s recommendations. In this event, trades placed for the model delivery and SMA clients may
be subject to price movements, particularly with large orders or where securities are thinly traded, that may result in model
delivery and SMA clients receiving less favorable prices than our other discretionary clients. abrdn has no discretion
over transactions executed by model delivery clients and is unable to control the market impact of those transactions.
These timing delays or other operational factors
associated with the implementation of trades may result in non-discretionary
and model delivery and
SMA clients receiving materially different
prices relative to other client accounts.
In addition, the constitution
and weights of stocks within model portfolios may not always be exactly aligned with
similar discretionary accounts. This may create
performance dispersions within accounts with the same or similar investment
mandate.
APPENDIX
A - PORTFOLIO MANAGERS 69
APPENDIX
B – DEBT RATINGS
S&P
GLOBAL RATINGS DEBT RATINGS
An
S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect
to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings
on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness
of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The opinion reflects S&P Global Ratings’ view of the obligor’s capacity
and willingness to meet its financial commitments as they come due, and this opinion may assess terms, such as
collateral security and subordination, which could affect ultimate payment in the event of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations
considered short-term in the relevant market. Short-term ratings are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term obligations. Medium-term notes are assigned long-term
ratings.
1. |
Long-Term
Issue Credit Ratings |
|
Issue
credit ratings are based, in varying degrees, on S&P Global Ratings’ analysis of the following considerations:
|
● |
The
likelihood of payment--the capacity and willingness of the obligor to meet its financial commitments on an obligation
in accordance with the terms of the obligation; |
● |
The
nature and provisions of the financial obligation, and the promise we impute; and |
● |
The
protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights. |
Issue
ratings are an assessment of default risk but may incorporate an assessment of relative seniority or ultimate recovery
in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations,
secured and unsecured obligations, or operating company and holding company obligations.)
Long-Term
Issue Credit Ratings*
AAA
- An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest
issuer credit rating assigned by S&P Global
Ratings. AA - An obligor rated ‘AA’ has very strong capacity to meet its financial
commitments. It differs from the highest-rated obligors only to a small degree.
A
- An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBB
- An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
Obligors
rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative
characteristics. ‘BB’ indicates the
least degree of speculation and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposure to adverse conditions.
BB
- An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing
uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the obligor’s
inadequate capacity to meet its financial commitments.
B
- An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the
capacity to meet its financial commitments.
Adverse business, financial, or economic conditions will likely impair the obligor’s capacity
or willingness to meet its financial commitments.
CCC
- An obligor rated ‘CCC’ is currently vulnerable and is dependent upon favorable business, financial, and economic
conditions to meet its financial commitments.
CC
- An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default
has not yet occurred but S&P Global Ratings
expects default to be a virtual certainty, regardless of the anticipated time to default.
SD
and D - An obligor is rated ‘SD’ (selective default) or ‘D’ if S&P Global Ratings considers there to be
a default on one or more of its financial
obligations, whether long- or short-term, including rated and unrated obligations but excluding
hybrid instruments classified as regulatory capital or in nonpayment according to terms. A ‘D’ rating is assigned when
S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially
all of its obligations as they come due. An ‘SD’ rating is assigned when S&P Global Ratings believes that the
70 APPENDIX
B - DEBT RATINGS
obligor
has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations
on other issues or classes of obligations in a timely manner. A rating on an obligor is lowered to ‘D’ or ‘SD’
if it is conducting a distressed debt
restructuring.
* |
The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. |
2. |
Short-Term
Issue Credit Ratings |
Short-Term
Issue Credit Ratings
A-1
- An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category by
S&P Global Ratings. Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitments is extremely strong.
A-2
- An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest
rating category.
A-3
- An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions
or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
B
- An obligor rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties that could lead to the obligor’s
inadequate capacity to meet its financial commitments.
C
- An obligor rated ‘C’ is currently vulnerable to nonpayment that would result in an ‘SD’ or ‘D’
issuer rating and is dependent upon favorable
business, financial, and economic conditions to meet its financial commitments.
