485APOS 1 f14-0501.htm ASTON FUNDS

 
As filed with the Securities and Exchange Commission on January 24, 2014
1933 Act Registration File No. 033-68666
1940 Act File No. 811-8004
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 

 
FORM N-1A
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
 
Pre-Effective Amendment No. __ o
 
Post-Effective Amendment No. 150 x
 
and
 
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
 
Amendment No. 152 x
 

 
ASTON FUNDS
(Exact Name of Registrant as Specified in Charter)
 
120 North LaSalle Street
Chicago, Illinois 60602
(Address of Principal Executive Offices, including Zip Code)
 
Registrant’s Telephone Number, including Area Code (312) 268-1400
 
(Name and Address of Agent for Service)
Kenneth C. Anderson, President
Aston Funds
120 North LaSalle Street
Chicago, Illinois 60602
Copy to:
Deborah B. Eades
Vedder Price P.C.
222 North LaSalle Street
Chicago, Illinois 60601
 

 
It is proposed that this filing will become effective:
 
¨  immediately upon filing pursuant to rule 485(b)
¨  on June 23, 2013 pursuant to rule 485(b)
¨  60 days after filing pursuant to rule 485(a)(1)
¨  on (date) pursuant to rule 485(a)(1)
ý  75 days after filing pursuant to rule 485(a)(2)
¨  on (date) pursuant to rule 485(a)(2)
 
If appropriate, check the following box:
 
¨  this post-effective amendment designates a new effective date for a previously
 filed post-effective amendment
 
 
 

 

This information in this prospectus is not complete and may be changed.  We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
(GRAPHIC)
 
 
 
Aston Funds
ASTON/Pictet International Fund
ASTON/Guardian Capital Global Dividend Fund
 
    Ticker Symbols
    Class N   Class I
ASTON/Pictet International Fund        
ASTON/Guardian Capital Global Dividend Fund      
 
 
 
Prospectus
 
______ __, 2014
 
 

A diversified, actively managed fund family with a
process-driven approach to investing.
 
 
 
Not FDIC Insured. No Bank Guarantee. May Lose Value.

The Securities and Exchange Commission has not approved or disapproved these or any mutual fund’s shares or determined if this prospectus is accurate or complete.  Any representation to the contrary is a crime.
 
 
 

 

 
     
TABLE OF CONTENTS    
     
 
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34
 
35
 
     
36
 
     
38
 
     
 Back Cover
 
 
 
 

 

 
 
 
INVESTMENT OBJECTIVE
The Fund seeks to provide capital appreciation.
 
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
 
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
       
   
Class N
Shares
Class I
Shares
Redemption Fee on Shares Held Less Than 90 Days
(as a percentage of amount redeemed)
 
    2.00%
    2.00%
 
   
Class N
Shares
Class I
Shares
Management Fees
 
    0.95
    0.95
Distribution and Service (12b-1) Fees
 
    0.25
% 
   None
 
Other Expenses
 
       1.31
%(a) 
       1.31
%(a)
Acquired Fund Fees and Expenses
 
       0.01
%(b)
      0.01
%(b)
Total Annual Fund Operating Expenses
 
    2.52
    2.27
     Fee Waiver and/or Expense Reimbursement
 
       (1.01
)%(c)
       (1.01)
%(c)
Total Annual Fund Operating Expenses After Fee
Waiver and/or Expense Reimbursement
 
 
      1.51
%(c)
 
      1.26
%(c)

(a) Estimated for the current fiscal year based on an estimated asset size of $20 million.
(b) The average expense ratio of the acquired fund fees and expenses in the table is an estimate.
(c) The adviser is contractually obligated to waive management fees and/or reimburse ordinary operating expenses, not including investment-related costs (such as brokerage commissions), interest, taxes, extraordinary expenses and acquired fund fees and expenses, through April 30, 2015, to the extent that operating expenses exceed 1.50% of the Fund’s average daily net assets with respect to Class N shares and 1.25% of the Fund’s average daily net assets with respect to Class I shares (the “Operating Expense Limit”). Prior to April 30, 2015, the arrangement may be amended or terminated for a class only by a vote of the Board of Trustees of Aston Funds. For a period of up to three years from the fiscal year end during which such amount was waived or reimbursed, the adviser is entitled to be reimbursed by the Fund for fees waived and expenses reimbursed from the commencement of operations through the completion of the first three full fiscal years to the extent that the Fund’s Total Annual Operating Expenses for a class, not including investment-related costs (such as brokerage commissions), interest, taxes, extraordinary expenses and acquired fund fees and expenses, remains at or below the Operating Expense Limit after such reimbursement.

EXAMPLE
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.  The example shows the operating expenses you would incur as a shareholder if you invested $10,000 in the Fund over the time periods shown and you redeem all your shares at the end of those periods. The example assumes that the average annual return was 5%, operating expenses remained the same and expenses were capped for one year in each period.

Although your actual costs may be higher or lower, based on the above assumptions, your costs would be:
         
 
1 Year
 
3 Years
 
Class N Shares
$  154
 
$     688
 
Class I Shares
   128
 
   612
 
 
Aston Funds | 3
 
 
 

 

 
 
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.  Because the Fund is newly organized, portfolio turnover information is not available.

PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests primarily in equity securities, principally common stocks, of non-U.S. companies. The Fund emphasizes companies whose principal activities are located in countries represented by the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index.  Companies generally may be considered to have principal activities in a country if they are organized or headquartered in such country or their stock principally trades in markets located in such country. The Fund may invest in securities of companies that are listed, or whose principal business activities are located in emerging market countries. The Fund may invest to a more limited extent in other developed countries such as the United States or Canada.

The portfolio manager seeks to build a portfolio of companies that trade below their underlying (intrinsic) value at the time of purchase. To identify such stocks, the investment process utilizes bottom-up fundamental analysis that focuses on future growth in cash generation and cash returns on the capital employed in the business. Because the portfolio is focused on both growth and valuation, the portfolio has Growth at a Reasonable Price (GARP) characteristics. The portfolio manager calculates an intrinsic value for candidate companies using complimentary long-term forecasting techniques, and to establish an investment thesis with clearly identified investment drivers. The portfolio manager builds and maintains a portfolio that seeks to combine high conviction ideas, while diversifying their underlying investment drivers. The Fund’s regional and country allocations, industry sector allocations and market capitalization ranges are a result of the bottom-up selection process. The Fund does not expect to purchase or sell foreign currencies to hedge against declines in the U.S. dollar or to lock in the value of foreign securities that it purchases. The portfolio manager adheres to a sell discipline by monitoring performance, target price levels, risk and the overall investment case of the stocks in the portfolio.

The countries represented by the MSCI EAFE Index currently include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

PRINCIPAL RISKS
You could lose money by investing in the Fund. There can be no assurance that the Fund’s investment objective will be achieved.  The following is a summary of the principal risks of investing in the Fund.

Emerging Market Risk. In addition to the general foreign securities risks, investing in emerging market countries is subject to a number of risks, including:
n           Economic structures that are less diverse and mature than those of developed countries
n           Less stable political systems and less developed legal systems
n           National policies that may restrict foreign investment
n           Wide fluctuations in the value of investments
n           Smaller securities markets, making investments less liquid
n           Special custody arrangements
 
Foreign Securities Risk. Investing in the securities of foreign issuers involves special risks and considerations not typically associated with investing in U.S. companies. The securities of foreign companies may be less liquid and may fluctuate more widely than those traded in U.S. markets. Foreign companies and markets may also have less governmental supervision. There may be difficulty in enforcing contractual obligations and little public information about the companies. Trades typically take more time to settle and clear, and the costs of buying and selling foreign securities are generally higher than similar costs associated with securities traded in U.S. markets.

Aston Funds | 4
 
 
 

 

 
The values of the securities held by the Fund may be affected by changes in exchange rates or control regulations. If a local currency gains against the U.S. dollar, the value of the holding increases in U.S. dollar terms. If a local currency declines against the U.S. dollar, the value of the holding decreases in U.S. dollar terms. Changes in economic, tax or foreign investment policies, or other political, governmental or economic actions can adversely affect the value of the securities in the Fund. In foreign countries, accounting, auditing and financial reporting standards and other regulatory practices and requirements are generally different from those required for U.S. companies.  Investments in securities of foreign issuers may also be subject to foreign withholding and other taxes.

GARP Style Risk. GARP investing involves buying stocks that have a reasonable price/earnings ratio in relationship to a company’s earnings growth rate. Growth stocks may be more volatile than other stocks because they are generally more sensitive to investor perceptions and market moves. During periods of growth stock underperformance, the Fund’s performance may suffer.

Geographic Concentration Risk.  To the extent the Fund invests a substantial amount of its assets in securities of issuers located in a single country or geographic region, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund, and may result in increased volatility and greater losses.

Growth Style Risk. Growth investing involves buying stocks that have relatively high price-to-earnings ratios. Growth stocks may be more volatile than other stocks because they are generally more sensitive to investor perceptions and market moves. During periods of growth stock underperformance, the Fund’s performance may suffer.

Liquidity Risk. When there is no willing buyer and investments cannot be readily sold at the desired time or price, the Fund may need to accept a lower price or may not be able to sell the security at all. An inability to sell securities can adversely affect the Fund’s value or prevent the Fund from being able to take advantage of other investment opportunities. Less liquid securities are more difficult to dispose of at their recorded values and are subject to increased spreads and volatility.

Manager Risk. The performance of the Fund is dependent upon the investment adviser’s skill in selecting managers and the portfolio manager’s skill in making appropriate investments. As a result, the Fund may underperform its benchmark or its peers.

Market Risk. The Fund’s share price can move down in response to stock market conditions, changes in the economy or changes in a particular company’s stock price. An individual stock may decline in value even when the value of stocks in general is rising.

New Fund Risk.  The Fund is newly formed and does not have an operating history. If the Fund does not grow to a viable size due to market factors, performance or the inability to attract assets, the Fund may be liquidated at any time without shareholder approval and at a time that may not be favorable for all shareholders. Such liquidation could have negative tax consequences for shareholders.
 
Small-Cap and Mid-Cap Company Risk. Investing in securities of small-cap and mid-cap companies may involve greater risks than investing in securities of larger, more established issuers. Small-cap and mid-cap companies generally have limited product lines, markets and financial resources. Their securities may trade less frequently and in more limited volume than the securities of larger, more established companies. Also, small-cap and mid-cap companies are typically subject to greater changes in earnings and business prospects than larger companies. As a result, their stock prices may experience greater volatility and may decline significantly in market downturns.

Value Style Risk. Value investing involves buying stocks that are out of favor and/or undervalued in comparison to their peers or their prospects for growth. Typically, their valuation levels are less than those of growth stocks. Because different types of stocks go out of favor with investors depending on market and economic conditions, the Fund’s return may be adversely affected during a market downturn and when value stocks are out of favor.
 
Aston Funds | 5
 
 
 

 

 
FUND PERFORMANCE
The Fund does not have a full calendar year of operations.  Performance information will be included in the Fund’s next annual or semi-annual shareholder report.

MANAGEMENT
Aston Asset Management, LP serves as the investment adviser to the Fund. Pictet Asset Management Limited (“PAM”) serves as the subadviser to the Fund.

Mr. Fabio Paolini, CFA, Head of EAFE Equities at PAM, has served as the Lead Portfolio Manager since the Fund’s inception in _____ 201_.

PURCHASE AND SALE OF FUND SHARES
Shares of the Fund may be purchased, exchanged, or redeemed on any business day by written request (Aston Funds, P.O. Box 9765, Providence, RI 02940), wire transfer, online access (www.astonfunds.com), or by telephone (800-992-8151). Investors who wish to purchase, exchange or redeem Fund shares through a broker-dealer should contact the broker-dealer directly.

Class and Account Type
  Minimum
Initial
Investment
Subsequent
Investments
Class N - Regular Accounts
$2,500
$50
Individual Retirement Accounts  (IRAs)
$500
$50
Education Savings Accounts (ESAs)
$500
$50
Custodial Accounts for Minors (UGMA/UTMA)
$500
$50
Class I - Institutional Accounts
$1 Million
$50
 
TAX INFORMATION
The Fund’s distributions are generally taxable as ordinary income or capital gains for federal income tax purposes, unless you are investing through a tax-deferred account such as a 401(k) or individual retirement account. Distributions on investments made through tax-deferred vehicles, such as 401(k) plans or IRAs, may be taxed later upon withdrawal of assets from those plans or accounts.
 
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 shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
 
Aston Funds | 6
 
 
 

 

 
 
 
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation and current income.
 
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
 
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your investment)
             
    Class N
Shares
    Class I
Shares
 
Redemption Fee on Shares Held Less Than 90 Days
(as a percentage of amount redeemed)
   2.00%      2.00%  
             
   
Class N
Shares
   
Class I
Shares
 
Management Fees
    0.80 %       0.80 %  
Distribution and Service (12b-1) Fees
    0.25 %    
None
   
Other Expenses
    4.09 %(a)       4.09 %(a)  
Acquired Fund Fees and Expenses
    0.01 %(b)       0.01 %(b)  
Total Annual Fund Operating Expenses
     5.15 %       4.90 %  
     Fee Waiver and/or Expense Reimbursement
     (3.84 )%(c)       (3.84 )%(c)  
Total Annual Fund Operating Expenses After Fee
Waiver and/or Expense Reimbursement
    1.31 %(c)       1.06 %(c)  
 
(a) Estimated for the current fiscal year based on an estimated asset size of $5 million.
(b) The average expense ratio of the acquired fund fees and expenses in the table is an estimate.
(c) The adviser is contractually obligated to waive management fees and/or reimburse ordinary operating expenses, not including investment-related costs (such as brokerage commissions), interest, taxes, extraordinary expenses and acquired fund fees and expenses, through April 30, 2015, to the extent that operating expenses exceed 1.30% of the Fund’s average daily net assets with respect to Class N shares and 1.05% of the Fund’s average daily net assets with respect to Class I shares (the “Operating Expense Limit”). Prior to April 30, 2015, the arrangement may be amended or terminated for a class only by a vote of the Board of Trustees of Aston Funds. For a period of up to three years from the fiscal year end during which such amount was waived or reimbursed, the adviser is entitled to be reimbursed by the Fund for fees waived and expenses reimbursed from the commencement of operations through the completion of the first three full fiscal years to the extent that the Fund’s Total Annual Operating Expenses for a class, not including investment-related costs (such as brokerage commissions), interest, taxes, extraordinary expenses and acquired fund fees and expenses, remains at or below the Operating Expense Limit after such reimbursement.
 
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.  The example shows the operating expenses you would incur as a shareholder if you invested $10,000 in the Fund over the time periods shown and you redeem all your shares at the end of those periods. The example assumes that the average annual return was 5%, operating expenses remained the same and expenses were capped for one year in each period.
 
Although your actual costs may be higher or lower, based on the above assumptions, your costs would be:
 
 
1 Year
 
3 Years
 
Class N Shares
$   133
 
$  1,200
 
Class I Shares
108
 
  1,128
 
 
 Aston Funds | 7
 
 
 

 

 
 
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.  Because the Fund is newly organized, portfolio turnover information is not available.
 
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests primarily in a diversified portfolio of dividend-paying equity securities of both U.S. and non-U.S. companies. In selecting securities for the Fund, the portfolio manager primarily relies on bottom-up analysis and seeks to identify companies that it believes have the potential for growth of income and capital appreciation over time, with a particular emphasis on companies that the portfolio manager believes have the ability to grow earnings and a willingness to increase dividends. The portfolio manager believes that focusing on dividend-paying equity securities may tend to stabilize the volatility inherent in equity securities. The Fund may invest in companies of all sizes, but the investment process is expected to result in a bias towards larger capitalization companies. The Fund will invest in at least 5 countries other than the United States.
 
The Fund’s portfolio will be diversified across the ten global sectors of the Morgan Stanley Capital International (MSCI) World Index.
 
The Fund does not expect to purchase or sell foreign currencies to hedge against declines in the U.S. dollar or to lock in the value of foreign securities that it purchases. The Fund may invest in real estate investment trusts (“REITs”) and royalty income trusts.
 
PRINCIPAL RISKS
You could lose money by investing in the Fund. There can be no assurance that the Fund’s investment objective will be achieved.  The following is a summary of the principal risks of investing in the Fund.
 
Emerging Market Risk. In addition to the general foreign securities risks, investing in emerging market countries is subject to a number of risks, including:
           Economic structures that are less diverse and mature than those of developed countries
           Less stable political systems and less developed legal systems
           National policies that may restrict foreign investment
           Wide fluctuations in the value of investments
           Smaller securities markets, making investments less liquid
           Special custody arrangements
 
Foreign Securities Risk. Investing in the securities of foreign issuers involves special risks and considerations not typically associated with investing in U.S. companies. The securities of foreign companies may be less liquid and may fluctuate more widely than those traded in U.S. markets. Foreign companies and markets may also have less governmental supervision. There may be difficulty in enforcing contractual obligations and little public information about the companies. Trades typically take more time to settle and clear, and the costs of buying and selling foreign securities are generally higher than similar costs associated with securities traded in U.S. markets.
 
The values of the securities held by the Fund may be affected by changes in exchange rates or control regulations. If a local currency gains against the U.S. dollar, the value of the holding increases in U.S. dollar terms. If a local currency declines against the U.S. dollar, the value of the holding decreases in U.S. dollar terms. Changes in economic, tax or foreign investment policies, or other political, governmental or economic actions can adversely affect the value of the securities in the Fund. In foreign countries, accounting, auditing and financial reporting standards and other regulatory practices and requirements are generally different from those required for U.S. companies.  Investments in securities of foreign issuers may also be subject to foreign withholding and other taxes.
 
 Aston Funds | 8
 
 
 

 

 
 
Geographic Concentration Risk.  To the extent the Fund invest a substantial amount of its assets in securities of issuers located in a single country or geographic region, any changes to the regulatory, political, social or economic conditions in such country or geographic region will generally have greater impact on the Fund than such changes would have on a more geographically diversified fund, and may result in increased volatility and greater losses.
 
Investment Style Risk. Investment style risk is the risk that returns from dividend-paying larger capitalization stocks will trail returns from the overall stock market. Large-cap stocks tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These cycles have, in the past, lasted for as long as several years.
 
Liquidity Risk. When there is no willing buyer and investments cannot be readily sold at the desired time or price, the Fund may need to accept a lower price or may not be able to sell the security at all. An inability to sell securities can adversely affect the Fund’s value or prevent the Fund from being able to take advantage of other investment opportunities. Less liquid securities are more difficult to dispose of at their recorded values and are subject to increased spreads and volatility.
 
Manager Risk. The performance of the Fund is dependent upon the investment adviser’s skill in selecting managers and the portfolio manager’s skill in making appropriate investments. As a result, the Fund may underperform its benchmark or its peers.
 
Market Risk. The Fund’s share price can move down in response to stock market conditions, changes in the economy or changes in a particular company’s stock price. An individual stock may decline in value even when the value of stocks in general is rising.
 
New Fund Risk.  The Fund is newly formed and does not have an operating history. If the Fund does not grow to a viable size due to market factors, performance or the inability to attract assets, the Fund may be liquidated at any time without shareholder approval and at a time that may not be favorable for all shareholders. Such liquidation could have negative tax consequences for shareholders.
 
REIT Risk. Securities of REITs may be affected by changes in the values of their underlying properties and by defaults by borrowers or tenants. Some REITs may have limited diversification and may be subject to risks inherent in investments in a limited number of properties, in a narrow geographic area, or in a single property type. Real estate is also affected by general economic conditions. When growth is slowing, demand for property decreases and prices may decline. Rising interest rates, which drive up mortgage and financing costs, can restrain construction and buying and selling activity, and may reduce the appeal of real estate investments. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and self-liquidations. A REIT’s return may be adversely affected when interest rates are high or rising. Distributions from REITs generally are taxed as ordinary income for federal income tax purposes.
 
Royalty Income Trust Risk. Investing in royalty income trusts involves risks not typically associated with publicly traded companies. Royalty income trusts are exposed to many of the same risks as energy and natural resources companies, such as commodity pricing risk, supply and demand risk and depletion and exploration risk. Royalty income trusts are also subject to capital markets risk, which is the risk that they are unable to raise capital to execute their growth strategies.
 