‘SD’
(selective default) or ‘D’ if S&P Global Ratings considers there to be a default on one or more of its financial obligations,
whether long- or short-term, including rated and unrated obligations but excluding hybrid instruments classified
as regulatory capital or in nonpayment according to terms. A ‘D’ rating is assigned when S&P Global Ratings believes
that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as
they come due. An ‘SD’ rating is assigned when S&P Global Ratings believes that the obligor has selectively defaulted
on a specific issue or class of obligations
but it will continue to meet its payment obligations on other issues or classes of obligations
in a timely manner. A rating on an obligor is lowered to ‘D’ or ‘SD’ if it is conducting a distressed debt
restructuring.
|
B.
Municipal Short-Term Note Ratings |
An
S&P Global Ratings U.S. municipal note rating reflects S&P Global Ratings’ opinion about the liquidity factors and market
access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating,
if any, to assign, S&P Global Ratings’ analysis will review the following considerations:
● |
Amortization
schedule--the larger the final maturity relative to other maturities, the more likely it will be treated as a note;
and |
● |
Source
of payment--the more dependent the issue is on the market for its refinancing, the more likely it will be treated as
a note. |
Municipal
Short-Term Note Ratings
SP-1
- Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
SP-2
- Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
SP-3
- Speculative capacity to pay principal and interest.
D
- ‘D’ is assigned upon failure to pay the note when due, completion of a distressed debt
restructuring, or the filing of a
bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions.
MOODY’S
INVESTORS SERVICE INC. (“Moody’s”) LONG-TERM DEBT RATINGS*
Aaa
– Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa
– Obligations rated Aa are judged to be of high quality and are subject to very low credit risk
A
– Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
APPENDIX
B - DEBT RATINGS 71
Baa
– Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess
certain speculative characteristics.
Ba
– Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B
– Obligations rated B are considered speculative and are subject to high credit risk.
Caa
– Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca
– Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery
of principal and interest.
C
– Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal and
interest.
* |
Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of that generic rating category. |
STATE
AND MUNICIPAL NOTES
Excerpts
from Moody’s description of state and municipal note ratings:
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly
reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding
group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins
of protection.
FITCH,
INC. BOND RATINGS
Fitch
publishes credit ratings that
are forward-looking opinions on the relative
ability of an entity or
obligation to meet
financial commitments.
Issue-level ratings are also assigned and often include an expectation of recovery which may
be notched above or below the issuer-level rating.
Credit ratings are indications
of the likelihood of repayment
in accordance with the terms of
the issuance. ‘AAA’ ratings
denote the lowest expectation of default risk. They are assigned only
in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong
capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. ‘A’
ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for
higher ratings. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of
financial commitments is considered adequate,
but adverse business or economic conditions are more likely to impair this
capacity. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes
in business or economic conditions over time;
however, business or financial flexibility exists that supports the servicing of financial
commitments. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in
the business and economic environment. CCC –
Very low margin for safety. Default is a real
possibility. CC - Default of some kind appears
probable.
C
- A default or default-like process has begun, or for
a closed funding vehicle, payment capacity is irrevocably impaired.
‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced: a) an uncured payment default or distressed
debt exchange on a bond, loan or other material financial obligation, but b) has not entered into bankruptcy filings,
administration, receivership, liquidation, or other formal winding-up procedure, and c) has not otherwise ceased operating.
‘D’
ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedure or that has otherwise ceased business
and debt is still outstanding.
MOODY’S
Ratings
assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative
credit risks of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles,
project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an
original maturity of eleven
months or more and reflect both on the likelihood
of a default or
impairment on contractual financial
obligations and the expected financial loss
suffered in the event of default
or impairment. Short-term ratings are
72 APPENDIX
B - DEBT RATINGS
assigned
to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or
impairment on contractual
financial obligations and the expected financial
loss suffered in the event of default
or impairment.
Moody’s
differentiates structured finance ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial
institution, and public sector entities) on the global long-term scale by adding (sf ) to all structured finance ratings.
The addition of (sf ) to structured finance ratings should eliminate any presumption that such ratings and fundamental
ratings at the same letter grade level will behave the same. The (sf ) indicator for structured finance security
ratings indicates that otherwise similarly rated structured finance and fundamental securities may have different
risk characteristics. Through its current methodologies, however, Moody’s aspires to achieve broad expected equivalence
in structured finance and fundamental rating performance when measured over a long period of time.
GLOBAL
SHORT-TERM RATING SCALE
P-1
Ratings
of Prime-1 reflect
a superior ability to repay short-term obligations.
P-2
Ratings
of Prime-2 reflect
a strong ability to repay short-term obligations.
P-3
Ratings
of Prime-3 reflect
an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
U.S.
MUNICIPAL SHORT-TERM DEBT AND DEMAND OBLIGATION RATINGS
SHORT-TERM
OBLIGATION RATINGS
We
use the global short-term Prime
rating scale for commercial paper issued by US municipalities and nonprofits. These
commercial paper programs may be backed by
external letters of credit or liquidity facilities,
or by an issuer’s self-liquidity.
For other short-term municipal obligations,
we
use one of two other short-term rating scales,
including the Municipal
Investment Grade (MIG). We use the MIG scale for US municipal cash flow notes, bond anticipation notes and certain
other short-term obligations, which typically mature in three years or less.
MIG
1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly
reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding
group.
MIG
3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins
of protection.
FITCH’S
SHORT-TERM RATINGS
A
short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity
and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant
obligation. Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings are assigned to obligations
whose initial maturity is viewed as “short term” based on market convention
(a long-term rating can also be used
to rate an issue with short maturity). Typically,
this means a timeframe
of up to 13 months for corporate, sovereign,
and structured obligations and up to 36 months
for obligations in U.S. public finance markets.
F1
- Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to
denote any exceptionally strong credit feature.
F2
- Good intrinsic capacity for timely payment of financial commitments.
F3
- The intrinsic capacity for timely payment of financial commitments is adequate.
B
- Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.
C
– Default is a real possibility.
RD
– Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet
other financial obligations. Typically applicable to entity ratings only.
D
– Indicates a broad-based default event for an entity, or the default of a short-term obligation.
APPENDIX
B - DEBT RATINGS 73
APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES
U.S.
Registered Advisers
Summary of
Proxy Voting Guidelines
as of
October 26, 2022
Where
clients appoint abrdn Inc. to vote proxies on their behalf, policies have been established to vote these proxies in the best
interests of our clients.
We
employ ISS as a service provider to facilitate electronic voting. We require ISS to provide recommendations based on our
own set of parameters tailored to abrdn’s assessment and approach, but remain conscious that all voting decisions are
our own on behalf of our clients. We consider ISS’s recommendations and those based on our custom parameters as input
to our voting decisions. We make use of the ISS standard research and recommendations and those based on our own
custom policy as input to our voting decisions. Where our analysts make a voting decision that is different from the recommendations
based on our custom policy they will provide a rationale for such a decisions which will be made publicly
available in our voting disclosures.
In
order to make proxy voting decisions, an abrdn analyst assesses the resolutions at general meetings in our active investment
portfolios. This analysis will be based on our knowledge of the company, but will also make use of the custom and
standard recommendations provided by ISS as described above. The product of this analysis will be a final voting decision
instructed through ISS and applied to all funds for which abrdn have been appointed to vote. For funds managed by
a sub-adviser, we may delegate to the sub-adviser the authority to vote proxies; however, the sub-adviser will be required
to either follow our policies and procedures or to demonstrate that their policies and procedures are consistent with
ours, or otherwise implemented in the best interest of clients.
There
may be certain circumstances where abrdn Inc. may take a more limited role in voting proxies. We will not vote proxies
for client accounts in which the client contract specifies that abrdn Inc. will not vote. We may abstain from voting a client
proxy if the voting is uneconomic or otherwise not in clients’ best interests. For companies held only in passively managed
portfolios, abrdn Inc. custom recommendations provided by ISS will be used to automatically apply our voting approach;
we have scope to intervene to test that this delivers appropriate results, and will on occasions intrude to apply a
vote more fully in clients’ best interests. If voting securities are part of a securities lending program, we may be unable to
vote while the securities are on loan. However,
we have the ability to recall shares on loan or to restrict lending when required,
in order to ensure all shares have voted. In addition, certain jurisdictions may impose share-blocking restrictions at
various times which may prevent abrdn Inc. from exercising our voting authority.