FUND PERFORMANCE
The Fund does not have a full calendar year of operations.  Performance information will be included in the Fund’s next annual or semi-annual shareholder report.
 
MANAGEMENT
Aston Asset Management, LP serves as the investment adviser to the Fund. Guardian Capital LP (“Guardian”) serves as the subadviser to the Fund.
 
Mr. Srikanth Iyer, Managing Director and Head of Systematic Strategies for Guardian, has served as a Portfolio Manager of the Fund since the Fund’s inception in _____ 201_.
 
 Aston Funds | 9
 
 
 

 

 
 
PURCHASE AND SALE OF FUND SHARES
Shares of the Fund may be purchased, exchanged, or redeemed on any business day by written request (Aston Funds, P.O. Box 9765, Providence, RI 02940), wire transfer, online access (www.astonfunds.com), or by telephone (800-992-8151). Investors who wish to purchase, exchange or redeem Fund shares through a broker-dealer should contact the broker-dealer directly.
 
 
Class and Account Type
Minimum
Initial
Investment
Subsequent
Investments
Class N - Regular Accounts
$2,500
$50
Individual Retirement Accounts  (IRAs)
$500
$50
Education Savings Accounts (ESAs)
$500
$50
Custodial Accounts for Minors (UGMA/UTMA)
$500
$50
Class I - Institutional Accounts
$1 Million
$50
 
TAX INFORMATION
The Fund’s distributions are generally taxable as ordinary income or capital gains for federal income tax purposes, unless you are investing through a tax-deferred account such as a 401(k) or individual retirement account. Distributions on investments made through tax-deferred vehicles, such as 401(k) plans or IRAs, may be taxed later upon withdrawal of assets from those plans or accounts.
 
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 shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
 
 Aston Funds | 10
 
 
 

 

 
 
 
Each Fund’s non-fundamental investment policies may be changed by the Board of Trustees without shareholder approval.  Each Fund generally intends to purchase securities for long-term investment. However, either Fund may at times purchase securities in anticipation of relatively short-term gains.  A Fund may trim its position in a security or eliminate a security from its portfolio for various reasons, including in connection with the Fund’s liquidity requirements, as a result of the security having reached a target price ratio or yield objective determined by the Subadviser, the Subadviser’s loss of confidence in the company’s management, the Subadviser’s belief that another security offers a better opportunity, or by reason of an unforeseen economic or other development.  Each Fund may also sell a security and simultaneously purchase the same or a comparable security to take advantage of short-term differentials in securities prices.
 
In addition to the principal investment strategies described in each Fund’s Summary, there may be times when a Fund uses secondary investment strategies in seeking to achieve its investment objective.
 
Information regarding such secondary strategies, as well as additional information regarding certain principal strategies is shown below.
 
Defensive Strategy
There may be times when a Fund takes temporary positions that may not follow its principal investment strategies for defensive reasons. This includes investing all or a portion of its total assets in cash or cash equivalents, such as money market securities and repurchase agreements. Although a Fund would do this in seeking to avoid losses, when following a defensive strategy the benefit from any market upswings could be reduced and a Fund may not achieve its investment objective.
 
Depositary Receipts of Foreign Securities
Depositary receipts represent ownership of securities in foreign companies and are held in banks and trust companies. They can include American Depositary Receipts (“ADRs”), which are traded on U.S. exchanges and are U.S. dollar-denominated, European Depositary Receipts (“EDRs”), which are traded on European exchanges and may not be denominated in the same currency as the security they represent, and Global Depositary Receipts (“GDRs”), which are issued globally and evidence a similar ownership arrangement.
 
Although ADRs, EDRs and GDRs do not eliminate the risks inherent in investing in the securities of foreign issuers, which include market, political, currency and regulatory risk, by investing in ADRs, EDRs or GDRs rather than directly in securities of foreign issuers, a Fund may avoid currency risks during the settlement period for purchases or sales. In general, there is a large, liquid market in the United States for many ADRs. The information available for ADRs is subject to the accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, in which standards are more uniform and more exacting than those to which many foreign issuers may be subject. The Funds may invest in ADRs sponsored or unsponsored by the issuer of the underlying security. In the case of an unsponsored ADR, a Fund may bear higher expenses and encounter greater difficulty in receiving shareholder communications than it would have with a sponsored ADR.
 
 Aston Funds | 11
 
 
 

 

 
 
Additional Information (cont’d)
 
Derivatives
The Funds may invest in derivatives primarily for hedging purposes, to maintain liquidity or in anticipation of changes in portfolio composition. Derivatives have a return tied to a formula based upon an interest rate, index, price of a security, or other measurement. Derivatives include options, futures, forward contracts, swaps and related products.
 
Hedging involves using derivatives to offset a potential loss in one position by establishing an interest in an opposite position. Any loss generated by the derivative should be offset by gains in the hedged investment. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. A Fund may realize a loss if interest rates, security prices or indices move in the opposite direction than the subadviser anticipates.
 
Derivatives will only be used when consistent with the objectives and strategy of a Fund. The subadviser will ensure that the effective market exposure resulting from the use of derivatives will not exceed the total amount available for investment within a Fund (i.e., the use of derivatives will not result in a Fund being leveraged). All derivative positions will be covered by that Fund’s existing assets.
 
Equity Securities
Equity securities represent a share of an issuer’s earnings and assets, after the issuer pays its liabilities. A Fund cannot predict the income it will receive from equity securities because issuers generally have discretion as to the payment of any dividends or distributions. However, equity securities offer greater potential for appreciation than many other types of securities, because their values may increase with the value of the issuer’s business. Types of equity securities include common stocks, preferred stocks, warrants and rights, convertible securities and other securities that represent underlying local shares, such as depositary receipts.
 
Exchange-Traded Funds (ETFs)
An ETF is an investment company, shares of which are traded on a securities exchange. Typically, an ETF seeks to track the performance of an index by holding in its portfolio shares of all the companies, or a representative sample of the companies, that are components of a particular index. When a Fund invests in another investment company, shareholders of a Fund bear their proportionate share of the other investment company’s fees and expenses, including operating, registration, trustee, licensing and marketing, as well as their share of the Fund’s fees and expenses.
 
Exchange-Traded Notes (ETNs)
An ETN is a security that combines aspects of a bond and an ETF. ETN returns are based upon the performance of a market index or a specific strategy, and can be held to maturity as a debt security. ETNs are traded on a securities exchange. Their values are based on their reference index or strategy and the credit quality of the issuer. ETNs are subject to the additional risk that they may trade at a premium or discount to values attributable to their reference indices. When a Fund invests in an ETN, shareholders of the Fund bear their proportionate share of the ETN’s fees and expenses, as well as their share of the Fund’s fees and expenses.
 
Foreign Securities
Foreign securities are securities issued by corporations, governments and other issuers located outside the United States. Foreign securities are subject to risks in addition to the risks associated with the securities of issuers located in the United States.
 
Preferred Stocks
Preferred stocks are stocks that pay dividends at a specified rate. Dividends are paid on preferred stocks before they are paid on common stocks. In addition, preferred stockholders have priority over common stockholders as to the proceeds from the liquidation of a company’s assets, but are subordinate to the claims of all creditors.
 
 Aston Funds | 12
 
 
 

 

 
 
Additional Information (cont’d)
 
REITs
REITs are generally publicly traded entities that invest in office buildings, apartment complexes, industrial facilities, shopping centers and other commercial spaces. REITs are pooled investment vehicles that typically invest directly in real estate, in mortgages and loans collateralized by real estate, or in a combination of the two. Equity REITs invest primarily in real estate that produces income from rentals. Mortgage REITs invest primarily in mortgages and derive their income from interest payments. REITs usually specialize in a particular type of property and may concentrate their investments in particular geographical areas. REITs issue stocks and most REIT stocks trade on the major stock exchanges or over-the-counter.
 
Royalty Income Trusts
Royalty income trusts can be organized in a variety of ways in the United States, Canada and other countries. Beneficial units in royalty income trusts generally represent interests in profits derived from the production of oil or other minerals.
 
Rule 144A Securities
Rule 144A securities are restricted securities that can be sold to qualified institutional buyers under the Securities Act of 1933, as amended. Investing in Rule 144A securities may increase the illiquidity of a Fund’s investments in the event that an adequate trading market does not exist for these securities.
 
U.S. Government Securities
U.S. government securities are fixed income obligations of the U.S. government and its various agencies. U.S. government securities issued by the U.S. Treasury (bills, notes and bonds) are backed by the full faith and credit of the federal government. Some government securities not issued by the U.S. Treasury also carry the government’s full faith and credit backing on principal or interest payments. Some securities are backed by the issuer’s right to borrow from the U.S. Treasury and some are backed only by the credit of the issuing organization. All government securities are considered creditworthy. This guarantee, however, does not extend to the market prices for such securities, which can fluctuate.
 
Summary of Investment Strategies
 
  Fund
Defensive
Strategy
Depositary
Receipts of
Foreign
Securities
Derivatives (e.g.,
Options, Forwards,
Futures, Swaps)
Equity
Securities
ETFs/ ETNs
Foreign
Securities
Preferred
Stocks
REITs
Royalty
Income Trusts
Rule 144A
Securities
U.S.
Government
Securities
ASTON/Pictet International
X
X
X
XP
X
XP
X
   X
 
X
 
ASTON/Guardian Capital Global Dividend
X
X
X
XP
X
XP
 
X
X
 
X
X
= Investment strategy applicable to a Fund.
P
= Components of a Fund’s principal investment strategy.
 
 Aston Funds | 13
 
 
 

 

 
 
 
A description of the policies and procedures with respect to the disclosure of the Funds’ portfolio holdings is available in the Statement of Additional Information (“SAI”) and on our website at www.astonfunds.com.
 
 Aston Funds | 14
 
 
 

 

 
 
The following is a list of terms with definitions that you may find helpful as you read this prospectus.
 
American Depositary Receipts (ADRs). ADRs represent ownership of securities in foreign stock and are issued by U.S. banks and trust companies. ADRs are denominated in U.S. dollars and are traded on a U.S. exchange.
 
Bottom-Up Analysis. Bottom-up analysis is an investment approach in which securities are researched and chosen on their individual characteristics with less consideration given to economic or market cycles.
 
Derivative. A derivative is a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties.
 
Diversification.  Diversification is the practice of investing in a broad range of securities in an effort to reduce risk.
 
EAFE Countries. EAFE countries are countries located in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
 
Emerging Markets. Emerging markets are countries whose economy and securities markets are considered by the World Bank to be emerging or developing. Emerging market countries may be located in such regions as Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and Africa.
 
Equity Securities.  Equity securities are ownership interests in corporations and other entities, such as common stocks, preferred stocks, convertible securities, rights and warrants.
 
European Depositary Receipts (EDRs). EDRs represent ownership of securities in foreign stock and are issued by a foreign bank. EDRs are generally denominated in foreign currencies and may not be denominated in the same currency as the securities they represent. Generally, EDRs are designed for use in the foreign securities markets.
 
Exchange-Traded Fund (ETF). An ETF is an investment company, shares of which are traded on an exchange. An ETF seeks to track the performance of the contents of an index or a representative sample of the securities in a certain area of the market.
 
Exchange-Traded Note (ETN). An ETN is a security that combines aspects of a bond and an ETF. ETN returns are based upon the performance of a market index or a specific strategy, and can be held to maturity as a debt security.
 
Expense Ratio.  A fund’s expense ratio is its cost of doing business, expressed as a percentage of its net assets and disclosed in a prospectus.
 
Free Cash Flow.  Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base (i.e., its costs of capital).
 
Fundamental Analysis. Fundamental analysis involves assessing the intrinsic value of a particular stock or group of stocks based on an analysis of the balance sheet and income statement of the company. Fundamental analysis considers various historical financial statistics or metrics such as return on equity, free cash flow, price-to-earnings ratio, and similar measures to determine future trends in a company’s stock.
 
Global Depositary Receipts (GDRs). GDRs represent ownership of securities in foreign stock and are issued by a foreign bank. GDRs are generally denominated in foreign currencies and may not be denominated in the same currency as the securities they represent. Generally, GDRs are designed for use in the foreign securities markets.
 
 Aston Funds | 15
 
 
 

 

 
 
Investment Terms (cont’d)
 
Growth at a Reasonable Price (GARP). GARP investing involves buying stocks that have a reasonable price-to-earnings ratio in relationship to a company’s earnings growth rate.
 
Growth Style Investing. Growth style investing involves buying stocks of companies with above-average growth rates. Typically, growth stocks are the stocks of the fastest growing companies in the most rapidly growing sectors of the economy. Valuations for growth stocks will generally be higher than those of value stocks.
 
Investment Objective. A fund’s investment objective is the goal that an investor and a mutual fund seek together. Examples include current income, total return, long-term capital growth, etc.
 
Large-Cap Stocks. Large-cap stocks are stocks issued by large companies. Unless otherwise defined by a Fund, a large-cap company is defined as one having a market capitalization, at the time of acquisition, within the range of market capitalizations of companies constituting the Russell 1000 Index. Typically, large-cap companies are established, well-known companies; some may be multinationals.
 
Management Fee.  The management fee is the amount that a mutual fund pays to the investment adviser for its services.
 
Market Capitalization.  Market capitalization is the value of a corporation or other entity as determined by the market price of its securities.
 
Mid-Cap Stocks. Mid-cap stocks are stocks issued by mid-sized companies. Unless otherwise defined by a Fund, a mid-cap company is defined as one having a market capitalization, at the time of acquisition, within the range of market capitalizations of companies constituting the Russell Midcap Index.
 
Mutual Fund. A mutual fund is an investment company that stands ready to buy back its shares at their current net asset value. Most mutual funds continuously offer new shares to investors.
 
Net Asset Value (NAV). The NAV is the per share value of a mutual fund, found by subtracting a fund’s liabilities from its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once a day.
 
Real Estate Investment Trusts (REITs). REITs are pooled investment vehicles that typically invest directly in real estate, in mortgages and loans collateralized by real estate, or in a combination of the two.
 
Royalty Income Trusts. Royalty income trusts are trusts whose securities are listed on a securities exchange, generally in Canada or the U.S., and which control an underlying company whose business is the acquisition, exploitation, production and sale of oil and natural gas. Royalty income trusts generally pay out to unit holders the majority of the cash flow that they receive from the production and sale of underlying oil and natural gas reserves. The amount of distributions paid on royalty income trust units will vary from time based on production levels, commodity prices, royalty rates and certain expenses, deductions and costs, as well as on the distribution payouts ratio policies adopted.
 
Small-Cap Stocks. Small-cap stocks are stocks issued by smaller companies. Unless otherwise defined by a Fund, a small-cap company is defined as one having a market capitalization, at the time of acquisition, within the range of market capitalizations of companies constituting the Russell 2000 Index.
 
12b-1 Fee. A 12b-1 fee is a mutual fund fee, named for the SEC rule that permits it, used to pay for distribution costs (such as advertising and commissions paid to dealers) and shareholder services. If a fund has a 12b-1 fee, it is found in the fee table of its prospectus. (See “Distribution and Services Plan 12b-1 Fees” in the “Shareholder Information” Section.)
 
 Aston Funds | 16
 
 
 

 

 
 
Investment Terms (cont’d)
 
Total Return. Total return is a measure of a fund’s performance that encompasses all elements of return: dividends, capital gains distributions and changes in net asset value. Total return is the change in value of an investment over a given period, assuming investment of dividends and capital gains distributions, expressed as a percentage of the initial investment.
 
Value Style Investing. Value style investing involves buying stocks that are out of favor and/or believed to be trading for less than their current value. Generally, valuation levels for value stocks are lower than those of growth stocks.
 
Volatility.  A historical measure of the variation in the price of a security. High volatility means that prices may change dramatically, while low volatility means that prices have not fluctuated dramatically in the past. Volatility is often used as a proxy for the risk of a security.
 
 Aston Funds | 17
 
 
 

 

 
 
 
 
ASTON ASSET MANAGEMENT, LP
Aston Asset Management, LP (“Aston” or the “Adviser”), 120 N. LaSalle Street, 25th Floor, Chicago, Illinois 60602, is the investment adviser to the Funds.  Aston is a majority-owned and independently managed indirect subsidiary of Affiliated Managers Group, Inc. (“AMG”).  More information on AMG is available in the SAI. Aston was formed in April 2006 and as of March 31, 2014, Aston had approximately $__._ billion in assets under management.
 
Aston provides investment advisory, mutual fund administration and distribution-related services to Aston Funds. Aston manages each Fund by selecting one or more other investment managers (each, a “Subadviser”) to manage each Fund’s portfolio on a subadvisory basis. Aston is responsible for identifying and selecting each Fund’s investment managers, monitoring the performance of such managers, and terminating managers.
 
The SEC has granted an exemptive order to Aston and Aston Funds that allows Aston to allocate and reallocate the assets of a Fund between and among any subadvisers, pursuant to a ‘‘manager-of-managers’’ structure. Under this structure, Aston has the authority to retain and terminate subadvisers, engage new subadvisers and make material revisions to the terms of the subadvisory agreements subject to the approval of the Board of Trustees, but not shareholder approval. In connection with the Transaction (as defined below), shareholders are being asked to approve a modified "manager-of-managers" structure, which would provide each Fund the flexibility to operate under any applicable exemptive order or future rule.
 
MATTERS RELATING TO AMG
AMG has determined to exercise its option to purchase the outstanding equity of Aston that is not currently owned by AMG, making Aston a wholly-owned subsidiary of AMG (the “Transaction”).  As part of the Transaction, Aston will be converted to a Delaware limited liability company and change its name to “Aston Asset Management, LLC,” the interests in which will be held by AMG through its wholly-owned subsidiary, Managers Investment Group LLC (which will be rebranded as “AMG Funds”).  Upon the closing of the Transaction, Aston will continue to serve as the investment adviser to the Funds.
 
As required by the 1940 Act, each Fund’s current investment advisory agreement provides for its automatic termination in the event of its assignment, which in turn causes the automatic termination of each subadvisory agreement.  Because the completion of the Transaction may be deemed to constitute an “assignment” of each Fund’s current investment advisory agreement, the Board of Trustees  has approved a new investment advisory agreement and subadvisory agreement with respect to each Fund on substantially the same terms as currently in effect, including the fee rates payable under the agreements.  The Transaction is expected to close during the second quarter of 2014, subject to the satisfaction or waiver of certain conditions.  Upon the closing of the Transaction, Aston will continue to serve as investment adviser and operate the Funds.  Each Fund’s current sub-adviser will continue to manage the Fund and the investment objective(s) and principal investment strategies of the Funds will remain the same.  If the Transaction does not close, the current agreements will remain in full force and effect.
 
A discussion regarding the basis for the Board of Trustees’ approval of each Fund’s investment advisory agreement and subadvisory agreement in connection with the Transaction will be available in the applicable Fund’s next shareholder report.
 
GENERAL
As the investment adviser to the Funds, Aston is paid an annual management fee based on the average daily net assets of each Fund. Out of its fee, Aston pays the Subadviser of each Fund. The investment advisory agreement with Aston may be terminated at any time by a Fund or by Aston upon 60 days’ written notice to the other party.  A Fund may effect termination by an action of the Board of Trustees or by a vote of a majority of the Fund’s outstanding voting securities.
 
A discussion regarding the basis for the Board of Trustees’ approval of each Fund’s investment advisory agreement and subadvisory agreement will be available in the applicable Fund’s first shareholder report.
 
The accompanying information highlights each Fund’s Subadviser and its portfolio managers.
 
ASTON/Pictet International Fund
Pictet Asset Management Limited, Moor House, 120 London Wall, London, EC2Y 5ET, United Kingdom is part of the Pictet Group, founded in Geneva in 1805. As of March 2014, PAM had assets of approximately $___._ billion under management.
 
ASTON/Guardian Capital Global Dividend Fund
Guardian Capital LP, Commerce Court West, 199 Bay Street, Suite 3100, Toronto, ON, M5L 1E8, was founded in 1962 as Guardian Management Ltd. As of March 2014, Guardian had assets of approximately $__._ billion under management.
 
 
ASTON/Pictet International Fund
Fabio Paolini, CFA, Lead Portfolio Manager of the ASTON/Pictet International Fund, joined PAM in 1997 and is Head of EAFE Equities in the Developed Equities team, with a focus on European Equities. Mr. Paolini graduated with a degree in Economics from the University of Siena in Italy. He obtained a CFPI/AZEK in 1996 and is a Chartered Financial Analyst (CFA).
 