We
recognize that there may be situations in which we vote at a company meeting where we encounter a conflict of interest.
Such situations include:
● |
Where
a portfolio manager owns the holding in a personal account. |
● |
An
investee company that is also a segregated client. |
● |
An
investee company where an Executive Director or Officer of our company or that of abrdn plc or another affiliate is also
a Director of that company. |
● |
An
investee company where an employee of abrdn plc or an affiliate or subsidiary is a Director of that company. |
● |
A
significant distributor of our products. |
● |
Any
other companies which may be relevant from time to time. |
We
have adopted procedures within our proxy voting process to identify where a conflict exists. These procedures are designed
to ensure that our voting decisions are based on our client’s best interests and are not impacted by any conflict.
The
implementation of this policy, along with conflicts of interest, will be reviewed periodically by the Active Ownership team.
abrdn’s Global ESG Principles & Voting Policies are published on our website.
Clients
may obtain a free copy of abrdn Inc.’s proxy voting policies and procedures and/or proxy voting records for their account
by contacting us at (215) 405-5700. abrdn publishes ESG Principles & Voting Policies, which describe our approach
to investment analysis, shareholder engagement and proxy voting across companies worldwide. There are published
on our website.
Clients
that have not granted abrdn Inc. voting authority over securities held in their accounts will receive their proxies in accordance
with the arrangements they have made with their service providers.
Listed
Company ESG Principles & Voting Policies
February
2023
Active
Ownership and Environmental, Social & Governance (ESG) considerations are a driver of our investment process, our
investment activity, our client journey and our corporate influence.
74 APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES
Through
engagement with the companies in which we invest, and by exercising votes on behalf of our clients, we seek to improve
the financial resilience and performance of our clients’ investments. Where we believe change is needed, we endeavour
to catalyse this through our stewardship capabilities.
Our
expectations
As
global investors, we are particularly aware that ESG structures and frameworks vary across regions. Furthermore, what
we expect of the companies in which we invest varies between different stages of business development and the underlying
history and nature of the company in question. We seek to understand each company’s individual circumstances
and so evaluate how it can best be governed and overseen. As such, we strive to apply the principles and policies
set out on these pages in response to the needs of that individual company at that particular time. Our heritage as
a predominantly active fund manager helps drive this bespoke approach to understanding good governance and risk management.
We
have a clear perception of what we consider to be best practice globally – as set out in this document. However we will
reflect the nature of the business, our close understanding of individual companies and regional considerations, where
appropriate, in our approach to applying these policies, which are not exhaustive.
This
document has received approval from the Head of Public Markets and the Investment Vector’s Chief Sustainability Officer
following consultation with various internal stakeholders.
Our
approach to stewardship
As
defined in our Stewardship Principles we seek to integrate and appraise environmental, social and governance factors in
our investment process. Our aim is to generate the best long-term outcomes for our clients and we will actively take steps
as stewards and owners to protect and enhance the value of our clients’ assets.
Stewardship
is a reflection of this bespoke approach to good governance and risk management. We seek to understand each
company’s specific approach to governance, how value is created through business success and how investors’ interests
are protected through the management of risks that materially impact business success. This requires us to play our
part in the governance process by being active stewards of companies, dynamically involved in dialogue with management
and non-executive directors, fully understanding the material risks and opportunities – including those relating
to environmental and social factors and helping to shape the future success of the business.
We
will:
● |
take
into consideration, in our investment process, the policies and practices on environmental, social and governance matters
of the companies in which we invest |
● |
seek
to enhance long-term shareholder value through constructive engagement with the companies in which we invest
|
● |
seek
to exercise shareholder rights on behalf of our clients and engage with companies on their behalf in a manner consistent
with their long-term best interests |
● |
seek
to influence the development of high standards of corporate governance and corporate responsibility in relation to
environmental and social factors |
● |
communicate
our Listed Company Stewardship Principles to clients, companies and other interested parties |
● |
be
accountable to clients within the constraints of professional confidentiality and legislative and regulatory requirements
|
● |
be
transparent in reporting our engagement and voting activities. |
abrdn
is committed to exercising responsible ownership with a conviction that companies adopting improving practices in
corporate governance and risk management will be more successful in their core activities and deliver enhanced returns
to shareholders. As owners of companies, the process of stewardship is a natural part of our investment approach
as we seek to benefit from their long-term success on our clients’ behalf. Our fund managers and analysts regularly
meet with the management and non-executive directors of companies in which we invest.
1. |
Companies
should be run to generate long-term sustainable business success Shareholder
returns are a reflection of underlying business performance, and should not be the sole objective of management
and the board. We expect management and boards to focus on delivering underlying business performance
and on exploiting the opportunities for value creation within their business. Success through this approach
will be reflected over the long term in positive returns for shareholders. |
|
Companies
must be clear about the drivers of their business success and their strategy for maintaining and enhancing
it. Investment is a forward-looking process: we seek to understand the opportunity for a business and its scope
for future value-creation over the long term. In order to do this, we need clarity on past business delivery and its
drivers, and on the effective track record of management; we require honest and open reporting to build confidence
in that track record. We seek confidence that companies and their managements can maintain their competitive
positioning and operational performance and subsequently enhance returns for investors. A clear |
APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES 75
|
strategy
and clarity about the drivers of operational success provides the lens through which we will consider most corporate
issues, not least assessing performance and risk management. |
2. |
Companies
should maintain and protect investor rights The
interests of minority shareholders must be protected. Any major, or majority, investor should not enjoy preferential
treatment. The nature of relations – particularly any related party transactions – with parent or related companies,
or other major investors, must be disclosed fully. The structure of ownership or control should minimise the
potential for abuse of public shareholders. |
|
Companies
should not make significant changes to their structure or nature without being fully transparent to their investors.
Shareholders should have an opportunity to vote on significant corporate activity such as major transactions,
and on substantial non pre-emptive share issuance. Where a transaction is with a related party, only independent
shareholders should have a vote. |
|
Even
in markets where no vote is given to shareholders in these circumstances, investors need transparent disclosure
of the reasons for any such major change. Companies should expect that shareholders may want to discuss
and debate such proposed developments. |
|
Diversification
beyond the core skills of the business needs to be justified as it is more often than not a distraction from
operational performance. All major deals need to be clearly explained and justified in the context of the pre-existing
strategy, and should be subject to shareholder approval. |
|
Related
party transactions must be agreed on arm’s length terms and be made fully transparent. Where they are material,they
should be subject to the approval of independent shareholders. |
|
We
encourage companies to have conservative rather than efficient balance sheets, consistent with their long-term
success. Capital structures should be as simple as possible: multiple share classes should be avoided and one
share should carry one vote. Companies with multiple share classes seeking to raise new capital should not expect
our unconditional support. |
|
Companies
should not issue significant portions of shares unless offering these pro rata to existing shareholders. |
|
Non
pre-emptive share issuance should be kept to less than 5% a year, and should not be made to related parties without
a clear explanation and a vote of independent shareholders. |
|
There
should be no artificial structures put in place to entrench management and protect companies from takeover.