 Aston Funds | 18
 
 
 

 

 
 
Management of the Funds (cont’d)
 
ASTON/Guardian Capital Global Dividend Fund
Mr. Srikanth Iyer, Managing Director and Head of Systematic Strategies at Guardian serves as Portfolio Manager of the ASTON/Guardian Capital Global Dividend Fund.  Mr. Iyer joined Guardian Capital in 2001 to help lead the development and implementation of its proprietary systematic equity portfolio management strategy.  Mr. Iyer graduated with a Bachelor of Commerce from the University of Bombay in 1989, earned his Chartered Cost and Works Accountant (India) designation in 1990 and his MBA (Applied Finance) from Rutgers Graduate School of Management in 1994.
 
Additional information about each portfolio manager’s compensation, other accounts managed by the portfolio managers and each of the portfolio managers’ ownership of securities of the applicable Fund is available in the SAI.
 
 Aston Funds | 19
 
 
 

 

 
 
Management of the Funds (cont’d)
 
The following tables show the performance of a composite of all fully discretionary accounts managed by PAM in the EAFE Core strategy, as compared to the performance of a broad-based securities market index. As of December 31, 2013, the composite was comprised of 9 accounts and had assets of $2.883 billion. The investment objective, policies and strategies of the ASTON/Pictet International Fund are substantially similar to those of the accounts comprising the composite.
 
The performance of the composite does not represent the historical performance of the ASTON/Pictet International Fund and should not be considered indicative of future performance of the Fund. Results may differ because of, among other factors, differences in brokerage commissions, account expenses including management fees, the size of positions taken in relation to account size, diversification of the portfolio, timing of purchases and sales and availability of cash for new investment.
 
The performance of the composite presented below is not calculated using the same methodology as that which is prescribed for performance calculations used by registered investment companies. The net-of-fee returns below are calculated by deducting investment management fees of the accounts from gross returns. Gross returns are calculated in accordance with Global Investment Performance Standards (GIPS®). In addition, the accounts for which performance is presented are not subject to the same types of expenses as the Fund. If the Fund’s fees and expenses had been used in calculating the composite’s performance, the performance of the composite would have been lower.
 
The accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, as amended (the “Code”), which if applicable, may have adversely affected the performance results of the composite. The results for different products may vary.
 
  Total Return  
 

Year end
Pictet EAFE Core Composite
MSCI EAFE Index
2013
24.35%
 
22.78%
 
2012
23.33%
 
17.32%
 
2011
-14.26%
 
-12.14%
 
2010
11.58%
 
7.75%
 
2009
41.13%
 
31.78%
 
2008
-50.58%
 
-43.38%
 
2007
12.52%
 
11.17%
 
2006
36.60%
 
26.34%
 
2005
21.93%
 
13.54%
 
2004
26.96%
 
20.25%
 
 
Average Annual Total Return
 
(For the periods ended December 31, 2013)
 
Period
    Pictet EAFE Core Composite
 
MSCI EAFE Index
One Year
24.35%
 
22.78%
 
Five Years
15.67%
 
12.44%
 
Ten Years
9.31%
 
6.91%
 
Since Inception(a)
7.56%
 
5.51%
 
 
(a)
Since Inception return is computed from 8/31/95.
 
 Aston Funds | 20
 
 
 

 

 
 
Management of the Funds (cont’d)
 
Guardian Related Performance
The following tables show the performance of a composite of all fully discretionary accounts managed by Guardian in the Guardian Global Dividend strategy, as compared to the performance of a broad based securities market index. As of December 31, 2013, the composite was comprised of 1 account and had assets of $153.0 million. The investment objective, policies and strategies of the ASTON/Guardian Capital Global Dividend Fund are substantially similar to those of the accounts comprising the composite.
 
The performance of the composite does not represent the historical performance of the ASTON/Guardian Capital Global Dividend Fund and should not be considered indicative of future performance of the Fund. Results may differ because of, among other factors, differences in brokerage commissions, account expenses including management fees, the size of positions taken in relation to account size, diversification of the portfolio, timing of purchases and sales and availability of cash for new investment.
 
The performance of the composite presented below is not calculated using the same methodology as that which is prescribed for performance calculations used by registered investment companies. The net-of-fee returns below are calculated by deducting investment management fees of the accounts from gross returns. Gross returns are calculated in accordance with Global Investment Performance Standards (GIPS®). In addition, the accounts for which performance is presented are not subject to the same types of expenses as the Fund. If the Fund’s fees and expenses had been used in calculating the composite’s performance, the performance of the composite would have been lower.
 
In addition, the accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code, which if applicable, may have adversely affected the performance results of the composite. The results for different products may vary.
 
  Total Return  
     
Year end
 
Guardian Global Dividend Composite
 
MSCI World Index
2013
14.58%
26.68%
2012
  8.91%
15.83%
2011
  2.75%
 -5.54%
2010
14.48%
11.76%
2009
 35.22%
 29.99%
2008
-34.34%
-40.71%
2007
 12.25%
   9.04%
 
Average Annual Total Return
 
(For the periods ended December 31, 2013)
 
Period
Guardian Global Dividend Composite
 
MSCI World Index
One Year
14.58%
26.68%
Five Years
14.70%
15.02%
Since Inception(a)
  5.59%
  3.84%
 
(a)
Since Inception return is computed from January 1, 2007.
 
 Aston Funds | 21
 
 
 

 

 
 
Read this prospectus carefully.
Determine how much you want to invest.  The minimum initial and subsequent investment requirements for the applicable class of each Fund are as follows:
 
Class and Account Type
Minimum Initial Investment
Subsequent Investments
Class N - Regular Accounts
$2,500
$50
Individual Retirement Accounts  (IRAs)
$500
$50
Education Savings Accounts (ESAs)
$500
$50
Uniform Gift to Minor
Accounts/Uniform Transfer to Minor
Accounts (UGMA/UTMA)
$500
$50
Class I - Institutional Accounts
$1 Million
     $50
 
Minimum initial investment requirements may be waived:
 
-
For trustees of Aston Funds, employees of Aston, Aston’s employees’ spouses, employees of a Subadviser, the Subadviser’s employees’ spouses, and affiliates of Aston.
 
-
By means of a “letter of intent” from an investor or financial adviser/consultant expressing intent to purchase shares over a specified period of time to meet the minimum investment requirement (Class I only).
 
-
For certain omnibus accounts, mutual fund advisory platforms and registered investment advisors, banks, trust companies or similar financial institutions investing for their own accounts or for the accounts of their clients or customers for whom such institution is exercising investment discretion, or otherwise acting on behalf of clients or customers.
 
-
For individual accounts of a financial intermediary that charges an ongoing fee to its customers for its services or offers Fund shares through a no-load network or platform, and for accounts invested through fee-based advisory accounts, certain “wrap” programs and similar programs with approved financial intermediaries.
 
-
By Aston Funds in its discretion.
Balances within the same Fund may be aggregated to meet the Class I minimum initial investment requirements for the accounts of:
 
-
Clients of a financial adviser/consultant or clients of a financial intermediary that acts in an advisory capacity.
 
-
Immediate family members (i.e., an individual’s spouse, parents, children, siblings and in-laws).
-      A corporation or other legal entity.
Complete the account application and carefully follow the instructions.  If you have any questions, please call 800-992-8151.  Remember to complete the “Purchase, Exchange and Redemption Authorization” section of the account application to establish your account privileges, and to avoid any delay and inconvenience of needing to request these in writing at a later date.
Purchase, exchange and redemption requests (each, an “Investment Request”) must be in “good order.”  Investment Requests received in “good order” and processed before the New York Stock Exchange (the “NYSE”) market close, typically 4:00 p.m. Eastern Time (“ET”), receive that business day’s closing NAV.  Investment Requests received after that time receive the following business day’s NAV.
An Investment Request received that is not in “good order” will receive the NAV on the date the Investment Request is received in “good order.”
 
 Aston Funds | 22
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
An Investment Request is in “good order” when:
       The account number and Fund name are included;
       The amount of the transaction is specified in dollars or shares;
       Signatures of all owners appear exactly as they are registered on the account in original form, as photocopies are not acceptable;
       Any required Medallion Signature Guarantees are included; and
       Other supporting legal documents (as necessary) are present, including such “Requirements for Written Requests” as described later in this “Shareholder Information” Section.
 
Make your initial investment using the following table as a guideline. If your Investment Request is your initial purchase into a Fund, your account number will be assigned to you upon the Fund’s receipt of the Investment Request in “good order.”
   
TO OPEN AN ACCOUNT
TO ADD TO AN ACCOUNT ($50 MINIMUM)
Buying Shares Through Your Financial Representative
n Your financial representative is responsible for transmitting the order promptly.
n Your financial representative is responsible for transmitting the order promptly.
Buying Shares By Mail: Aston Funds n P.O. Box 9765 n Providence, RI 02940
Buying Shares Via Overnight Delivery: Aston Funds n 4400 Computer Drive n Westborough, MA 01581
n Complete and sign your application.
 
n We accept checks, bank drafts and money orders for purchases. Checks must be drawn on U.S. banks. There is a charge of a minimum of $20 for returned checks. Please see “Other Features” later in this “Shareholder Information” Section.
 
n Make checks payable to Aston Funds and mail them to the address listed above.
 
n We do not accept cash travelers checks, temporary checks, post-dated checks, credit card courtesy checks or second/third party checks (which are checks made payable to someone other than the Funds, including you).
 
n If you anticipate the need to make subsequent trades via telephone or via bank transfer (wire transfer or ACH transfer), please indicate that in the “Purchase, Exchange and Redemption Authorizations” section of your account application.
 
n If you have indicated on your account application that you intend to make trades in your account via ACH bank transfer, please verify that your bank or credit union is a member of the ACH (Automated Clearing House).
n Return the investment slip from a statement with your check in the envelope provided and mail to us at the above address.
 
n We accept checks, bank drafts, money orders, wires and ACH for purchases. Checks must be drawn on U.S. banks. There is a charge of a minimum of $20 for returned checks. Please see “Other Features” later in this “Shareholder Information” Section.
 
n Make checks payable to Aston Funds and mail them to the address listed above.
 
n We do not accept cash, travelers checks, temporary checks, post-dated checks, credit card courtesy checks or second/ third party checks (which are checks made payable to someone other than the Funds, including you).
 
n For purchases via bank wire transfer or ACH transfer, give the following wire/ACH information to your bank:
 
The Bank of New York Mellon
ABA #011001234
For: Aston Funds
A/C 0000733296
FBO “Aston Fund Number”
“Your Account Number”
“Your Name”
 
n For your protection, our current Internet capabilities allow Class N and Class I shareholders to check balances and transfer monies only between Aston Funds in the same class. Please contact us via mail with a signed letter of instruction for all other changes to your account.
 
 Aston Funds | 23
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
TO OPEN AN ACCOUNT
TO ADD TO AN ACCOUNT ($50 MINIMUM)
Buying Shares By Phone: 800-992-8151
n You cannot open an account over the phone.
 
n When you are ready to add to your account, call Aston Funds and tell the representative the Fund name, account number, the name(s) in which the account is registered and the amount of your investment.
 
n To place your request with an Investor Services Associate, call between 9:00 a.m. and 7:00 p.m. ET, Monday - Friday.
 
n Trade authorizations via telephone or via bank must be valid and on file, as indicated on the “Purchase, Exchange and Redemption Authorizations” section of your account application.
 
n For purchases via bank wire or ACH transfer, instruct your bank to wire or ACH transfer the amount of your investment and provide your bank with the below information. Your bank may charge a fee for wire or ACH transfers:
 
The Bank of New York Mellon
ABA #011001234
For: Aston Funds
A/C 0000733296
FBO “Aston Fund Number”
“Your Account Number”
“Your Name”
 
Buying Shares By Internet: www.astonfunds.com
(Class N shares only*)
 
n To open a new account you’ll need to provide bank account information plus the social security number and date of birth for each account owner and beneficiary.
 
n Open an account online by completing the Aston Funds online account application.
 
or
 
(Class N and Class I shares)
 
n Download the appropriate account application(s) from the website. Complete and sign the application(s). Make your check payable to Aston Funds and mail it to the address under “By Mail” above.
 
 
 
n Complete the “Purchase, Exchange and Redemption Authorization” section of your account application.
 
n Self-register for online account access at www.astonfunds.com. Your social security number or employer identification number, account number and other security validating information will be required for registration.
 
n When you are ready to add to your account, access your account through Aston Funds’ website and enter your purchase instructions in the secure area for shareholders only called “Shareholder Account Access.” ACH purchases on the Internet may take 3 or 4 business days.
 
n For your protection, our current Internet capabilities allow Class N and Class I shareholders to check balances and transfer monies only between Aston Funds in the same class. Please contact us via mail with a signed letter of instruction for all other changes to your account.
 
*Class I shares are not eligible for the establishment of new accounts through the Aston Funds website.
 
 Aston Funds | 24
 
 

 

 
 
Shareholder Information (cont’d) 
 
The Aston Funds or its agents will not be responsible for any unauthorized telephone or online order when reasonable procedures designed to verify the identity of the investor are followed.
 
Other Aston Funds and share classes are available through separate prospectuses.  Please call 800-992-8151 for more information.
 
 
When you exchange your shares, you authorize the sale of your shares in one fund to purchase shares of another fund. In other words, you are requesting a sale and then a purchase. The exchange of your shares may be a taxable event for federal income tax purposes if the shares are not held in a tax-deferred account and may subject you to a redemption fee. After you have opened an account with us, you can exchange your shares within Aston Funds to meet your changing investment goals or other needs. This privilege is not designed for frequent trading (which may subject you to a redemption fee) and may be difficult to implement in times of drastic market changes.
 
You can exchange shares from one Aston Fund to another within the same class of shares.  All exchanges to open new accounts must meet the minimum initial investment requirements.  Exchanges may be made by mail, through the Internet or by phone at 800-992-8151 if you chose this option when you opened your account.
 
In addition, the Aston Money Market Fund – Bedford Shares of the Money Market Portfolio of The RBB Fund, Inc. offered in connection with the Aston Funds (the “Aston Money Market Fund”) is available as an exchange option for shareholders of the Aston Funds Class N shares. The Aston Money Market Fund prospectus, including applicable investment minimums, is available by contacting Aston Funds by mail, through the Internet or by phone at 800-992-8151. Please read the Aston Money Market Fund prospectus carefully before investing.
 
For federal income tax purposes, each exchange into a different fund is treated as a sale and a new purchase. As a result, an investor holding shares in a non-tax-deferred account is generally subject to federal income tax on any appreciation on the shares exchanged.
 
Aston Funds reserves the right to limit, impose charges upon, terminate or otherwise modify the exchange privilege by sending written notice to shareholders. All exchange requests must be in “good order.”
 
Aston Funds may allow eligible shareholders to convert their shares between classes within the same Fund, for example from Class I to Class N or vice versa, if offered in the shareholder’s state of residence. No sales charges or other charges will apply to any such exchange. For federal income tax purposes, a same-fund exchange is not expected to result in the recognition by the investor of a capital gain or loss.
 
 
You can sell your shares to meet your changing investment goals or other needs.  All redemption requests must be in “good order.” The following table shows guidelines for selling shares.
 
 Aston Funds | 25
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
APPLIES TO
TO SELL SOME OR ALL OF YOUR SHARES
Selling Through Your Financial Representative
n All share classes and accounts of any type.
n Your financial representative is responsible for transmitting the order promptly.
Selling Shares By Mail: Aston Funds n P.O. Box 9765 n Providence, RI 02940
Selling Shares Via Overnight Delivery: Aston Funds n 4400 Computer Drive n Westborough, MA 01581
n All share classes and accounts of any type.
 
n Sales or redemptions of any size please see the “Medallion Signature Guarantees” section, later in this “Shareholder Information” section, to determine if a Medallion Signature Guarantee is required for your transaction.
n Write and sign a letter of instruction indicating the Fund name, Fund number, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell.
 
n Include all signatures and any additional documents that may be required. Signatures must be in original form, as photocopies are not accepted. Please see “Selling Shares in Writing” later in this “Shareholder Information” Section).
 
n Mail to us at the address above.
 
n A check will be mailed to the name(s) and address in which the account is registered. If you would like the check mailed to a different address, you must write a letter of instruction and have it Medallion Signature Guaranteed.
 
n Proceeds may also be sent by wire or ACH. Please see “Other Features” later in this “Shareholder Information” Section.
Selling Shares By Phone: 800-992-8151
n Class N and Class I non-retirement accounts.
 
n Sales of up to $50,000 (for accounts with telephone account privileges).
n For automated service 24 hours a day using your touch-tone phone, call 800-992-8151.
 
n To place your request with an Investor Services Associate, call between 9:00 a.m. and 7:00 p.m. ET, Monday - Friday.
 
n A check will be mailed to the name(s) and address to which the account is registered. If you would like the check to be mailed to a different address, you must write a letter of instruction and have it Medallion Signature Guaranteed.
 
n Proceeds may also be sent by wire or ACH. Please see “Other Features” later in this “Shareholder Information” Section.
 
n The Funds reserve the right to refuse any telephone sales request and may modify the procedures at any time. The Funds make reasonable attempts to verify that telephone instructions are genuine, but you are responsible for any loss that you may incur from telephone requests.
 
 Aston Funds | 26
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
APPLIES TO
TO SELL SOME OR ALL OF YOUR SHARES
Selling Shares By Internet: www.astonfunds.com
n Class N and Class I non-retirement accounts.
n Complete the “Purchase, Exchange and Redemption Authorization” section of your account application.
 
Self-register online for account access at www.astonfunds.com. Your social security number or employer identification number, account number and other security validating information will be required for registration.
 
n When you are ready to redeem a portion of your account, access your account through Aston Funds’ website and enter your redemption instructions in the secure area for shareholders only called “Shareholder Account Access.” A check for the proceeds will be mailed to you at your address of record.
 
n Proceeds may also be sent by wire or ACH. Please see “Other Features” later in this “Shareholder Information” Section.
 
The Aston Funds or its agents will not be responsible for any unauthorized telephone or online order when reasonable procedures designed to verify the identity of the investor are followed.
 
Selling Shares in Writing
In certain circumstances, you must make your request to sell shares in writing.  You may need to include a Medallion Signature Guarantee (which protects you against fraudulent orders) and additional items with your request, as shown in the table below.
 
Medallion Signature Guarantees
n We require Medallion Signature Guarantees if:
n Your address of record has changed within the past 30 days;
n You are selling more than $50,000 worth of shares; or
n You are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) or other than by wire or ACH sent to the bank account of the registered owner(s).
 
n What is a Medallion Signature Guarantee?
A Medallion Signature Guarantee verifies the authenticity of your signature and may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution that participates in a Medallion Program recognized by the Securities Transfer Association.
 
Medallion Signature Guarantees help ensure that major transactions or changes to your account are in fact authorized by you.  For example, we require a Medallion Signature Guarantee on written redemption requests for more than $50,000. The three recognized Medallion Programs are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP). Signature guarantees from financial institutions that do not participate in one of these programs will not be accepted.
 
A notary public stamp or seal cannot be substituted for a Medallion Signature Guarantee.
 
 Aston Funds | 27
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
Seller
Requirements for Written Requests
Owners of individual, joint, sole proprietorship, UGMA/UTMA, or general partner accounts
        Letter of instruction
        On the letter, the signatures and titles of all persons authorized to sign for the account, exactly as the account is registered, must be in original form, as photocopies are not accepted
        Medallion Signature Guarantee, if applicable (see above)
Owners of corporate or association accounts
        Letter of instruction
        On the letter, the signatures and titles of all persons authorized to sign for the account, exactly as the account is registered, must be in original form, as photocopies are not accepted
        Medallion Signature Guarantee, if applicable (see above)
Owners or trustees of trust accounts
        Letter of instruction
        On the letter, the signature of the trustee(s) must be in original form, as photocopies are not accepted
        If the names of all trustees are not registered on the account, a copy of the trust document certified within the past 12 months
        Medallion Signature Guarantee, if applicable (see above)
Joint tenancy shareholders whose co-tenants are deceased
        Letter of instruction signed by the surviving tenant must be in original form, as photocopies are not accepted
        Certified copy of death certificate
        Medallion Signature Guarantee, if applicable (see above)
Executors of shareholder estates
        Letter of instruction signed by executor must be in original form, as photocopies are not accepted
        Certified copy of order appointing executor
        Medallion Signature Guarantee, if applicable (see above)
Administrators, conservators, guardians and other sellers or account types not listed above
        Call 800-992-8151 for instructions
        Medallion Signature Guarantee, if applicable (see above)
IRA accounts
        IRA distribution request form completed and signed.  Call 800-992-8151 for a form, or download a form from our website, www.astonfunds.com.
 