The best defence from hostile takeover is strong operational delivery. |
3. |
Companies
should communicate openly and clearly A
company’s board should present a fair, balanced and understandable assessment of the company’s position and prospects
– financial and non-financial – and of how it has fulfilled its responsibilities. We support the principle of full disclosure
of relevant and useful information, subject to issues of commercial confidentiality and prejudice. Boilerplate
disclosure should be avoided. We encourage companies to consider using the appropriate globally developed
standards and would particularly encourage the use of those created by the Taskforce for Climate related
Financial Disclosure (TCFD), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting
Standards Board (SASB). |
|
Directors
and management should make themselves available for discussions with major shareholders. We expect to
have appropriate dialogue with those individuals charged with overseeing the companies in which we invest, to share
our perspectives and to gain confidence that the individuals are carrying out their roles with appropriate vigour
and diligence. Directors who decline appropriate requests for meetings without a clear justification or are unavailable
within an appropriate timescale cannot expect that we will unconditionally support their re-election. |
|
Honest
and open reporting, including sharing bad news early, engenders trust and longer-term investment. Any public
disclosure by a company should be fair and balanced, accurately reflecting the operational performance of the
business and making clear any material developments. |
|
Updates
on performance, where a development marks a material change from the expectations that a company has
established with its investors, should not be delayed to the next regular reporting deadline. Instead, they should be
made promptly, as soon as the company itself has an understanding of the situation. |
|
Where
we have confidence that this happens and will be done going forward, we will support the removal of quarterly
reporting requirements. Relevant ad hoc disclosure in this way is more useful to long-term investors and builds
trust much more effectively than relying on the regularity of quarterly reporting. |
|
The
introduction of global accounting standards has led to much greater investor confidence in the accounts produced
by companies around the world. It has also assisted in creating consistency of reporting across companies,
enabling fairer comparisons between different operating businesses. |
|
We
therefore encourage companies seeking international investment to report under International Financial Reporting
Standards (IFRS) or US GAAP. As a firm abrdn supports the continued development of high quality global accounting
standards. |
|
An
independent audit, delivered by a respected audit firm, is a required element for investor confidence in reporting by
companies. Audited reporting and financial numbers should be published ahead of any relevant shareholder meetings.
|
76 APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES
|
We
strongly favour meaningful, transparent and informative auditor reports, giving us additional insights into the audit
process and accounting outcomes. In order to demonstrate the level of independence, companies should not have
the same audit firm in place for more than 20 years. We will vote against the appointment of auditors that have
tenure of more than 20 years. The audit fee needs to be sufficient to pay for an appropriately in-depth assurance
process. We will generally oppose moves to make savings in this respect because the costs, in terms of damage
to audit effectiveness and confidence in the company’s accounts, are much more substantial. |
|
The
independence of the auditor and the standard of their work, particularly in challenging management, should be
subject to regular assessment that is appropriately disclosed. Even when the individuals carrying out the audit are
refreshed, we believe that the independence of the audit firm erodes over time and we will encourage an audit tender
process and change of audit firm where an engagement has lasted for an extended period. The relationship with
the auditor should be mediated through independent directors, most likely in the form of the audit committee or
equivalent. Where we are significant shareholders, we expect to be consulted on plans to tender and replace auditors.
|
|
Companies
should be consistent in their public statements, and not undermine these in private commentary to market
participants or to politicians and regulators. We welcome transparency from companies about their lobbying
activities and believe that good companies have nothing to hide in this respect. Similarly we encourage transparency
of any political donations that companies deem appropriate – and we expect a clear explanation of why
such donations are an appropriate use of corporate funds. |
4. |
Companies
should be led and overseen by effective and genuinely independent boards Running
businesses effectively for the long term requires collaboration and cooperation. No individual or small group
should have unfettered powers. Nor should they have dominant influence over the way a business is run or over
major decisions about its operations or future. This means we believe that there should be a division of roles at the
top of the organisation, typically between a CEO and an independent chair. The roles of CEO and Chair are different.
Put most simply, they amount to running the company and running the board respectively. The board is best
able to hold the CEO accountable for business performance and the delivery of value where oversight and board
leadership are independent. Where these roles are combined, we will consider the particular circumstances of
the company and the scope of the lead independent director role before agreeing to support any such approach. |
|
Directors
should feel that they are accountable to investors. Therefore they should regularly stand for re-election; the
abrdn expectation is that this should be at a minimum frequency of every three years in order for that accountability
to feel genuine. Lengthier board mandates – while not uncommon in some markets – risk divorcing directors
from an appropriate sense of accountability, and so will not generally receive our support. For this reason of
individual accountability to shareholders, we cannot support the election of directors who are not personally identified
but are proposed as corporations. A further important element of director accountability to shareholders is
that investors should have the right, both formal and informal, to propose and promote individual directors to be considered
for election to the board by all shareholders. |
|
Effective
decision-making needs a mix of skills around the boardroom table and debate between diverse and different-minded
individuals. A range of skills, experience and perspectives should be drawn together on the board. |
|
These
include industry knowledge, experience from other sectors and relevant geographic knowledge. Independence
of thought plays a crucial role in the ability of a board to generate the debate and discussion that will challenge
management, help enhance business performance and improve decision-making. Regular board appraisals
will help the board ensure it has the necessary mix of skills, and quality of individuals, to address the developing
challenges it faces. Individual directors also need sufficient time to carry out their role effectively: we seek
to ensure that all directors maintain an appropriate level of overall commitments such that allows them to be properly
diligent. |
|
It
is our view that gender diversity on the board, in leadership positions and throughout the business, has positive impact
on decision-making and overall performance of a company. We will take voting action at the general meetings
of companies that do not demonstrate adequate consideration of the benefits of gender diversity. |
|
Regular
refreshment of the non-executive portion of a board helps draw in fresh perspectives, not least in the context
of changes to business and emerging opportunities and risks. It also helps limit the danger of group-think. Thoughtful
and proactive succession planning is therefore needed to ensure that a board is populated by individuals with
an appropriate mix of skills, experience and perspectives. Long-serving directors, particularly on boards that have
not benefited from recent refreshment, are unlikely to enjoy our support. |
|
Boards
should establish committees, populated by independent and appropriately skilled non-executive directors, to
oversee (as a minimum) remuneration, audit and nomination processes. These committees should report openly on
an annual basis about their activities and key decisions taken. |
5. |
Companies
need to manage key opportunities and risks actively and effectively |
|
As
part of strategic planning, boards need to have oversight of, and clearly articulate, the key opportunities and risks affecting
the sustainability of the business model. This includes having a process for, and transparent disclosure of, potential
and emerging opportunities and risks and the actions being taken to address them. |
APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES 77
|
The
effective management of risks extends to long-term issues that are hard to measure and whose timeframe is uncertain
and will include the management of environmental and social issues. We use the UN Global Compact’s four
areas of focus in assessing how companies are performing in this area. Specifically we expect companies to be able
to demonstrate how they manage their exposures under the following headings. |
|
Environmental
responsibility |
|
It
is generally accepted that companies are responsible for the effects of their operations and products on the environment.
The steps they take to assess and reduce those impacts can lead to cost savings and reduce potential reputational
damage. Companies are responsible for their impact on the climate and they face increased regulation
from world governments on activities that contribute to climate change. |
|
We
expect that companies will: |
● |
comply
with all environmental laws and regulations, or recognised international best practice as a minimum |
● |
identify,
manage and reduce their environmental impacts |
● |
understand
the impact of climate change along the company value chain |
● |
develop
group-level climate policies and, where relevant, set targets to manage the impact, report on policies, practices
and actions taken to reduce carbon and other environmental risks within their operations. |
|
Companies
that respect internationally recognised labour rights and provide safe and healthy working environments
for employees are likely to reap the benefits. This approach is likely to foster a more committed and productive
workforce, and help reduce damage to reputation and a company’s license to operate. |
We
expect companies to comply with all employment laws and regulations and adopt the International Labour Organization’s
(ILO) convention as a minimum. In particular, companies will:
● |
take
affirmative steps to ensure that they uphold decent labour standards |
● |
adopt
strong health and safety policies and programmes to implement such policies |
● |
adopt
equal employment opportunity and diversity policies and a programme for ensuring compliance with such policies
|
● |
adopt
policies and programmes for investing in employee training and development |
● |
adopt
initiatives to attract and retain talented employees, foster higher productivity and quality, and encourage in their workforce
a commitment to achieving the company’s purpose |
● |
ensure
policies are in place for a company’s suppliers that promote decent labour standards, and programmes are in place
to ensure high standards of labour along supply chains |
● |
report
regularly on its policy and implementation of managing human capital. |
Human
rights and international operations
Companies
that operate in or source their goods from countries with a record of human rights abuse risk the safety of their
staff and operations. In addition, companies may face reputational damage should they be associated with,
or
contribute to, the human rights abuses of such countries. We expect that companies, wherever they operate, will:
● |
recognise
international human rights standards, such as the UN Declaration of Human Rights |
● |
take
affirmative steps to ensure that they have strong policies in place to respect human rights |
● |
introduce
systems and processes to ensure company actions do not violate or infringe upon the human rights of its stakeholders,
including employees, business partners and civil society |
● |
where
appropriate, use the UN Guiding Principles on Business and Human Rights to help develop systems and mechanisms
to manage human rights within business operations |
● |
be
transparent and report on how human rights are managed and measured within business operations. |
|
As
institutions of wealth and influence, companies have a significant impact on the prosperity of their local communities
and the wider world. At the same time, a company’s failure to conform to internationally recognised standards
of business ethics on matters such as bribery and corruption, can affect its reputation and image. We expect
companies to: |
● |
adopt
best practice in relation to the impact on communities in which they operate |
● |
adopt
stringent policies in relation to anti-bribery and corruption, to ensure high standards of business conduct are maintained
|
● |
monitor,
measure and regularly report on how these policies are implemented and managed. |
● |
Boards
should have active oversight of internal controls to safeguard the company’s assets. Companies should invest appropriately
in internal audit teams and processes. Just as with the external audit, the head of internal audit should be in
direct dialogue with the independent directors, most likely in the form of the audit committee or equivalent. |
78 APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES
1. |
Pay
structures should be long term and aligned with the corporate strategy |
|
We
expect remuneration committees to be robust in their approach to developing and implementing remuneration policies.