In addition to the situations described above, Aston Funds may require Medallion Signature Guarantees in other circumstances based on the amount of the redemption request or other factors.
 
Other Features
The following other features are also available to buy and sell shares of a Fund.
 
Wire.  To purchase and sell shares via the Federal Reserve Wire System:
 
You must authorize Aston Funds to honor wire instructions before using this feature. Complete the appropriate section on the application when opening your account or call 800-992-8151 to add the feature after your account is opened.  Call 800-992-8151 before your first use to verify that this feature is set up on your account.
To sell shares by wire, you must designate the U.S. commercial bank account(s) into which you wish the redemption proceeds deposited.
 
 Aston Funds | 28
 
 
 

 

 
 
Shareholder Information (cont’d) 
 
For accounts with existing wire instructions, wire redemptions may be placed over the phone. Consult your banking institution for any fees it may charge associated with wire transfers.  Any changes made to existing wire instructions will only be accepted with a Medallion Signature Guaranteed letter of instruction.
 
Automated Clearing House (ACH).  To transfer money between your bank account and your Aston Funds account(s):
 
You must authorize Aston Funds to honor ACH instructions before using this feature.  Complete the appropriate section on the application when opening your account or call 800-992-8151 to add the feature after your account is opened.  Call 800-992-8151 before your first use to verify that this feature is set up on your account.
Most transfers are completed within three business days of your call.  ACH purchases will receive the NAV calculated on the day the money is received.
There is no fee to your mutual fund account for this transaction.
 
Redemptions in Kind
The Funds have elected, under Rule 18f-1 under the 1940 Act, to pay sales proceeds in cash up to $250,000 or 1% of the Fund’s total value, whichever is less, during any 90-day period to any one shareholder.
 
Larger redemptions may be detrimental to existing shareholders.  While we intend to pay all sales proceeds in cash, we reserve the right to make higher payments to you in the form of certain marketable securities of the Fund.  This is called “redemption in kind.”  You may need to pay certain sales charges related to a redemption in kind, such as brokerage commissions, when you sell the securities.  For shares that are not held in a tax deferred account, redemptions in kind are taxable events for federal income tax purposes in the same manner as when the sales proceeds are paid in cash.
 
Involuntary Redemptions
To reduce expenses, we may convert your Fund position(s), redeem your Fund position(s) and/or close your Fund position(s) if the balance in your Fund position(s) falls below the required investment minimum due to transaction activity or for any other reason.  We may convert your position(s) in Class I shares of the Fund to the respective Class N shares of the Fund, if applicable. Unless you did not meet the minimum initial investment, we will give you 30 days’ notice before we convert, redeem, or close your Fund position(s).  This gives you an opportunity to purchase enough shares to raise the value of your Fund position(s) above the applicable minimum initial investment. We will not redeem or close Fund position(s) in IRAs, Education Savings Accounts, custodial accounts for minors, or active Automatic Investment Plans because they do not meet the applicable minimum investment requirement. We may close Fund position(s) in IRAs, Education Savings Accounts, custodial accounts for minors, or active Automatic Investment Plans due to insufficient information as it relates to customer identification procedures. If these account types are invested in Class I shares below the required minimum investment, we may convert the Fund position(s) to the Class N. Additionally, we will not convert Class I accounts where there is an effective “letter of intent.” Redemption fees will not be assessed on involuntary redemptions or involuntary conversions.
 
 
 
Calculating Share Price
When you buy, exchange, or sell shares, the NAV next determined is used to price your purchase, exchange or sale.  The NAV for each share class of a Fund is determined each business day at the close of regular trading on the NYSE (typically 4:00 p.m. ET) by dividing the net assets of the class by the number of its shares outstanding.  Currently, the Funds observe the following holidays:  New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.  Generally, securities are priced using market quotes or, for debt
 
 Aston Fund | 29
 
 
 

 

 
 
Shareholder Information (cont’d)
 
securities, evaluated prices obtained from independent pricing services. If market quotations are not available or are deemed unreliable, securities are valued at fair value as determined by the Adviser in accordance with guidelines adopted and periodically reviewed by the Board of Trustees.  These circumstances may arise, for instance, when trading in a security is suspended, the exchange or market on which a security is traded closes early, or the trading volume in a security is limited, calling into question the reliability of market quotations.  In such a case, a Fund’s value for a security may be different from the last quoted market price.  Fair value pricing for certain types of securities in which a Fund may invest, including prices received from pricing services, is inherently a process of estimates and judgments.  Changes in the value of portfolio investments priced at fair value may be less frequent and of greater magnitude than changes in the price of securities that trade frequently in the market place, resulting in potentially greater net asset value volatility. In addition, due to the subjective and variable nature of fair value pricing, it is possible that the fair value determined for a particular security may be materially different from the value realized upon such security’s sale.
 
Quotations of foreign securities denominated in foreign currency are converted to U.S. dollar equivalents using foreign exchange quotations received from independent dealers.  Events affecting the values of portfolio securities that occur between the time when their prices are determined and the close of regular trading on the NYSE may not be reflected in the calculation of NAV.  If events materially affecting the value of such securities occur during such period, then these securities may be valued at fair value as determined by the Adviser in accordance with guidelines adopted by the Aston Funds Board of Trustees.
 
The Funds may invest in certain securities which are primarily listed on foreign exchanges that trade on weekends and other days when the Funds do not price their shares.  Therefore, the value of a Fund’s holdings may change on days when you will not be able to purchase or redeem its shares.
 
In addition, changes in values in the U.S. market subsequent to the close of a foreign market may affect the values of securities traded in the foreign market. Under the Aston Funds’ fair value pricing policies, the values of foreign securities may be adjusted from their last closing prices if such movements in the U.S. market exceed a specified threshold. As a result of the foregoing, it is possible that fair value prices will be used by the Funds to a significant extent. The Funds have retained an independent statistical fair value pricing service to assist in the fair valuation of securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time as of which the Funds shares are priced.
 
Execution of Requests
The Funds are open on each business day that the NYSE is open for trading.  The NYSE is not open on weekends or national holidays.  Investment requests are executed at the NAV next calculated after Aston Funds or an authorized broker or designee receives your mail, telephone or Internet request in “good order.” Purchase orders and redemption requests must be received by the close of regular trading on the NYSE (typically 4:00 p.m. ET) for same day processing.  On days when the Federal Reserve Cash Settlement System closes earlier than normal, these times may be accelerated.  Sales proceeds are normally sent the next business day, but are always sent within seven days of receipt of a request in “good order.” Brokers and their authorized designees are responsible for forwarding purchase orders and redemption requests to the Funds.
 
Shares of each Fund can also be purchased through broker-dealers, banks and trust departments that may charge you a transaction or other fee for their services.  These fees are not charged if you purchase shares directly from Aston Funds.
 
A Fund may be required to “freeze” or redeem your account if there appears to be suspicious activity or if account information matches information on a government list of known terrorists or other suspicious persons.
 
Aston Fund | 30
 
 
 

 

 
 
Shareholder Information (cont’d)
 
Aston Funds reserves the right to:
 
Refuse any purchase or exchange of shares if it could adversely affect a Fund or its operations;
Suspend the offering of Fund shares;
Change the initial and additional investment minimums or waive these minimums for any investor;
Delay sending you your sales proceeds for up to 15 days if you purchased shares by check.  A minimum charge of $20 will be assessed if any check used to purchase shares is returned; and
Change, withdraw or waive various services, fees and account policies.
 
Customer Identification Program
Federal law requires Aston Funds to obtain, verify and record identifying information for each investor who opens or reopens an account with Aston Funds.  An investor may be an individual or a person other than an individual (such as a corporation, partnership or trust).  Such identifying information may include the name, residential or business street address, principal place of business, local office or other physical location (for a person other than an individual), date of birth (for an individual), social security or taxpayer identification number or other identifying information.  Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted.  After acceptance, to the extent permitted by applicable law and its customer identification program, Aston Funds reserves the right (a) to place limits on transactions in any account until the identity of the investor is verified; or (b) to refuse an investment in Aston Funds or to involuntarily redeem an investor’s shares at the current share price and close an account in the event that an investor’s identity is not verified within 90 days regardless of the type of account.  This may cause shares in the investor’s account to be redeemed at a loss. If Aston Funds liquidates your account due to insufficient information as it relates to customer identification procedures, the liquidation may be taxable to you for federal income tax purposes. Aston Funds and its agents will not be responsible for any loss or adverse tax effect in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.
 
Short-Term and Excessive Trading
The Funds are designed for long-term investors.  The Funds discourage and do not knowingly accommodate short-term and excessive trading.  Such trading increases brokerage and administrative costs, may result in increased taxable gains to existing shareholders and may disrupt portfolio management.  For example, a Fund may be unable to effectively invest the proceeds from certain purchase or exchange requests under certain market conditions or may incur losses on the sale of investments.  These risks may be more pronounced for a Fund if it invests in securities that are more difficult to value or that are susceptible to pricing arbitrage (e.g., foreign securities, high yield securities and small cap securities).  Thus, such trading may negatively impact a Fund’s NAV and result in dilution to long-term shareholders.
 
In an effort to protect long-term shareholders, Aston Funds’ Board of Trustees has adopted policies and procedures that seek to deter short-term trading and excessive trading and to detect such trading activity at levels that may be detrimental to a Fund.  These policies and procedures include the following:
 
 
-
The Funds have adopted a redemption fee of 2.00% for shares that are held less than 90 calendar days;
 
-
The Funds have adopted certain fair valuation practices intended to protect each Fund from time zone arbitrage with respect to foreign securities and other trading practices that seek to exploit stale prices; and the Funds reserve the right to:
 
 
Reject any purchase, including exchange purchases that could adversely affect the Funds or its operations.
 
Limit, terminate or otherwise modify the exchange privilege of any shareholder deemed to be engaged in activities that may be detrimental to the Funds.
 
Aston Fund | 31
 
 
 

 

 
 
Shareholder Information (cont’d)
 
 
Reject any purchase, including exchange purchases, from investors if there appears to be evidence of short-term or excessive trading.
 
Permanently prevent future purchases and exchanges from occurring in accounts where short-term or excessive trading is apparent.
 
Delay sending redemption proceeds for up to seven days (generally applies in cases of very large redemptions, excessive trading, or during unusual market conditions).
 
Suspend redemptions as permitted by law (e.g., in emergency situations).
 
In making the determination to exercise these rights, a Fund may consider an investor’s trading history in the Fund and accounts under common ownership or control.
 
The Funds seek to employ reasonable measures to detect short-term and excessive trading at levels that may be detrimental to the Funds. Accordingly, the Funds use certain materiality and volume thresholds in applying the policies and procedures, but otherwise seeks to apply the policies and procedures uniformly to all shareholders.  With respect to accounts held through intermediaries, such intermediaries generally are contractually obligated to provide the Funds with certain shareholder trading information.  However, the Funds cannot directly control activity through all channels and are dependent on intermediaries to enforce the Funds’ policies and procedures.  In certain cases, intermediaries may be unable to implement these policies or may not be able to implement policies and procedures in the same manner as the Funds due to system or other constraints.  Shareholders who invest through omnibus accounts may be subject to policies and procedures that differ from those applied by the Funds to direct shareholders.  The Funds reserve the right to limit an intermediary’s future access to the Funds, up to and including terminating the selling agreement with the intermediary.  There is no assurance that the Funds’ policies and procedures will be effective in limiting and deterring short-term and excessive trading in all circumstances.
 
Redemption Fees
The Funds assess a 2.00% fee on redemptions (including exchanges) of Fund shares sold or exchanged within 90 calendar days of purchase.  Redemption fees are paid to the Funds to help offset transaction costs and to protect the Funds’ long-term shareholders. The Funds will use the “first-in, first-out” (FIFO) method to determine the holding period. Under this method, the date of the redemption or exchange will be compared to the earliest purchase date of shares held in the account. If this holding period is less than the required holding period, the fee will be charged.
 
The Funds will notify intermediaries, such as broker-dealers or plan administrators, of the Funds’ policies and procedures and request the intermediaries to track and remit redemption fees to the Funds. However, due to limitations with system capabilities or for other reasons, certain broker-dealers, banks, plan administrators and other intermediaries may not track and collect redemption fees at this time, or their methods for tracking and calculating redemption fees may differ from those of the Funds. There is no assurance that the Funds’ redemption fee policies and procedures will be effective in limiting or deterring short-term and excessive trading in all circumstances. Redemption fees may not be assessed in certain circumstances, including the following: shares purchased through reinvested distributions; certain distributions required by law or due to shareholder hardship; redemptions through a Systematic Withdrawal Plan; redemption of shares through an Automatic Investment Plan; accounts held through intermediaries that are unable to assess redemption fees or do not report sufficient information to the Funds to impose a redemption fee (as discussed above); and circumstances where the Funds’ administrator believes it to be in the best interest of the Funds and in accordance with the Funds’ policies and procedures to waive the redemption fee on behalf of the Funds.
 
Aston Fund | 32
 
 
 

 

 
 
Shareholder Information (cont’d)
 
 
Account Statements
In general, you will receive quarterly account statements.  In addition, you will also receive account statements:
 
After every transaction that affects your account balance (except for dividend reinvestments, Automatic Investment Plans or Systematic Withdrawal Plans); and
After any change of name or address of the registered owner(s).
 
You will also receive an annual statement that describes the federal income tax characteristics of any dividends and distributions the Funds have paid to you during the year.
 
Aston Funds may charge a fee for certain services, such as providing historical account documents.
 
Mailings to Shareholders
To help reduce Fund expenses and environmental waste, Aston Funds combines mailings for multiple accounts going to a single household by delivering Fund reports (annual and semi-annual reports, prospectuses, etc.) in a single envelope.  If you do not want us to continue consolidating your Fund mailings and would prefer to receive separate mailings with multiple copies of Fund reports, please call one of our Investor Services Associates at 800-992-8151.
 
Distributions
The Funds distribute income dividends and net capital gains.  Income dividends represent the earnings from a Fund’s investments less its expenses; capital gains generally occur when the Fund sells a portfolio security for more than the original purchase price.
 
Dividends
The ASTON/Guardian Capital Global Dividend Fund will declare and pay dividends quarterly. The ASTON/Pictet International Fund will declare and pay dividends, if any, annually.  Net capital gains, if any, will be distributed at least once a year, generally in December.
 
Dividend Reinvestments
Investors may have their dividends and distributions reinvested in additional shares of a Fund.  If you choose this option, or if you do not indicate a choice, your dividends and distributions will be automatically reinvested on the dividend payable date.  You can also choose to have a check for your dividends and distributions mailed to you by choosing this option on your account application.
 
Uncashed Checks
Checks should be cashed upon receipt, as interest will not be paid on uncashed checks.  State escheat laws generally require Aston Funds to remit uncashed checks to the appropriate state after a specific period of time, which varies by state.
 
Aston Fund | 33
 
 
 

 

 
 
Shareholder Information (cont’d)
 
 
Automatic Investment Plan (Class N Shares only)
The Automatic Investment Plan (“AIP”) allows you to set up a scheduled transfer of funds from your bank account to the Aston Fund(s) of your choice.  You determine the AIP investment amount (the minimum AIP investment amount is $50), and you can terminate the program at any time. The minimum initial investment for accounts containing an AIP instruction is the same as all other accounts. To take advantage of this feature, complete the appropriate sections of the account application.

Aston Funds Website
Aston Funds maintains a website located at www.astonfunds.com.  You can purchase, exchange and redeem shares and access information such as your account balance and the Funds’ NAVs through our website.  Self-register for online account access at www.astonfunds.com.  Your social security number or employee identification number, account number and other security validity information will be required for registration.  You may also need to have bank account information, wire instructions, ACH instructions or other options established on your account.
 
Aston Funds has procedures in place to try to prevent unauthorized access to your account information.  The Funds and their agents will not be responsible for any losses resulting from unauthorized transactions on our website.
 
Systematic Withdrawal Plan (Class N Shares only)
This plan may be used for periodic withdrawals (at least $50 by check or ACH) from your account.  To take advantage of this feature you must:
 
Have at least $50,000 in your account;
Determine the schedule:  monthly, quarterly, semi-annually or annually; and
Call 800-992-8151 to add a Systematic Withdrawal Plan to your account.
 
Retirement Plans and Education Savings Accounts (Class N Shares)
Aston Funds offer a range of retirement plans, including Traditional, Roth, SIMPLE IRAs and SEP IRAs for Class N shareholders.  Aston Funds also offers Education Savings Accounts for Class N shareholders, which allow you to save for qualified elementary, secondary and higher education costs.  Using these plans, you can invest in any Aston Fund with a low minimum investment of $500.  The annual maintenance fee for IRAs and Education Savings Accounts is $15 per account (not to exceed $30 per shareholder), but it is waived if you have $35,000 or more in assets.  The fee is assessed every December for the current calendar year.  To find out more, call Aston Funds at 800-992-8151.
 
 
To pay for the cost of promoting the Funds and servicing your shareholder account, the Funds have adopted a Rule 12b-1 plan for Class N shares.  Under this plan, the Funds pay a fee at an annual rate of not more than 0.25% of a Fund’s Class N shares’ average daily net assets to the distributor for certain expenses associated with the distribution of Fund shares and administrative services provided to the Funds’ shareholders.  The fee is accrued daily and payable monthly.  Over time, these fees may increase the cost of your investment and may cost more than paying other types of sales charges.
 
 
In addition to payments under a Rule 12b-1 plan, the Funds may bear costs associated with compensating intermediaries that perform sub-transfer agency, sub-accounting and/or shareholder services for Fund shareholder accounts.  Aston may also compensate intermediaries that distribute
 
Aston Fund | 34
 
 
 

 

 
 
Shareholder Information (cont’d)
 
and/or service investors in the Funds out of its own assets and not as an additional charge to the Funds.  Additional payments to intermediaries may represent a premium over payments made by other fund families, and may create an added incentive for investment professionals to sell or recommend the Funds over other funds offered by competing fund families.  The additional payments may differ for each fund within the Aston family of funds, including within the same intermediary, and across intermediaries, or within the same fund at the same intermediary.
 
In addition, representatives of the distributor may be compensated through Adviser incentive programs in a manner that favors one Aston fund or group of Aston funds over another Aston fund.
 
 
The Subadvisers attempt to obtain the best possible price and most favorable execution of transactions in portfolio securities.  There may be times when a Subadviser may pay one broker-dealer a commission that is greater than the amount that another broker-dealer may charge for the same transaction.  The Subadvisers generally determine in good faith if the commission paid was reasonable in relation to the brokerage or research services provided by the broker-dealer.  In selecting and monitoring broker-dealers and negotiating commissions, the Subadvisers consider, among other factors, a broker-dealer’s reliability, availability of research, the quality of its execution services and its financial condition.
 
Aston Fund | 35
 
 
 

 

 
 
Dividends, Distributions and Taxes
 
The Funds pay dividends and distribute capital gains annually. All dividends and distributions are automatically reinvested at NAV unless you choose to receive them in a cash payment.  You can change your payment options at any time by writing to us.
 
Taxes
Certain tax considerations may apply to your investment in the Funds.  The following is a general description of certain federal income tax considerations.  Further information regarding the federal income tax consequences of investing in the Funds is included in the SAI. If you have any tax-related questions relating to your own investment in the Funds, please consult your tax adviser.
 
For federal income tax purposes:
 
The tax treatment of dividends and distributions is the same whether you reinvest the dividends and distributions or elect to receive them in cash.  We will send you a statement with the federal income tax status of your dividends and distributions for the prior year generally by February 15.
 
Distributions of any net investment income, other than “qualified dividend income,” are taxable to you as ordinary income.
 