The remuneration committee should comprise at least three independent non-executive directors with appropriate
experience, knowledge of the business, independence and status. Remuneration committees should have
a formal and transparent procedure for developing policies on executive remuneration and for determining the
remuneration packages of individual directors. No executive director should be involved in setting their own remuneration.
|
|
Remuneration
policies and the overall levels of pay should be aligned with strategy, attracting and retaining talent and
incentivising the decisions and behaviours needed to create long-term value. The component parts of remuneration
should be structured so as to link rewards to corporate and individual performance and they should be
considered in the context of the remuneration policies when taken as a whole. We recognise the benefits of simplicity
in forming the policy, which should clearly link outcomes to expectations for those receiving the remuneration,
as well as external stakeholders. The remuneration committee should clearly demonstrate regard for the
company’s employees, for wider society and be cognisant of the company’s licence to operate when considering
policy and the overall level of remuneration. |
|
A
company’s annual report should contain an informative statement of remuneration policy which communicates clearly
to stakeholders how it has developed and evolved. This should include details of any stress testing that may have
been undertaken to understand the policy outcomes for different business scenarios. The remuneration committee
should provide a clear description of the application of the policy and the outcomes achieved. |
|
We
expect details of any use of discretion to be disclosed by the remuneration committee. Its use should be justifiable,
appropriate and clearly explained. We would expect policies to be sufficiently robust so that discretion is only
necessary in exceptional circumstances. |
|
Directors’
service contracts should have notice periods which do not exceed 12 months unless there is special justification.
We oppose the award of additional remuneration above contractual entitlements in the event of early termination
or a change in control of the company. |
A
company should structure performance-related pay to incentivise and reward management in a manner that is aligned
with the company’s sustainable performance and risk appetite over the long term.
|
The
performance measures used to determine performance- related pay should be disclosed and should: |
● |
incentivise
participants to achieve above-average performance through the use of challenging targets |
● |
seek
to measure significant improvements in the underlying financial performance of the company. |
● |
oppose
provisions for early release of rewards unless the spirit of the performance condition has been, or is likely to be, achieved
|
● |
oppose
retesting of performance conditions when grants of conditional awards are being made on a regular basis |
● |
encourage
vesting of awards three years or longer after the period of grant |
● |
where
vesting periods are less than 5 years, an additional holding period should be included so that the combination of vesting
and holding periods is not less than 5 years |
● |
encourage
sliding-scale performance measures |
● |
encourage
retention of vested shares over the long term |
● |
oppose
the repricing of share incentives that have been conditionally awarded to directors. |
|
We
oppose the use of total shareholder return and other share price-based performance measures if they are not underpinned
by a challenging measure of underlying financial performance. |
|
Where
not commercially sensitive, we expect the targets set for incentive awards to be disclosed. |
|
We
oppose ex-gratia and other payments and financial awards to directors and former directors that are not within the
terms of the company’s stated remuneration policy, unless such payments have been the subject of prior approval
by shareholders. |
APPENDIX
C - PROXY VOTING POLICIES AND PROCEDURES 79