Distributions of qualified dividend income (i.e., generally dividends received by a Fund from domestic corporations and certain foreign corporations) generally will be taxed to individuals and other non-corporate investors in the Fund at federal income tax rates applicable to long-term capital gains, provided you meet certain holding period and other requirements contained in the Code with respect to your Fund shares and the Fund meets similar holding period and other requirements with respect to the dividend paying stock.  Dividends received from most REITs and certain foreign corporations are not expected to qualify for treatment as qualified dividend income when distributed by the Funds.

If a Fund receives dividends from another investment company that qualifies as a regulated investment company, including an ETF, for federal income tax purposes and the investment company designates such dividends as qualified dividend income, then the Fund may in turn designate that portion of its distributions derived from those dividends as qualified dividend income, provided the Fund meets certain holding period and other requirements with respect to the shares of the investment company.
 
Distributions of net capital gain (net long-term capital gain less any net short-term capital loss) are taxable as long-term capital gain regardless of how long you may have held shares of a Fund.  In contrast, distributions of net short-term capital gain (net short-term capital gain less any net long-term capital loss) are taxable as ordinary income regardless of how long you may have held shares of the Fund.  Because distributions of net short-term capital gain are taxable as ordinary income, you generally cannot offset net short-term capital gain distributions you receive from the Fund with capital losses.
 
Some of a Fund’s investments may be subject to special provisions of the Code that may increase the amount of gain recognized by the Fund, defer the Fund’s losses, accelerate the Fund’s recognition of gain, affect the character of such income and affect the amount, timing and type of distributions from the Fund, which may increase the amount of taxes payable by you.
 
Distributions declared to the shareholders of record in October, November or December and paid on or before January 31 of the succeeding year will be treated for federal income tax purposes as if received by shareholders on December 31 of the year in which the distribution was declared.
 
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Dividends, Distributions and Taxes (cont’d)
 
When you sell shares or exchange shares for shares of another fund (other than shares held in a tax-deferred account) it generally is considered a taxable event for you.  Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction.  The gain or loss will generally be treated as a long-term capital gain or loss if you held your shares for more than one year.  If you held your shares for one year or less, the gain or loss will generally be treated as a short-term capital gain or loss.  You are responsible for any tax liabilities generated by your transactions.

An additional 3.8% Medicare tax is imposed on certain net investment income (including dividends and distributions received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceeds a threshold amount.

If you do not provide Aston Funds with your complete and correct taxpayer identification number and required certification, or if the Internal Revenue Service so notifies us, you may be subject to backup withholding tax on dividends, distributions and redemption proceeds.
 
If you purchase shares of a Fund just before a dividend or distribution, you will pay the full price for the shares and receive a portion of the purchase price back as a taxable distribution.  This is referred to as “buying a dividend.”
 
If a Fund qualifies (by having more than 50% of the value of its total assets at the close of the taxable year consist of stock or securities in foreign corporations or by being a qualified fund of funds) and elects to pass through foreign taxes paid on its investments during the year, such taxes will be reported to you as income. You may, however, be able to claim an offsetting tax credit or deduction on your federal income tax return, depending on your particular circumstances and provided you meet certain holding period and other requirements. Tax-exempt holders of Fund shares, such as qualified tax-deferred retirement plans, will not benefit from such a deduction or credit.
 
A Fund’s ability to invest in some investments may be significantly limited by the federal income tax rules applicable to regulated investment companies.

Tax reporting changes effective January 1, 2012 require Aston Funds to report cost basis and holding period information to both the Internal Revenue Service and shareholders for gross proceeds from the sales of shares of Aston Funds purchased on or after January 1, 2012.  This information will be reported on Form 1099-B.  The deadline for mailing Form 1099-B to shareholders is February 15.  Absent shareholder instructions, Aston Funds will calculate and report cost basis information using its default method of average cost.  If you hold shares of Aston Funds through a financial intermediary, the financial intermediary will be responsible for this reporting and the financial intermediary’s default cost basis method may apply.  Please consult your tax adviser for additional information regarding cost basis reporting and your situation.
 
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The Funds are new and do not have an operating history. Information, when available, will be included in the Funds’ next annual or semi-annual shareholder report.
 
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(ASTON FUNDS LOGO)
 
 
If you wish to know more about Aston Funds, you will find additional information in the following documents:

SHAREHOLDER REPORTS
 
You will receive an unaudited Semi-Annual Report dated April 30 and an Annual Report dated October 31, which is audited by an independent registered public accounting firm. The Annual Report contains a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during its last fiscal year.
 
STATEMENT OF ADDITIONAL INFORMATION (SAI)
 
The SAI, which is incorporated into this prospectus by reference and dated _____ __, 201_ as amended from time to time, is available to you without charge and can be mailed to you upon request. It contains more detailed information about the Funds.
 
HOW TO OBTAIN REPORTS
 
Contacting Aston Funds
You can get free copies of the reports and SAI, request other information and obtain answers to your questions about the Funds by contacting:
 
Address:  
Aston Funds
P.O. Box 9765
Providence, RI 02940
     
Phone:  
Shareholder Services & Fund Literature
800-992-8151
     
   
Investment Advisor Services
800-597-9704
     
Website:   www.astonfunds.com
 
Obtaining Information from the SEC
You can visit the EDGAR Database on the SEC’s website at http://www.sec.gov to view the SAI and other information.  You can also view and copy information about the Funds at the SEC’s Public Reference Room in Washington, D.C.  To find out more about the Public Reference Room, you can call the SEC at 202-551-8090. Also, you can obtain copies of this information after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington D.C. 20549-1520.
 
Investment Company Act File Number:  811-8004
AST PIC GRD 13
 
 
 

 

 
This information in this statement of additional information is not complete and may be changed.  We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This statement of additional information is not an offer to sell securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
ASTON FUNDS
 
ASTON/Pictet International Fund
ASTON/Guardian Capital Global Dividend Fund 
 
  Ticker Symbols
  Class N    Class I
ASTON/Pictet International Fund ________   ________
ASTON/Guardian Capital Global Dividend Fund ________   ________
                  
STATEMENT OF ADDITIONAL INFORMATION
 
______ __, 201_
 
This Statement of Additional Information dated _____ __, 201_ (“SAI”) provides supplementary information pertaining to shares representing interests in Class N shares and Class I shares of the ASTON/Pictet International Fund and the ASTON/Guardian Capital Global Dividend Fund (each, a “Fund”), two of twenty-five available investment portfolios of Aston Funds (the “Trust”).
 
This SAI is not a prospectus and should be read only in conjunction with the Funds’ current prospectus dated _____ __, 201_, as amended or supplemented from time to time (the “Prospectus”). No investment in a Fund should be made without first reading the Prospectus. This SAI is incorporated by reference into the Prospectus.
 
You may obtain a Prospectus, annual report or semi-annual report, when available, at no charge by contacting the Trust at Aston Funds, P.O. Box 9765, Providence, RI 02940 or 800-992-8151 or by downloading such information from www.astonfunds.com. The website does not form a part of the Prospectus or SAI.
 
 
 

 

 
 
     
   
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS SAI OR IN THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST OR THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
 
 
 

 

 
Aston Funds, 120 N. LaSalle Street, 25th Floor, Chicago, Illinois 60602, is an open-end management investment company. Each Fund is classified as diversified under the Investment Company Act of 1940, as amended (the “1940 Act”). Each Fund is a series of the Trust, which was formed as a Delaware statutory trust on September 10, 1993.
 
INVESTMENT OBJECTIVES, STRATEGIES AND RISK CONSIDERATIONS
 
The following supplements the information contained in the Prospectus concerning the investment objectives, strategies and risks of investing in the Funds. This section contains a detailed discussion of the portfolio investments in which the Funds may invest. The investment practices described below, except as further set forth in “Investment Restrictions,” are not fundamental and may be changed by the Board of Trustees of the Trust (the “Board”) without the approval of shareholders.
 
American Depositary Receipts (“ADRs”), Continental Depositary Receipts (“CDRs”), European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”)
 
ADRs are securities, typically issued by a U.S. financial institution (a “depositary”), that evidence ownership interest in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. EDRs, which are sometimes referred to as CDRs, are securities, typically issued by a non-U.S. financial institution, that evidence ownership interest in a security or a pool of securities issued by either a U.S. or foreign issuer. GDRs are issued globally and evidence a similar ownership arrangement. Generally, ADRs are designed for trading in the U.S. securities market. EDRs are designed for trading in European securities markets and GDRs are designed for trading in non-U.S. securities markets. Generally, depositary receipts may be available through “sponsored” or “unsponsored” facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities.
 
Borrowing
 
A Fund may not borrow money or issue senior securities, except as described in this paragraph or as described in “Investment Restrictions.” Any policy under “Investment Restrictions” which contradicts policies described in this paragraph governs that applicable Fund’s policy on borrowing. A Fund may borrow from banks or enter into reverse repurchase agreements for temporary purposes in amounts up to one-third of the value of its total assets. A Fund may not mortgage, pledge or hypothecate any assets, except in connection with permitted borrowing or other permitted investment techniques. Any borrowing will be done from a bank with asset coverage of at least 300%, if required. In the event that such asset coverage shall at any time fall below 300%, a Fund shall, within three days thereafter (not including Sundays or holidays) or such longer period as the Securities and Exchange Commission (“SEC”) may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%.
 
Convertible Securities
 
Common stock occupies the most junior position in a company’s capital structure. Convertible securities entitle the holder to exchange the securities for a specified number of shares of common stock,
 
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usually of the same company, at specified prices within a certain period of time and to receive interest or dividends until the holder elects to convert. The provisions of any convertible security determine its ranking in a company’s capital structure. In the case of subordinated convertible debentures, the holder’s claims on assets and earnings are subordinated to the claims of other creditors and are senior to the claims of preferred and common shareholders. In the case of preferred stock and convertible preferred stock, the holder’s claims on assets and earnings are subordinated to the claims of all creditors but are senior to the claims of common shareholders.
 
Derivative Instruments
 
The term “derivatives” has been used to identify a range and variety of financial instruments. In general, a derivative is commonly defined as a financial instrument whose performance and value are derived, at least in part, from another source, such as the performance of an underlying asset, a specific security or an index of securities. As is the case with other types of investments, a Fund’s derivative instruments may entail various types and degrees of risk, depending upon the characteristics of the derivative instrument and a Fund’s overall portfolio.
 
Each Fund may use derivative instruments for hedging purposes, to maintain liquidity, in anticipation of changes in the composition of its portfolio holdings, or as otherwise provided in the Prospectus. A Fund will not engage in derivative investments purely for speculative purposes. A Fund will invest in one or more derivatives only to the extent that the instrument under consideration is judged by the investment adviser or subadviser to be consistent with a Fund’s overall investment objective and policies. In making such judgment, the potential benefits and risks will be considered in relation to a Fund’s other portfolio investments.
 
Where not specified, investment limitations with respect to a Fund’s derivative instruments will be consistent with such Fund’s existing percentage limitations with respect to its overall investment policies and restrictions. The types of derivative securities in which the Funds are permitted to invest include, but are not limited to, forward commitments, foreign currency contracts, futures contracts, options, and swap agreements.
 
Certain investment transactions expose the Funds to an obligation to make future payments to third parties. Examples of these types of transactions, include, but are not limited to, derivatives such as swaps, futures, forwards, and options. To the extent that a Fund engages in such transactions, the Fund will (to the extent required by applicable law) either (1) segregate cash or liquid assets in the prescribed amount or (2) otherwise “cover” its future obligations under the transaction, such as by holding an offsetting investment. If a Fund segregates sufficient cash or other liquid assets or otherwise “covers” its obligations under such transactions, the Fund will not consider the transactions to be borrowings for purposes of its investment restrictions or “senior securities” under the 1940 Act, and therefore, such transactions will not be subject to the 300% asset coverage requirement under the 1940 Act otherwise applicable to borrowings by the Fund.
 
In some cases (e.g., with respect to futures and forwards that are contractually required to “cash-settle”), a Fund will segregate cash or other liquid assets with respect to the amount of the daily net (marked-to-market) obligation arising from the transaction, rather than the notional amount of the underlying contract. By segregating assets in an amount equal to the net obligation rather than the notional amount, a Fund will have the ability to employ leverage to a greater extent than if it set aside cash or other liquid assets equal to the notional amount of the contract, which may increase the risk associated with such transactions. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account.
 
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Assets used as segregation or “cover” cannot be sold while the position in the corresponding transaction is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of the Fund’s assets for segregation and “cover” purposes could impede portfolio management or the Fund’s ability to meet redemption requests or other current obligations. Segregating assets or otherwise “covering” for these purposes does not necessarily limit the percentage of the assets of the Fund that may be at risk with respect to certain derivative transactions.
 
Emerging Market Securities
 
Investments in emerging market countries may be subject to additional and potentially higher risks than investments in developed countries or in foreign countries in general. Such additional risks include (i) less social, political and economic stability; (ii) a small market for securities and/or a low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) foreign exchanges and broker-dealers may be subject to less scrutiny and regulation by local authorities; (iv) certain national policies that may restrict a Fund’s investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (v) foreign taxation; (vi) issuers facing restrictions on U.S. dollar or euro payments imposed by local governments may attempt to make dividend or interest payments to foreign investors in the local currency; (vii) investors may experience difficulty in enforcing legal claims related to the securities and/or local judges may favor the interests of the issuer over those of foreign investors; (viii) bankruptcy judgments may only be permitted to be paid in the local currency; (ix) limited public information regarding the issuer may result in greater difficulty in determining market valuations of the securities, and (x) infrequent financial reporting, substandard disclosure, and differences in accounting standards may make it difficult to ascertain the financial health of an issuer. In addition, unlike developed countries, many emerging countries’ economic growth highly depends on exports and inflows of external capital, making them more vulnerable to downturns in the world economy. The recent global financial crisis weakened the global demand for emerging countries’ exports and tightened international credit supplies and, as a result, many emerging countries faced significant economic difficulties and some countries fell into recession.
 
Authoritarian governments in certain developing countries may require that a governmental or quasi-governmental authority act as custodian of a Fund’s assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the 1940 Act with respect to the custody of a Fund’s cash and securities, a Fund’s investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries.
 
Many emerging market countries in which a Fund may invest lack the social, political, and economic stability characteristic of the U.S. Political instability among emerging market countries can be common and may be caused by an uneven distribution of wealth, social unrest, labor strikes, civil wars, and religious oppression. Economic instability in emerging market countries may take the form of: (i) high interest rates; (ii) high levels of inflation, including hyperinflation; (iii) high levels of unemployment or underemployment; (iv) changes in government economic and tax policies, including confiscatory taxation (or taxes on foreign investments); and (v) imposition of trade barriers. In recent years, many emerging market countries have undergone political changes that have reduced government’s role in economic and personal affairs and have stimulated investment and growth.
 
Currencies of emerging market countries are subject to significantly greater risks than currencies of developed countries. Some emerging market currencies may not be internationally traded or may be subject to strict controls by local governments, resulting in undervalued or overvalued currencies. Some emerging market countries have experienced balance of payment deficits and shortages in foreign exchange reserves. As a result, some governments have responded by restricting currency conversions.
 
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Future restrictive exchange controls could prevent or restrict a company’s ability to make dividend or interest payments in the original currency of the obligation (usually U.S. dollars). In addition, even though the currencies of some emerging market countries may be convertible into U.S. dollars, the conversion rates may be artificial to their actual market values.
 
Securities of issuers located in countries with developing securities markets pose greater liquidity risks and other risks than securities of issuers located in developed countries and traded in more established markets. Low liquidity in markets may adversely affect a Fund’s ability to buy and sell securities and cause increased volatility. Developing countries may at various times have less stable political environments than more developed nations. Changes of control may adversely affect the pricing of securities from time to time. Some developing countries may afford only limited opportunities for investing. In certain developing countries, a Fund may be able to invest solely or primarily through ADRs or similar securities and government approved investment vehicles, including closed-end investment companies.
 
The settlement systems in certain emerging markets, including Asian, South American and Eastern European countries, are less developed than in more established markets. As a result, there may be a risk that settlement may be delayed and that cash or securities of a Fund may be in jeopardy because of failures or of defects in the systems used. In particular, market practice may require that payment be made prior to receipt of the security which is being purchased or that delivery of a security must be made before payment is received. In such cases, default by the executing broker or bank might result in a loss to a Fund investing in emerging market securities.
 
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 which cause large budget deficits. Often, interest payments have become too overwhelming for these governments to meet, as these payments may represent a large percentage of a country’s total GDP. Accordingly, these foreign obligations have become the subject of political debate and resulted in pressure on governments not to make payments to foreign creditors, but instead to use these funds for social programs. Either due to an inability to pay or submission to political pressure, some governments have been forced to seek a restructuring of their credit obligations, have declared a temporary suspension of interest payments, or have defaulted on their outstanding 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 their ability to borrow in the future as well.
 
Equity Securities
 
Equity securities represent a share of an issuer’s earnings and assets, after the issuer pays its liabilities. A Fund cannot predict the income it will receive from equity securities because issuers generally have discretion as to the payment of any dividends or distributions. However, equity securities offer greater potential for appreciation than many other types of securities, because their value may increase with the value of the issuer’s business. The following describes various types of equity securities in which the Funds invest.
 
Common Stocks
 
Common stocks are the most prevalent type of equity security. Common stocks receive the issuer’s earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer’s earnings may influence the value of its common stock.
 
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Preferred Stocks
 
Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock. A Fund may treat such redeemable preferred stock as a fixed income security.
 
Warrants and Rights
 
Warrants give a Fund the option to buy the issuer’s equity securities at a specified price (the exercise price) at a specified future date (the expiration date). A Fund may buy the designated securities by paying the exercise price before the expiration date. Warrants may become worthless if the price of the stock does not rise above the exercise price by the expiration date. This increases the market risks of warrants as compared to the underlying security.
 
Rights are the same as warrants, except companies typically issue rights to existing stockholders.
 
Exchange-Traded Notes
 
Exchange-traded notes (“ETNs”) are securities that combine aspects of a bond and an exchange-traded fund (“ETF”). ETN returns are based upon the performance of a market index or other reference asset less fees, and can be held to maturity as a debt security. ETNs are traded on a securities exchange. Their value is based on their reference index or strategy and the credit quality of the issuer. ETNs are subject to the additional risk that they may trade at a premium or discount to value attributable to their reference index. When a Fund invests in an ETN, shareholders of the Fund bear their proportionate share of the ETN’s fees and expenses, as well as their share of the Fund’s fees and expenses. There may also not be an active trading market available for some ETNs. Additionally, trading of ETNs may be halted or delisted by the listing exchange.
 
Fixed Income Securities
 
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer’s earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
 
A security’s yield measures the annual income earned on a security as a percentage of its price. A security’s yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
 
The following describes various types of fixed income securities in which a Fund may invest.
 
Treasury Securities
 
Treasury securities are direct obligations of the federal government. Treasury securities are generally regarded as having the lowest credit risks.
 
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Agency Securities
 
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity (a “GSE”) acting under federal authority. The U.S. government supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
 
Although a GSE guarantee protects against credit risks, it does not reduce the market and prepayment risks of these mortgage-backed securities.
 
Corporate Debt Securities
 
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Funds may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
 
In addition, the credit risk of an issuer’s debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
 
Commercial Paper
 
Commercial paper is an issuer’s obligation with a maturity of less than nine months. Companies typically issue commercial paper to pay for current expenditures. Most issuers constantly reissue their commercial paper and use the proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue to obtain liquidity in this fashion, its commercial paper may default.
 
Demand Instruments
 
Demand instruments are corporate debt securities that the issuer must repay upon demand. Other demand instruments require a third party, such as a dealer or bank, to repurchase the security for its face value upon demand.
 
Pooled Vehicles
 
The Funds may invest in debt securities indirectly through pooled products typically organized as trust structures (e.g., TRAINS and TRACERS) and typically sold pursuant to Rule 144A under the Securities Act of 1933, as amended (the “1933 Act”). TRAINS, TRACERS and similar products contain a basket of debt securities that are designed to provide broad credit exposure in a single product. The Funds will incur transaction costs associated with such products and may be subject to the credit risk of the sponsoring entity.
 
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Forward Foreign Currency Exchange Contracts
 
Many international equity securities in which a Fund may invest will be traded in foreign currencies. A Fund may engage in certain foreign currency transactions, such as forward foreign currency exchange contracts, to guard against fluctuations in currency exchange rates in relation to the U.S. dollar or to the weighting of particular foreign currencies. In addition, a Fund may buy and sell foreign currency futures contracts and options on foreign currencies and foreign currency futures. A Fund may use such investments for hedging purposes or as otherwise provided in the Prospectus, including for total return purposes. A Fund will not engage in such investments purely for speculative purposes.
 
A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. By entering into a forward foreign currency exchange contract, a Fund “locks in” the exchange rate between the currency it will deliver and the currency it will receive for the duration of the contract. As a result, a Fund reduces its exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will exchange into. Contracts to sell foreign currencies would limit any potential gain which might be realized by a Fund if the value of the hedged currency increases. A Fund may enter into these contracts for the purpose of hedging against foreign exchange risks arising from a Fund’s investment or anticipated investment in securities denominated in foreign currencies. Such hedging transactions may not be successful and may eliminate any chance for a Fund to benefit from favorable fluctuations in relevant foreign currencies. In the case of a forward foreign currency exchange contract, a Fund will segregate cash or liquid securities at least in an amount equal to its obligations under the contract. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. See also “Derivative Instruments.”
 
A Fund may also enter into forward foreign currency exchange contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one currency to another. To the extent that it does so, a Fund will be subject to the additional risk that the relative value of currencies will be different than anticipated by the Fund’s investment adviser or subadviser. A Fund may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are positively correlated. A Fund may also use foreign currency futures contracts and related options on currencies for the same reasons for which forward foreign currency exchange contracts are used.
 
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.
 
Foreign Securities
 
Foreign securities may subject a Fund to investment risks that differ in some respects from those related to investments in domestic issuers. Such risks may include costs in connection with conversions between various currencies, limited publicly available information regarding foreign issuers, lack of uniformity in accounting, auditing and financial standards and requirements, greater securities market volatility, less liquidity of securities, less government supervision and regulations of securities markets, future adverse political and economic developments, the possible imposition of withholding taxes on interest, dividends or other income, possible seizure, nationalization, or expropriation of foreign deposits, the possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. Such investments may also
 
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entail higher custodial fees and sales commissions than domestic investments. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those with respect to domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. Government regulation in many of the countries of interest to a Fund may limit the extent of a Fund’s investment in companies in those countries. Further, it may be more difficult for a Fund’s agents to keep currently informed about corporate actions that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., increasing the risk of delayed settlements of portfolio securities. Certain markets may require payment for securities before delivery. A Fund’s ability and decisions to purchase and sell portfolio securities may be affected by laws or regulations relating to the convertibility of currencies and repatriation of assets. Some countries restrict the extent to which foreigners may invest in their securities markets.
 
Investments in securities of foreign issuers are frequently denominated in foreign currencies (including the Euro and other multinational currency units) and the value a Fund’s assets measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations, and a Fund may incur costs in connection with conversions between various currencies. A Fund may enter into forward foreign currency contracts as a hedge against possible variations in foreign exchange rates or to hedge a specific security transaction or portfolio position. Currently, only a limited market, if any, exists for hedging transactions relating to currencies in emerging markets, including Latin American and Asian markets. This may limit a Fund’s ability to effectively hedge its investments in such markets if it chose to do so.
 
Foreign investments involve risks unique to the local political, economic, and regulatory structures in place, as well as the potential for social instability, military unrest, or diplomatic developments that could prove adverse to the interests of U.S. investors. Individual foreign economies can differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. In addition, significant external political and economic risks currently affect some foreign countries. For example, both Taiwan and China still claim sovereignty over one another and there is a demilitarized border and hostile relations between North and South Korea. War and terrorism affect many countries, especially those in Africa and the Middle East. Many countries throughout the world are dependent on a healthy U.S. economy and are adversely affected when the U.S. economy weakens or its markets decline. For example, in 2007 and 2008, the meltdown in the U.S. subprime mortgage market quickly spread throughout global credit markets, triggering a liquidity crisis that affected fixed-income and equity markets around the world. European countries can be significantly affected by the tight fiscal and monetary controls that the European Economic and Monetary Union (“EMU”) imposes for membership. Europe’s economies are diverse, its governments are decentralized, and its cultures vary widely. In addition, the budget issues faced by several EU countries, including Greece, Ireland, Italy, Spain, and Portugal, may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among EMU member countries. Member countries are required to maintain tight control over inflation, public debt, and budget deficit to qualify for membership in the EMU. These requirements can severely limit EMU member countries’ ability to implement monetary policy to address regional economic conditions.
 
Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and payment of dividends. The economies of many foreign countries are heavily dependent upon international trade and are accordingly affected by
 
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protective trade barriers and economic conditions of their trading partners. The enactment by these trading partners of protectionist trade legislation could have a significant adverse effect upon the securities markets of such countries.
 
In making investment decisions for a Fund, the subadviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country’s financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country’s laws and regulations regarding the safekeeping, maintenance and recovery of invested assets; the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments. The investment adviser’s or subadviser’s decisions regarding these risks may not be correct or may prove to be unwise and any losses resulting from investing in foreign countries will be borne by the Fund.
 
Holding Fund assets in foreign countries presents additional risks including, but not limited to, the risks that a particular foreign custodian or depositary will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. A Fund may be precluded from investing in certain foreign countries until such time as adequate custodial arrangements can be established.
 
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
 
A Fund may purchase or sell securities on a when-issued or delayed-delivery basis and make contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time. Securities purchased or sold on a when-issued, delayed-delivery or forward commitment basis involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Although a Fund would generally purchase securities on a when-issued, delayed-delivery or forward commitment basis with the intention of acquiring the securities, a Fund may dispose of such securities prior to settlement if its investment adviser or subadviser deems it appropriate to do so.
 
A Fund may dispose of or re-negotiate a when-issued or forward commitment after entering into these transactions. A Fund will normally realize a capital gain or loss in connection with these transactions. For purposes of determining a Fund’s average dollar-weighted maturity, the maturity of when-issued or forward commitment securities will be calculated from the commitment date.
 
When a Fund purchases securities on a when-issued, delayed delivery or forward commitment basis, a Fund will segregate cash or liquid securities having a value (determined daily) at least equal to the amount of a Fund’s purchase commitments. In the case of a forward commitment to sell portfolio securities, a Fund will segregate the portfolio securities while the commitment is outstanding. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. See also “Derivative Instruments.”
 
These procedures are designed to ensure that a Fund will maintain sufficient assets at all times to cover its obligations under when-issued securities, forward commitments and delayed-delivery transactions.
 
Futures Contracts
 
Futures contracts are generally considered to be derivative securities. 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
 
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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 deposited thereafter on a daily basis as the marked to market value of the contract fluctuates.
 
At maturity, a futures contract obligates a Fund to take or make delivery of certain securities or the cash value of a securities index. A Fund may sell a futures contract in order to offset a decrease in the market value of its portfolio securities that might otherwise result from a market decline. A Fund may do so either to hedge the value of its portfolio of securities as a whole, or to protect against declines, occurring prior to sales of securities, in the value of the securities to be sold. Conversely, a Fund may purchase a futures contract in anticipation of purchases of securities. In addition, a Fund may utilize futures contracts in anticipation of changes in the composition of its portfolio holdings or to seek exposure to a particular market or asset class in an attempt to achieve its objective.
 
For federal income tax purposes, some gains derived by a Fund from the use of such instruments will be treated as a combination of short-term and long-term capital gains and, if not offset by realized capital losses incurred by a Fund, will be distributed to shareholders and will be taxable to shareholders as a combination of ordinary income and long-term capital gain.
 
A Fund may purchase and sell call and put options on futures contracts traded on an exchange or board of trade. When a Fund purchases an option on a futures contract, it has the right to assume a position as a purchaser or seller of a futures contract at a specified exercise price at any time during the option period. When a Fund sells an option on a futures contract, it becomes obligated to purchase or sell a futures contract if the option is exercised. In anticipation of a market advance, a Fund may purchase call options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities that a Fund intends to purchase. Similarly, if the market is expected to decline, a Fund might purchase put options or sell call options on futures contracts rather than sell futures contracts. In connection with a Fund’s position in a futures contract or option thereon, a Fund will segregate cash or liquid securities or will otherwise cover its position in accordance with applicable requirements of the SEC. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. See also “Derivative Instruments.”
 
A Fund may enter into a contract for the purchase or sale for future delivery of securities, including index contracts. While futures contracts provide for the delivery of securities, deliveries usually do not occur. Contracts are generally terminated by entering into offsetting transactions.
 
A Fund may enter into such futures contracts to protect against the adverse effects of fluctuations in security prices or interest rates without actually buying or selling the securities. For example, if interest rates are expected to increase, a Fund might enter into futures contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the debt securities owned by a Fund. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the futures contracts to a Fund would increase at approximately the same rate, thereby keeping the net asset value of a Fund from declining as much as it otherwise would have. Similarly, when it is expected that interest rates may decline, futures contracts may be purchased to hedge in anticipation of subsequent purchases of securities at higher prices. Since the fluctuations in the value of futures contracts should be similar to those of debt securities, a Fund could take advantage of the anticipated rise in value of debt securities without actually buying them until the market had stabilized. At that time, the futures contracts could be liquidated and a Fund could then buy debt securities on the cash market.
 
A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index
 
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at the close of the last trading day of the contract and the price at which the agreement was made. Open futures contracts are valued on a daily basis and a Fund may be obligated to provide or receive cash reflecting any decline or increase in the contract’s value. No physical delivery of the underlying stocks in the index is made in the future.
 
With respect to options on futures contracts, when a Fund is temporarily not fully invested, it may purchase a call option on a futures contract to hedge against a market advance. The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based, or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with the purchase of futures contracts, when a Fund is not fully invested, it may purchase a call option on a futures contract to hedge against a market advance.
 
The writing of a call option on a futures contract constitutes a partial hedge against the declining price of the security or foreign currency that is deliverable upon exercise of the futures contract. If the futures price at the expiration of the option is below the exercise price, a Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the value of a Fund’s portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against the increasing price of the security or foreign currency, which is deliverable upon exercise of the futures contract. If the futures price at the expiration of the option is higher than the exercise price, a Fund will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities that a Fund intends to purchase.
 
Call and put options on stock index futures are similar to options on securities except that, rather than the right to purchase or sell stock at a specified price, options on a stock index future give the holder the right to receive cash. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the futures contract. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing price of the futures contract on the expiration date.
 
If a put or call option which a Fund has written is exercised, that Fund may incur a loss which will be reduced by the amount of the premium it received. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its options positions, a Fund’s losses from existing options on futures may to some extent be reduced or increased by changes in the value of portfolio securities.
 
To the extent that market prices move in an unexpected direction, a Fund may not achieve the anticipated benefits of futures contracts or options on futures contracts or may realize a loss. For example, if a Fund is hedged against the possibility of an increase in interest rates and interest rates decrease instead, that Fund would lose part or all of the benefit of the increased value, which it has because it would have offsetting losses in its futures position. In addition, in such situations, if a Fund had insufficient cash, it may be required to sell securities from its portfolio to meet daily variation margin requirements. Such sales of securities may, but will not necessarily, be at increased prices which reflect the rising market. A Fund may be required to sell securities at a time when it may be disadvantageous to do so.
 
Options on securities, futures contracts, options on futures contracts and options on currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar
 
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transactions in the U.S., 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. Some foreign exchanges may be principal markets so that no common clearing facility exists and a trader may look only to the broker for performance of the contract. 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 Trust’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) lesser trading volume. In addition, unless a Fund hedges against fluctuations in the exchange rate between the U.S. dollar and the currencies in which trading is done on foreign exchanges, any profits that a Fund might realize in trading could be eliminated by adverse changes in the exchange rate, or a Fund could incur losses as a result of those changes.
 
Further, with respect to options on futures contracts, a Fund may seek to close out an option position by writing or buying an offsetting position covering the same securities or contracts with the same exercise price and expiration date. The ability to establish and close out positions on options will be subject to the maintenance of a liquid secondary market, which cannot be assured.
 
Illiquid Securities
 
A Fund may invest up to 15% of its net assets in securities that are illiquid. Securities are generally considered illiquid if they cannot be disposed of within seven days in the ordinary course of business at approximately the price at which a Fund values the security. Illiquid securities will generally include but are not limited to: insurance funding agreements, repurchase agreements and time deposits with notice/termination dates in excess of seven days; unlisted over-the-counter options; swap agreements, interest rate caps, floors and collars; and certain securities which are subject to trading restrictions because they are not registered under the 1933 Act. Foreign securities that are restricted as to resale in the U.S., but are freely tradable in their local market, are not considered illiquid.
 
Investment Company Shares
 
Investments by a Fund in other investment companies, including closed-end funds and ETFs, will be subject to the limitations of the 1940 Act, the rules and regulations thereunder and in certain circumstances SEC exemptive orders. The Fund may rely on SEC orders that permit it to invest in certain investment companies beyond the limits contained in the 1940 Act, subject to certain terms and conditions of those orders. The risks of investment in other investment companies typically reflect the risks of the types of securities in which those other investment companies invest. When a Fund invests in shares of another investment company, shareholders of the Fund bear their proportionate share of the other investment company’s fees and expenses, as well as their share of the Fund’s fees and expenses.
 
Open-End Mutual Funds
 
Open-end mutual funds are investment companies that issue new shares continuously and redeem shares daily. The risks of investment of open-end mutual funds typically reflect the risks of the types of securities in which the funds invest. The net asset value per share of an open-end fund will fluctuate daily depending upon the performance of the securities held by the fund. Open-end mutual funds are offered in a wide variety of asset classes including: large-cap, mid-cap, small-cap, equity, international, sector, fixed income and alternative non-traditional strategies. When a Fund invests in shares of an open-end fund, shareholders of the Fund bear their proportionate share of the open-end fund’s fees and expenses, as well as their share of the Fund’s fees and expenses.
 
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Exchange-Traded Funds
 
ETFs are typically organized as open-end investment companies or unit investment trusts. ETFs are traded on exchanges similar to stocks. A passive ETF is an investment company that seeks to track the performance of an index (before fees and expenses) by holding in its portfolio either the securities that comprise the index or a representative sample of the securities in the index. An actively managed ETF is an investment company that seeks to outperform an index. ETFs offer investment in a wide variety of asset classes and ranges of securities, including: large-cap, mid-cap, small-cap, equity, international, commodities, real estate, fixed income, derivatives and currency.
 
Unlike interests in conventional mutual funds, ETFs are traded throughout the day on a national securities exchange, whereas mutual fund interests are typically only bought and sold at closing net asset values. ETFs are designed to be tradable in the secondary market on a national securities exchange on an intra-day basis, and to be created and redeemed principally in-kind in large blocks (typically 50,000 shares) called creation units, at each day’s next calculated net asset value. The in-kind creation or redemption is for a portfolio of the underlying securities of the ETF. There may also be a cash component. These arrangements are designed to protect ongoing shareholders from adverse effects on the portfolio of the ETF that could arise from frequent cash creation and redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders because of the mutual fund’s need to sell portfolio securities to obtain cash to meet fund redemptions. These sales may generate taxable gains for the shareholders of the mutual fund, whereas an ETF’s in-kind redemption mechanism generally will not lead to a federal income tax event for a Fund or its ongoing shareholders. The Funds do not intend to purchase and redeem creation units, but intends to purchase and sell ETFs primarily through national securities exchanges.
 
There is a risk that the ETFs in which a Fund invests may terminate due to extraordinary events that may cause any of the service providers to the ETFs, such as the trustee or sponsor, to close or otherwise fail to perform their obligations to the ETF. Also, because the ETFs in which a Fund intends to principally invest may be granted licenses by agreement to use the indices as a basis for determining their compositions and/or otherwise to use certain trade names, the ETFs may terminate if such license agreements are terminated. In addition, an ETF may terminate if its entire net asset value falls below a certain amount. Although each Fund believes that, in the event of the termination of an underlying ETF, it will be able to invest instead in shares of an alternate ETF tracking the same market index or another market index with the same general market, there is no guarantee that shares of an alternate ETF would be available for investment at that time. Unlike many investment companies, many ETFs are not currently actively managed. Thus, an ETF would not necessarily sell a security because the security’s issuer was in financial trouble unless that security is removed from the index.
 
Closed-End Funds
 
Closed-end funds are investment companies that typically issue a fixed number of shares that trade on a securities exchange or over-the-counter. The risks of investment in closed-end funds typically reflect the risks of the types of securities in which the funds invest. Investments in closed-end funds are subject to the additional risk that shares of the fund may trade at a premium or discount to their net asset value per share. When a Fund invests in shares of a closed-end fund, shareholders of the Fund bear their proportionate share of the closed-end fund’s fees and expenses, as well as their share of the Fund’s fees and expenses.
 
Money Market Instruments
 
Money market instruments include but are not limited to the following: short-term corporate obligations, Certificates of Deposit (“CDs”), Eurodollar Certificates of Deposit (“Euro CDs”), Yankee Certificates of Deposit (“Yankee CDs”), foreign bankers’ acceptances, foreign commercial paper, letter of credit-backed commercial paper, time deposits, loan participations (“LPs”), variable- and floating-rate
 
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instruments, separately traded interest and principal securities (“STRIPS”) and master demand notes. Bank obligations may include bankers’ acceptances, negotiable certificates of deposit and non-negotiable time deposits earning a specified return, issued for a definite period of time by a U.S. bank that is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation (“FDIC”), or by a savings and loan association or savings bank that is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Investments in bank obligations are limited to the obligations of financial institutions having more than $1 billion in total assets at the time of purchase.
 
Domestic and foreign banks are subject to extensive but different government regulations, which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets.
 
Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional investment risks, including future political and economic developments, possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, possible establishment of exchange controls or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and record keeping standards than those applicable to domestic branches of U.S. banks. Investments in the obligations of U.S. branches of foreign banks or foreign branches of U.S. banks will be made only when the investment adviser or subadviser believes that the credit risk with respect to the investment is minimal.
 
Euro CDs, Yankee CDs and foreign bankers’ acceptances involve risks that are different from investments in securities of U.S. banks. The major risk, which is sometimes referred to as “sovereign risk,” pertains to possible future unfavorable political and economic developments, possible withholding taxes, seizures of foreign deposits, currency controls, interest limitations or other governmental restrictions which might affect payment of principal or interest. Investment in foreign commercial paper also involves risks that are different from investments in securities of commercial paper issued by U.S. companies. Non-U.S. securities markets generally are not as developed or efficient as those in the U.S. Such securities may be less liquid and more volatile than securities of comparable U.S. corporations. Non-U.S. issuers are not generally subject to uniform accounting and financial reporting standards, practices and requirements comparable to those applicable to U.S. issuers. In addition, there may be less public information available about foreign banks, their branches and other issuers.
 
Time deposits usually trade at a premium over Treasuries of the same maturity. Investors regard such deposits as carrying some credit risk, which Treasuries may not. Also, investors regard time deposits as being sufficiently less liquid than Treasuries; hence, investors demand some extra yield for buying time deposits rather than Treasuries.
 
Commercial paper may include variable- and floating-rate instruments, which are unsecured instruments that permit the interest on indebtedness thereunder to vary. Variable-rate instruments provide for periodic adjustments in the interest rate. Floating-rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable- and floating-rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable- and floating-rate obligations with the demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the
 
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instrument or may resell the instrument to a third party. In the event an issuer of a variable- or floating-rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Substantial holdings of variable- and floating-rate instruments could reduce portfolio liquidity.
 
Options
 
A call option enables the purchaser, in return for the premium paid, to purchase securities from the writer of the option at an agreed price up to an agreed date. The advantage is that the purchaser may hedge against an increase in the price of securities it ultimately wishes to buy or may take advantage of a rise in a particular index. Except as otherwise provided in the Prospectus or in this SAI, a Fund will only purchase call options to the extent that the premiums paid on all outstanding call options do not exceed 20% of such Fund’s total assets. A Fund will only sell or write call options on a covered basis (e.g., on securities it holds in its portfolio). A put option enables the purchaser of the option, in return for the premium paid, to sell the security underlying the option to the writer at the exercise price during the option period. The writer of the option has the obligation to purchase the security from the purchaser of the option. The advantage is that the purchaser can be protected should the market value of the security decline or should a particular index decline. Except as otherwise provided in the Prospectus or in this SAI, a Fund will only purchase put options to the extent that the premiums on all outstanding put options do not exceed 20% of that Fund’s total assets. A Fund will only write put options on a secured basis. Cash or other collateral will be segregated by a Fund for such options. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. A Fund will receive premium income from writing put options, although it may be required, when the put is exercised, to purchase securities at higher prices than the current market price. At the time of purchase, a Fund will receive premium income from writing call options, which may offset the cost of purchasing put options and may also contribute to that Fund’s total return. A Fund may lose potential market appreciation if the judgment of its investment adviser or subadviser is incorrect with respect to interest rates, security prices or the movement of indices. See also “Derivative Instruments.”
 
An option on a securities index gives the purchaser of the option, in return for the premium paid, the right to receive cash from the seller equal to the difference between the closing price of the index and the exercise price of the option.
 
Closing transactions essentially let a Fund offset put options or call options prior to exercise or expiration. If a Fund cannot effect a closing transaction, it may have to hold a security it would otherwise sell, or deliver a security it might want to hold.
 
A Fund may use exchange traded options, and as permitted by law, options traded over-the-counter. It is the position of the SEC that over-the-counter options are illiquid. Accordingly, a Fund will invest in such options only to the extent consistent with its 15% limit on investments in illiquid securities.
 
Options are generally considered to be derivative securities. Options may relate to particular securities, stock indices or financial instruments, they may or may not be listed on a national securities exchange and they may or may not be issued by the Options Clearing Corporation. Options trading is a highly specialized activity which entails greater than ordinary investment risk. Options on particular securities may be more volatile than the underlying securities, and on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying securities themselves.
 
A Fund will write call options only if they are “covered.” In the case of a call option on a security, the option is “covered” if a Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash
 
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consideration is required, cash or liquid securities in such amount will be segregated by a Fund) upon conversion or exchange of other securities held by it. For a call option on an index, the option is covered if a Fund maintains with its custodian a diversified stock portfolio or liquid assets equal to the contract value.
 
A call option is also covered if a Fund holds a call on the same security or index as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written provided the difference is maintained by a Fund in cash or liquid securities in a segregated account with its custodian or fund accounting agent. A Fund will write put options only if they are “secured” by liquid assets maintained in a segregated account by the Trust’s custodian or fund accounting agent in an amount not less than the exercise price of the option at all times during the option period. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. See also “Derivative Instruments.” A Fund’s obligation to sell a security subject to a covered call option written by it, or to purchase a security subject to a secured put option written by it, may be terminated prior to the expiration date of the option by a Fund’s execution of a closing purchase transaction, which is effected by purchasing on an exchange an option of the same series as the previously written option. Such a purchase does not result in the ownership of an option. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying security from being called, to permit the sale of the underlying security or to permit the writing of a new option containing different terms on such underlying security. The cost of such a liquidation purchase plus transaction costs may be greater than the premium received upon the original option, in which event a Fund will have incurred a loss in the transaction.
 
There is no assurance that a liquid secondary market will exist for any particular option. An option writer, unable to effect a closing purchase transaction, will not be able to sell the underlying security (in the case of a covered call option) or liquidate the segregated securities (in the case of a secured put option) until the option expires or the optioned security is delivered upon exercise with the result that the writer in such circumstances will be subject to the risk of market decline or appreciation in the security during such period.
 
Purchasing Call Options. Except as otherwise provided in the Funds’ Prospectus or in this SAI, each Fund may purchase call options to the extent that premiums paid by the Fund do not aggregate more than 20% of the Fund’s total assets. When a Fund purchases a call option, in return for a premium paid by the Fund to the writer of the option, the Fund obtains the right to buy the security underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium upon writing the option, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. The advantage of purchasing call options is that a Fund may alter portfolio characteristics and modify portfolio maturities without incurring the cost associated with transactions, except the cost of the option.
 
Following the purchase of a call option, a Fund may liquidate its position by effecting a closing sale transaction by selling an option of the same series as the option previously purchased. A Fund will realize a profit from a closing sale transaction if the price received on the transaction is more than the premium paid to purchase the original call option; a Fund will realize a loss from a closing sale transaction if the price received on the transaction is less than the premium paid to purchase the original call option.
 
Although a Fund will generally purchase only those call options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an
 
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exchange may exist. In such event, it may not be possible to effect closing transactions in particular options, with the result that a Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of such options and upon the subsequent disposition of the underlying securities acquired through the exercise of such options. Further, unless the price of the underlying security changes sufficiently, a call option purchased by a Fund may expire without any value to a Fund, in which event a Fund would realize a capital loss which will be short-term unless the option was held for more than one year.
 
Covered Call Writing. A Fund may write covered call options from time to time on such portions of their portfolios, without limit, as the investment adviser or subadviser determines is appropriate in pursuing a Fund’s investment objective. The advantage to a Fund of writing covered calls is that the Fund receives a premium that is additional income. However, if the security rises in value, a Fund may not fully participate in the market appreciation.
 
During the option period, a covered call option writer may be assigned an exercise notice by the broker-dealer, through whom such call option was sold, requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option or upon entering a closing purchase transaction. A closing purchase transaction, in which a Fund, as writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written, cannot be effected with respect to an option once the option writer has received an exercise notice for such option.
 
Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable a Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. A Fund may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirely offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. Conversely, a gain resulting from a closing purchase transaction could be offset in whole or in part by a decline in the market value of the underlying security.
 
If a call option expires unexercised, a Fund will realize a short-term capital gain in the amount of the premium on the option less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security during the option period, if such security is sold or there is another recognition event. If a call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security and the proceeds of the sale of the security plus the amount of the premium on the option less the commission paid.
 
A Fund will write call options only on a covered basis, which means that a Fund will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, a Fund would be required to continue to hold a security which it might otherwise wish to sell, or deliver a security it would want to hold. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written.
 
Purchasing Put Options. Except as otherwise provided in the Funds’ Prospectus or in this SAI, a Fund will only purchase put options to the extent that the premiums on all outstanding put options do not exceed 20% of the Fund’s total assets. Except as otherwise provided in the Prospectus or in this SAI, with
 
17
 

 

 
 
regard to the writing of put options, each Fund will limit the aggregate value of the obligations underlying such put options to 50% of its total assets. The purchase of the put option on substantially identical securities held by a Fund will constitute a short sale for federal income tax purposes, which may result in a short-term capital gain on the sale of the security if such substantially identical securities were held by that Fund for not more than one year as of the date of the short sale or were acquired by that Fund after the short sale and on or before the closing date of the short sale.
 
A put option purchased by a Fund gives it the right to sell one of its securities for an agreed price up to an agreed date. A Fund may purchase put options in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option (“protective puts”). The ability to purchase put options allows a Fund to protect unrealized gains in an appreciated security in its portfolio without actually selling the security. If the security does not drop in value, a Fund will lose the value of the premium paid. A Fund may sell a put option which it has previously purchased prior to the sale of the securities underlying such option. Such sale will result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option.
 
A Fund may sell a put option purchased on individual portfolio securities. Additionally, a Fund may enter into closing sale transactions. A closing sale transaction is one in which a Fund, when it is the holder of an outstanding option, liquidates its position by selling an option of the same series as the option previously purchased.
 
Writing Put Options. A Fund may also write put options on a secured basis which means that a Fund will segregate liquid assets with its custodian or fund accounting agent in an amount not less than the exercise price of the option at all times during the option period. Whenever a Fund is required to segregate assets, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. The amount of liquid assets held in the segregated account will be adjusted on a daily basis to reflect changes in the market value of the securities covered by the put option written by a Fund. Secured put options will generally be written in circumstances where the investment adviser or subadviser wishes to purchase the underlying security for a Fund’s portfolio at a price lower than the current market price of the security. In such event, that Fund would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. See also “Derivative Instruments.”
 
Following the writing of a put option, a Fund may wish to terminate the obligation to buy the security underlying the option by effecting a closing purchase transaction. This is accomplished by buying an option of the same series as the option previously written. However, a Fund may not effect such a closing transaction after it has been notified of the exercise of the option.
 
Foreign Currency Options. A Fund may buy or sell put and call options on foreign currencies either on exchanges or in the over-the-counter 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. Currency options traded on U.S. or other exchanges may be subject to position limits that may limit the ability of a Fund to reduce foreign currency risk using such options.
 
Real Estate Investment Trusts
 
Securities of real estate investment trusts (“REITs”) may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent on specialized management skills. Some REITs may have limited diversification and may be subject to risks inherent in investments in a
 
18
 

 

 
 
limited number of properties, in a narrow geographic area, or in a single property type. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations. 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. In addition, the performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the “Code”), or its failure to maintain exemption from registration under the 1940 Act. Rising interest rates may cause the value of the REIT securities in which a Fund may invest to fall. Conversely, falling interest rates may cause their value to rise. Changes in the value of portfolio securities does not necessarily affect cash income derived from these securities but may affect a Fund’s net asset value.
 
Repurchase Agreements
 
A Fund may enter into repurchase agreements pursuant to which the Fund purchases portfolio assets from a bank or broker-dealer concurrently with an agreement by the seller to repurchase the same assets from the Fund at a later date at a fixed price. If the seller should default on its obligation to repurchase the underlying security, the Fund may experience delay or difficulty in exercising its right to realize upon the security. Additionally, the Fund may incur a loss if the value of the security should decline, as well as disposition costs in liquidating the security.
 
The repurchase price generally equals the price paid by a Fund plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the securities underlying the repurchase agreement).
 
The financial institutions with which a Fund may enter into repurchase agreements are banks and non-bank dealers of U.S. government securities that are listed on the Federal Reserve Bank of New York’s list of reporting dealers and banks, if such banks and non-bank dealers are deemed creditworthy by the investment adviser or subadviser. The investment adviser or subadviser will continue to monitor the creditworthiness of the seller under a repurchase agreement and will require the seller to maintain during the term of the agreement the value of the securities subject to the agreement at not less than the repurchase price.
 
Restricted Securities
 
Each Fund will limit investments in securities of issuers which a Fund is restricted from selling to the public without registration under the 1933 Act to no more than 5% of a Fund’s total assets, excluding restricted securities eligible for resale pursuant to Rule 144A or Regulation S under the 1933 Act, that have been determined to be liquid by the Fund’s investment adviser or subadviser, pursuant to guidelines adopted by the Board. Securities of foreign issuers that are restricted as to resale in the U.S., but are freely tradable in their local market, are not subject to this restriction.
 
Reverse Repurchase Agreements
 
Reverse repurchase agreements involve the sale of securities held by a Fund pursuant to that Fund’s agreement to repurchase the securities at an agreed upon price, date and rate of interest. During the reverse repurchase agreement period, a Fund continues to receive principal and interest payments on
 
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these securities. Such agreements are considered to be borrowings under the 1940 Act and may be entered into only for temporary or emergency purposes. While reverse repurchase transactions are outstanding, a Fund will segregate cash or liquid securities in an amount at least equal to the market value of the securities, plus accrued interest. (Liquid securities as used in the Prospectus and this SAI include equity securities and debt securities that are unencumbered and marked-to-market daily.) Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price at which a Fund is obligated to repurchase such securities. See also “Derivative Instruments.”
 
Rule 144A Securities
 
A Fund may purchase securities which are not registered under the 1933 Act but which can be sold to “qualified institutional buyers” in accordance with Rule 144A under the 1933 Act. This investment practice could have the effect of increasing the level of illiquidity in a Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. Any such security will not be considered illiquid unless it is determined by the investment adviser or subadviser, under guidelines approved by the Board, that an adequate trading market does not exist for that security.
 
Securities Lending
 
A Fund may seek additional income at times by lending its portfolio securities to broker-dealers and financial institutions provided that: (1) the loan is secured by collateral that is continuously maintained in an amount at least equal to the current market value of the securities loaned, (2) the Fund may call the loan at any time with proper notice and receive the securities loaned, (3) the Fund will continue to receive interest and/or dividends paid on the loaned securities and may simultaneously earn interest on the investment of any cash collateral, and (4) the aggregate market value of all securities loaned by the Fund will not at any time exceed 25% of the total assets of such Fund.
 
Collateral will normally consist of cash or cash equivalents, securities issued by the U.S. government or its agencies or instrumentalities or irrevocable letters of credit. Securities lending by a Fund involves the risk that the borrower may fail to return the loaned securities or maintain the proper amount of collateral. Therefore a Fund will only enter into such lending after a review by the investment adviser or subadviser of the borrower’s financial statements, reports and other information as may be necessary to evaluate the creditworthiness of the borrower. Such reviews will be conducted on an ongoing basis as long as the loan is outstanding.
 
Short Sales
 
Selling securities short involves selling securities the seller (e.g., a Fund) does not own (but has borrowed) in anticipation of a decline in the market price of such securities. To deliver the securities to the buyer, the seller must arrange through a broker to borrow the securities and, in so doing, the seller becomes obligated to replace the securities borrowed at their market price at the time of the replacement. In a short sale, the proceeds the seller receives from the sale are retained by a broker until the seller replaces the borrowed securities. The seller may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced.
 
The Fund may 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, and the Fund may realize a gain if the security declines in price between those same dates. Although the Fund’s potential for gain as a result of a short sale is limited to the price at which it sold the security short less the cost of borrowing the security, the potential for loss is theoretically unlimited because there is no limit to
 
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the cost of replacing the borrowed security. To borrow the security, the Fund may also be required to pay a premium, which would increase the cost of the security sold. The Fund may not always be able to close out a short position at a particular time or at an acceptable price. A lender may request that the borrowed securities be returned to it on short notice, and the Fund may have to buy the borrowed securities at an unfavorable price. If this occurs at a time when other short sellers of the same security also want to close out their positions, it is more likely that the Fund will have to cover its short sale at an unfavorable price and potentially reduce or eliminate any gain, or cause a loss, as a result of the short sale.
 
A short sale is “against the box” if, at all times during which the short position is open, a Fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issuer as the securities that are sold short.
 
A Fund may also maintain short positions in forward currency exchange transactions, in which a Fund agrees to exchange currency that it does not own at that time for another currency at a future date and specified price in anticipation of a decline in the value of the currency sold short relative to the currency that a Fund has contracted to receive in the exchange. To ensure that any short position of a Fund is not used to achieve leverage, a Fund segregates cash or liquid assets equal to the fluctuating market value of the currency as to which any short position is being maintained. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account.
 
Short-Term Trading
 
Securities may be sold in anticipation of a market decline or purchased in anticipation of a market rise and later sold. In addition, a security may be sold and another purchased at approximately the same time to take advantage of what a Fund believes to be a temporary disparity in the normal yield relationship between the two securities. Such trading may be expected to increase a Fund’s portfolio turnover rate and the expenses incurred in connection with such trading and may result in recognition of greater levels of short-term capital gain, which is taxed for federal income tax purposes to shareholders as ordinary income when distributed by a Fund.
 
Swap Agreements
 
A Fund may enter into interest rate, index, equity and currency exchange rate swap agreements. These transactions would be entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost to a Fund than if the Fund had invested directly in the asset that yielded the desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index.
 
Most swap agreements entered into by a Fund calculate the obligations of the parties to the agreement on a “net basis.” Consequently, a Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). The Fund’s current obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of liquid assets to limit any potential leveraging of the
 
21
 

 

 
 
Fund’s portfolio. Whenever a Fund is required to segregate assets for 1940 Act purposes, notations on the books of the Trust’s custodian or fund accounting agent are sufficient to constitute a segregated account. See also “Derivative Instruments.”
 
Obligations under swap agreements so covered will not be construed to be “senior securities” for purposes of a Fund’s investment restriction concerning senior securities. Except as otherwise indicated in the Fund’s Prospectus or in this SAI, a Fund will not enter into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Fund’s assets.
 
Whether a Fund’s use of swap agreements will be successful in furthering its investment objective will depend on the investment adviser’s or the subadviser’s ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will enter into swap agreements only with counterparties that meet certain standards for creditworthiness (generally, such counterparties would have to be eligible counterparties under the terms of the Fund’s repurchase agreement guidelines). Certain restrictions imposed by the Code for qualification as a regulated investment company may limit the Fund’s ability to use swap agreements. The swap market is a relatively new market and is largely unregulated. It is possible that developments in the swap market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
 
Temporary Defensive Positioning
 
The investments and strategies described throughout the Prospectus are those the subadviser intends to use under normal circumstances. When the subadviser determines that market or other conditions warrant, a Fund may invest up to 100% of its assets in money market instruments, or hold U.S. dollars. When a Fund is investing for temporary or defensive purposes, it is not pursuing its investment goal.
 
Unit Investment Trusts
 
A Unit Investment Trust (“UIT”) is a type of investment company. Investments in UITs are subject to regulations limiting a Fund’s acquisition of investment company securities. Standard and Poor’s Depositary Receipts (“SPDRs”), DIAMONDS, MDYs and similar investments are interests in UITs that may be obtained directly from the UIT or purchased in the secondary market. SPDRs consist of a portfolio of securities substantially similar to the component securities of the Standard and Poor’s 500 Composite Stock Price Index. DIAMONDS and MDYs consist of a portfolio of securities substantially similar to the component securities of the Dow Jones Industrial Average and of the Standard and Poor’s MidCap 400 Index, respectively.
 
The price of a UIT interest is derived and based upon the securities held by the UIT. Accordingly, the level of risk involved in the purchase or sale of a UIT interest is similar to the risk involved in the purchase or sale of traditional common stock, with the exception that the pricing mechanism for UITs is based on a basket of stocks. Disruptions in the markets for the securities underlying UITs purchased or sold by a Fund could result in losses on UITs. Trading in UITs involves risks similar to the risks, involved in the writing of options on securities, described above under “Options.”
 
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Interests in UITs are not individually redeemable, except upon termination of the UIT. To redeem, a Fund must accumulate a certain amount of UIT interests. The liquidity of small holdings of UITs, therefore, depends upon the existence of a secondary market. Upon redemption of a UIT interest, a Fund receives securities and cash identical to the deposit required of an investor wishing to purchase a UIT interest that day.
 
Zero Coupon Bonds
 
Zero coupon securities are debt securities issued or sold at a discount from their face value that do not entitle the holder to any periodic payment of interest prior to maturity, a specified redemption date or a cash payment date. The amount of the discount varies depending on the time remaining until maturity or cash payment date, prevailing interest rates, liquidity of the security and perceived credit quality of the issuer.
 
Zero coupon securities also may take the form of debt securities that have been stripped of their unmatured interest coupons, the coupons themselves and receipts or certificates representing interests in such stripped debt obligations and coupons. The market prices of zero coupon securities are generally more volatile than the market prices of interest-bearing securities and respond more to changes in interest rates than interest-bearing securities with similar maturities and credit qualities. For federal income tax purposes, the original issue discount on the zero coupon bonds must be included ratably in the income of a Fund as the income accrues even though payment has not been received. The Funds nevertheless intend to distribute an amount of cash equal to the currently accrued original issue discount, and this may require liquidating securities at times they might not otherwise do so and may result in capital gain or loss.
 
Other Investments
 
The Board may, in the future, authorize a Fund to invest in securities other than those listed here and in the Funds’ Prospectus, provided that such investment would be consistent with the Fund’s investment objective and that it would not violate any fundamental investment policies or restrictions applicable to that Fund.
 
CFTC Regulation
 
Each Fund intends to operate in compliance with the exclusion from regulation as a “commodity pool” under the Commodity Exchange Act (the “CEA”) provided by Commodity Futures Trading Commission (“CFTC”) Rule 4.5, which was recently amended. Under this rule, as amended, a Fund will not be deemed to be a “commodity pool” under the CEA if the Fund uses commodity interests solely for “bona fide hedging purposes” or, subject to certain exceptions, if the Fund limits its use of commodity interests for purposes other than bona fide hedging purposes to no more than 5% of the value of the Fund’s portfolio.
 
If a Fund were no longer able to claim the exclusion provided by Rule 4.5, the Fund would be required to register with the CFTC as a “commodity pool” and would become subject to regulation under the CEA, which could increase the Fund’s expenses, adversely affecting investment returns. In addition, in this event, Aston Asset Management, LP (“Aston” or the “Adviser”) would be required to register with the CFTC as a “commodity pool operator” and the applicable subadviser would be required to register with the CFTC as a “commodity trading advisor.”
 
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The investment objective of each Fund and investment restrictions set forth below are fundamental policies and may not be changed as to a Fund without the approval of a majority of the outstanding voting shares (as defined in the 1940 Act) of the Fund. Unless otherwise indicated, all percentage limitations governing the investments of each Fund apply only at the time of transaction. Accordingly, if a percentage restriction is adhered to at the time of investment, a later increase or decrease in the percentage which results from a relative change in values or from a change in a Fund’s total assets will not be considered a violation.
 
Neither Fund may:
 
(1)           Purchase or sell real estate (but this restriction shall not prevent the Fund from investing directly or indirectly in portfolio instruments secured by real estate or interests therein or acquiring securities of real estate investment trusts or other issuers that deal in real estate).
 
(2)           Purchase the securities of issuers conducting their principal business activities in the same industry (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities) if immediately after such purchase the value of the Fund’s investments in such industry would exceed 25% of the value of the total assets of the Fund.
 
(3)            Act as an underwriter of securities, except that, in connection with the disposition of a security, a Fund may be deemed to be an “underwriter” as that term is defined in the 1933 Act.
 
(4)          As to 75% of the total assets of the Fund, (i) purchase the securities of any one issuer (other than cash, other investment companies and securities issued by the U.S. government or its agencies or instrumentalities) if immediately after such purchase, more than 5% of the value of the Fund’s total assets would be invested in securities of such issuer or (ii) purchase more than 10% of the outstanding voting securities of such issuer.
 
(5)           Purchase physical commodities, except to the extent permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief or unless acquired as a result of the ownership of securities or instruments, but this restriction shall not prohibit a Fund from purchasing futures contracts, options, foreign currencies or forward contracts, swaps, caps, collars, floors and other financial instruments or from investing in securities of any kind.
 
(6)           Make investments in securities for the purpose of exercising control.
 
(7)           Purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions. For this purpose, the deposit or payment by a Fund for initial or maintenance margin in connection with futures contracts or other financial instruments is not considered to be the purchase or sale of a security on margin.
 
(8)           Make loans, except as permitted by the 1940 Act and the rules and regulations thereunder.
 
(9)           Borrow money, except that a Fund may borrow from banks and enter into reverse repurchase agreements for temporary purposes in amounts up to one-third of the value of its total assets at the time of such borrowing.
 
(10)         Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC.
 
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TRUSTEES AND OFFICERS OF THE TRUST
 
Under Delaware law, the business and affairs of the Trust are managed under the direction of the Board. Information pertaining to the Trustees and officers of the Trust is set forth below. The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
 
Name, Address, Age
and Position(s) with
Trust
 
Term of
Office(1)
and
Length
of Time
Served
 
Principal
Occupation(s) During
Past Five Years
 
Number of
Portfolios
in Fund
Complex(2)
Overseen
by Trustee
 
Other
Trusteeships/
Directorships
Held by
Trustee
During Past
Five Years
 
Experience,
Qualifications,
Attributes,
Skills for
Board
Membership
                     
Independent Trustees
                   
                     
William E. Chapman, II
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 72
Trustee; Independent Chairman
 
Since 2010
 
President and Owner, Longboat Retirement Planning Solutions (1998-present); Trustee of Bowdoin College (2002-present); Hewitt Associates, LLC (part time) (provider of Retirement and Investment Education Seminars) (2002-2009)
 
25
 
Director of Harding, Loevner Funds, Inc. (6 portfolios); Trustee of Third Avenue Trust (5 portfolios); Trustee of Third Avenue Variable Trust (1 portfolio); Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (36 portfolios)
 
Significant board experience; significant executive experience with several financial services firms; continuing service as Independent Chairman of the Board.
                     
Edward J. Kaier
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 68
Trustee
 
Since 2010
 
Attorney at Law and Partner, Teeters Harvey Gilboy & Kaier LLP (2007-present); Attorney at Law and Partner, Hepburn Willcox Hamilton & Putnam, LLP (1977-2007)
 
25
 
Trustee of Third Avenue Trust (5 portfolios); Trustee of Third Avenue Variable Trust (1 portfolio); Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (36 portfolios)
 
Significant board experience; practicing attorney.
 
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Name, Address, Age
and Position(s) with
Trust
 
Term of
Office(1)
and
Length
of Time
Served
 
Principal
Occupation(s) During
Past Five Years
  Number of
Portfolios
in Fund
Complex(2)
Overseen
by Trustee
 
Other
Trusteeships/
Directorships
Held by
Trustee
During Past
Five Years
 
Experience,
Qualifications,
Attributes,
Skills for
Board
Membership
                     
Gregory T. Mutz
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 68
Trustee
 
Since 1993
 
Chairman and CEO of AMLI Residential Properties Trust (a Multifamily REIT), a successor company to AMLI Realty Co. (2004-present); Vice Chairman of UICI (NYSE: UCI) (an insurance holding company) (2003-2004)
 
25
 
Member of Board of Genesis Financial Solutions (a privately-held company based in Portland, Oregon providing debt recovery, consumer lending and credit card services) (2005-present); a member of the Board of WAN S.A., a residential real estate company headquartered in Warsaw, Poland (2008-present); a member of the Board of Suknip International Limited, a residential real estate company headquartered in St. Petersburg, Russia (2008-present); Formerly, Director of Alico, Inc. (NASDAQ: ALCO) (agribusiness) (2005-2009)
 
Significant board experience; previous service as lead independent trustee; significant executive experience with several financial services firms.
                     
Steven J. Paggioli
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 63
Trustee
 
Since 2010
 
Independent Consultant (2002-present); formerly Executive Vice President and Director, The Wadsworth Group (1986-2001); Executive Vice President, Secretary and Director, Investment Company Administration, LLC (1990-2001); Vice President, Secretary and Director, First Fund Distributors, Inc. (1991-2001)
 
25
 
Trustee, Professionally Managed Portfolios (43 portfolios); Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (36 portfolios); Advisory Board Member, Sustainable Growth Advisors, LP; Independent Director, Chase Investment Counsel
 
Significant board experience; significant executive experience with several financial services firms; former service with financial service regulator.
 
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Name, Address, Age
and Position(s) with
Trust
 
Term of
Office(1)
and
Length
of Time
Served
 
Principal
Occupation(s) During
Past Five Years
  Number of
Portfolios
in Fund
Complex(2)
Overseen
by Trustee
 
Other
Trusteeships/
Directorships
Held by
Trustee
During Past
Five Years
 
Experience,
Qualifications,
Attributes,
Skills for
Board
Membership
                     
Eric Rakowski
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 55
Trustee
 
Since 2010
 
Professor, University of California at Berkeley School of Law (1990-present)
 
25
 
Director of Harding, Loevner Funds, Inc. (6 portfolios); Trustee of Third Avenue Trust (5 portfolios); Trustee of Third Avenue Variable Trust (1 portfolio); Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (36 portfolios)
 
Significant board experience; former practicing attorney; currently professor of law.
                     
Robert B. Scherer
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 72
Trustee
 
Since 1999
 
President of The Rockridge Group, Ltd. (title insurance industry consulting services) (1994-present)
 
25
 
Director, Title Reinsurance Company (insurance for title agents)(1998-present)
 
Significant board experience; continuing service as Chair of the Audit Committee; significant executive experience as chief financial officer of insurance and financial services firm.
                     
Thomas R. Schneeweis
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 66
Trustee
 
Since 2010
 
Professor of Finance, University of Massachusetts (1977-present); Director, CISDM at the University of Massachusetts, (1996-present); President, TRS Associates (1982-present); President, Alternative Investment Analytics, LLC (formerly Schneeweis Partners, LLC) (2001-present); Partner, White Bear Partners, LLC (2007-2010); Partner, S Capital Management, LLC (2007-present); Partner, Northampton Capital Management, LLC (2004-2010)
 
25
 
Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (36 portfolios)
 
Significant board experience; currently professor of finance; significant executive experience with several investment partnerships.
 
27
 

 

 
 
Name, Address, Age
and Position(s) with
Trust
 
Term of
Office(1)
and
Length
of Time
Served
 
Principal
Occupation(s) During
Past Five Years
  Number of
Portfolios
in Fund
Complex(2)
Overseen
by Trustee
 
Other
Trusteeships/
Directorships
Held by
Trustee
During Past
Five Years
 
Experience,
Qualifications,
Attributes,
Skills for
Board
Membership
                     
Interested Trustees
                   
                     
Stuart D. Bilton, CFA(3)
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 67
Trustee; Chief Executive Officer and President
 
Trustee since 1993; Chief Executive Officer since 2010, President since 2014
 
Chief Executive Officer, Aston Asset Management, LP (2006-present); Chairman, Aston Funds (1993-2010)
 
25
 
Director, Baldwin & Lyons, Inc. (property and casualty insurance firm) (1987-present); Director, Highbury Financial Inc. (2009-2010)
 
Significant board experience; significant executive experience with several financial services firms; former Chairman of the Board.
                     
Jeffrey S. Murphy(3)
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 47
Trustee
 
Since 2010
 
Senior Vice President, Affiliated Managers Group, Inc. (2007-present); Vice President, Affiliated Managers Group, Inc. (1995-2007)
 
25
 
N/A
 
Significant financial industry experience; significant executive experience with several financial services firms.
                     
Officer(s) Who Are Not
Trustees
                   
                     
Gerald F. Dillenburg
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 47
Senior Vice President, Secretary, Chief Operating Officer and Chief Compliance Officer
 
Since 1996
 
Chief Compliance Officer, Aston Asset Management, LP (2006-present); Chief Financial Officer, Aston Asset Management, LP (2006-2010); CPA
 
N/A
 
N/A
 
N/A
                     
Laura M. Curylo
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 45
Chief Financial Officer and Treasurer
 
Since 2010
 
Chief Financial Officer, Aston Asset Management, LP (2010-present); Vice President and Controller, Aston Asset Management, LP (2006-present); CPA
 
N/A
 
N/A
 
N/A
 
28
 

 

 
 
Name, Address, Age
and Position(s) with
Trust
 
Term of
Office(1)
and
Length
of Time
Served
 
Principal
Occupation(s) During
Past Five Years
  Number of
Portfolios
in Fund
Complex(2)
Overseen
by Trustee
 
Other
Trusteeships/
Directorships
Held by
Trustee
During Past
Five Years
 
Experience,
Qualifications,
Attributes,
Skills for
Board
Membership
                     
Christine C. Carsman
c/o Aston Funds
120 N. LaSalle Street
Chicago, IL 60602
Age: 61
Chief Legal Officer
 
Since 2010
 
Senior Vice President (2007-present) and Deputy General Counsel (2011-present); Chief Regulatory Counsel (2004-2011), Vice President (2004-2007), Affiliated Managers Group, Inc.; Trustee, Managers AMG Funds, The Managers Funds, Managers Trust I and Managers Trust II (2011-present); Senior Counsel, Vice President and Director of Operational Risk Management and Compliance, Wellington Management Company, LLP (1995-2004)
 
N/A
 
N/A
 
N/A
 

(1)
A Trustee serves for an indefinite term until the earliest of: (i) removal by two-thirds of the Board or shareholders, (ii) resignation, death or incapacity, (iii) the election and qualification of his successor, in accordance with the By-Laws of the Trust, or (iv) the last day of the fiscal year in which he attains the age of 75 years. Officers serve for an indefinite term until the earliest of: (i) removal by the Board, (ii) resignation, death or incapacity, or (iii) the election and qualification of their successors, in accordance with the By-Laws of the Trust.
(2)
The term “Fund Complex” includes all series of Aston Funds.
(3)
“Interested person” of the Trust as defined in the 1940 Act. Mr. Bilton is considered an “interested person” because of his affiliation with Aston Asset Management, LP which acts as the Funds’ investment adviser. Mr. Murphy is considered an “interested person” because of his affiliation with Affiliated Managers Group, Inc., the ultimate parent of the investment adviser, and related entities.
 
Board of Trustees, Leadership Structure and Committees
 
Experience and Qualifications
 
The table above provides a summary of the experience, qualifications, attributes and skills of each Trustee in light of the Trust’s business and structure. The Board believes that the significance of each Trustee’s experience, qualifications, attributes or skills is an individual matter (meaning that experience that is 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. However, the Board believes that Trustees need to be able to critically review, evaluate, question and discuss information provided to them, and to interact effectively with Trust management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties. The Board believes that each of its members has these abilities based upon their skills, experience, judgment, analytical ability, diligence, ability to work effectively with other Board members, and a commitment to the interests of shareholders. Experience relevant to having these abilities may be achieved through a Trustee’s educational background; business, professional training or practice (e.g., finance or law), or academic positions; experience from service as a board member (including the Board
 
29
 

 

 
 
of the Trust) or as an executive of investment funds, other financial services firms, not-for-profit entities or other organizations; and/or other life experiences.
 
Board Structure
 
The Board has general oversight responsibility with respect to the business and affairs of the Trust. Because all funds in the Fund Complex are series of the Trust, a single Board oversees the operations of all the Aston Funds. The Board establishes policies and reviews and approves contracts and their continuance. The Trustees regularly request and/or receive reports from the Adviser, the Trust’s other service providers and the Trust’s Chief Compliance Officer (the “CCO”). The Board currently is composed of nine Trustees, seven of whom are not “interested persons” (as that term is defined in the 1940 Act) and are designated in the table above as “Independent Trustees.” An Independent Trustee serves as the Chairman of the Board (the “Independent Chairman”). The Independent Chairman, among other things, chairs meetings of the Trustees, consults with the Chief Executive Officer on the agenda, and facilitates communication among the Independent Trustees, management of the Funds and the full Board. The Board believes that a chairman without any conflicts of interests arising from a position with Trust management promotes the independent oversight function of the Board.
 
The Board has established three standing committees. The Audit Committee is responsible for monitoring the Funds’ accounting policies, financial reporting and internal control system; monitoring the work of the Funds’ independent accountants; and providing an open avenue of communication among the independent accountants, fund management and the Board. The Nominating and Governance Committee is primarily responsible for the identification and recommendation of individuals for Board membership and for overseeing the administration of the Trust’s Governance Guidelines. The Nominating and Governance Committee will consider nominees recommended by shareholders whose resumes have been submitted by U.S. mail or courier service to the Trust’s Secretary for the attention of the Chairman of the Nominating and Governance Committee. All of the Independent Trustees serve as members of the Audit Committee and Nominating and Governance Committee. Mr. Scherer serves as Chairman of the Audit Committee. Mr. Mutz serves as Chairman of the Nominating and Governance Committee. The Valuation Committee is responsible for fair valuing securities of the Funds as may be necessary from time to time. The Valuation Committee members are Messrs. Bilton (Chairman), Scherer, Chapman (alternate) and Schneeweis (alternate). The Trust’s day-to-day operations are managed by the Adviser and other service providers. The Board and the committees meet regularly throughout the year to review the Trust’s activities, including, among others, fund performance, valuation matters and compliance with regulatory requirements, and to review contractual arrangements with service providers. The Audit Committee, Nominating and Governance Committee and Valuation Committee held 2, 1 and 0 meeting(s), respectively, during the fiscal year ended October 31, 2013.
 
Risk Oversight
 
Through its oversight role, through its committees and through the Trust’s officers and service providers, the Board performs a risk oversight function for the Trust consisting, among other things, of the following activities: (1) receiving and reviewing reports related to the performance and operations of the Funds at regular Board meetings, and on an ad hoc basis as needed; (2) reviewing and approving, as applicable, the compliance policies and procedures of the Trust; (3) meeting with portfolio management teams to review investment strategies, techniques and the processes used to manage related risks; (4) meeting with representatives of key service providers, including the Adviser, administrator, distributor, transfer agent, custodian and independent registered public accounting firm of the Funds, to review and discuss the activities of the Funds and to provide direction with respect thereto; and (5) receiving reports from the CCO on a variety of matters at regular and special meetings of the Board and its committees, as applicable, including matters relating to risk management. The Trust’s treasurer
 
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also reports regularly to the Audit Committee on the Trust’s internal controls and accounting and financial reporting policies and practices. The Audit Committee also receives reports from the Trust’s independent registered public accounting firm on internal control and financial reporting matters. On at least a quarterly basis, the Board meets with the Trust’s CCO, including separate meetings with the Independent Trustees in executive session, to discuss issues related to portfolio compliance and, on at least an annual basis, receives a report from the CCO regarding the effectiveness of the Trust’s compliance program. In addition, the Board receives reports from the Adviser and subadvisers on the investments and securities trading of the Funds, as well as reports from the Valuation Committee meetings. The Board also receives reports from the Trust’s primary service providers on a periodic or regular basis, including the Adviser and the Trust’s custodian, distributor and transfer agent. 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, including reports on testing the compliance procedures of the Trust and its service providers.
 
Fund Ownership
 
Set forth in the table below is the dollar range of equity securities held in each Fund and the aggregate dollar range of securities in the same family of investment companies beneficially owned by each current Trustee at December 31, 2013.
 
Name of Trustee
 
Dollar Range of Equity
Securities in the Pictet
International Fund
 
Dollar Range of Equity
Securities in the
Guardian Capital Global
Dividend Fund
 
Aggregate Dollar Range
of Equity Securities in
All Registered
Investment Companies
Overseen by Trustee in
Family of Investment
Companies
             
Independent Trustees
           
             
William E. Chapman, II
 
None
 
None
 
-
Edward J. Kaier
 
None
 
None
 
-
Gregory T. Mutz
 
None
 
None
 
-
Steven J. Paggioli
 
None
 
None
 
-
Eric Rakowski
 
None
 
None
 
-
Robert B. Scherer
 
None
 
None
 
-
Thomas R. Schneeweis
 
None
 
None
 
-
             
Interested Trustees
           
Stuart D. Bilton
 
None
 
None
 
-
Jeffrey S. Murphy
 
None
 
None
 
-
 

 
Remuneration
 
The Trustees of the Trust who are not affiliated with the Adviser or any subadviser receive an annual retainer, meeting fees and reimbursement for out-of-pocket expenses for each meeting of the Board they attend. The Independent Chairman and standing committee chairs receive an additional retainer. No officer or employee of the Adviser or any subadviser or their affiliates receives any compensation from Aston Funds for acting as a Trustee of the Trust. The officers of the Trust receive no compensation directly from Aston Funds for performing the duties of their offices, except that the Trust compensates the Administrator for providing an officer to serve as the Funds’ Chief Compliance Officer.
 
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The table below shows the total fees paid to each of the Trustees during the Trust’s most recent fiscal year. No individual, including all Trustees and officers of the Trust received more than $120,000 in aggregate compensation from the Trust for the Trust’s most recent fiscal year.
 
Trustee
 
Aggregate
Compensation
Received From
the Trust
 
Pension or Retirement
Benefits Accrued (as part
of Fund Expenses)
   
Annual Benefits
Upon Retirement
   
Total
Compensation from
Trust and Fund
Complex
                         
Independent Trustees
                       
                         
William E. Chapman, II
  $ 116,000     N/A     N/A     $ 116,000  
Edward J. Kaier
    96,000     N/A     N/A       96,000  
Gregory T. Mutz
    98,500     N/A     N/A       98,500  
Steven J. Paggioli
    96,000     N/A     N/A       96,000  
Eric Rakowski
    96,000     N/A     N/A       96,000  
Robert B. Scherer
    106,000     N/A     N/A       106,000  
Thomas R. Schneeweis
    96,000     N/A     N/A       96,000  
                             
Interested Trustees
                           
Stuart D. Bilton
   
N/A
   
N/A
   
N/A
     
N/A
 
Jeffrey S. Murphy
   
N/A
   
N/A
    N/A      
N/A
 
 

As of the date of this SAI, the Trustees and officers of the Trust did not own any of the outstanding shares of the Funds. However, the Adviser owned a controlling interest in each Fund. Shareholders with a controlling interest could affect the outcome of a proxy vote or the direction of management of the Funds.
 
Code of Ethics
 
The Trust, the Adviser, each Fund’s subadviser, and principal underwriter have each adopted a code of ethics (the “Codes of Ethics”) under Rule 17j-1 of the 1940 Act. The Codes of Ethics permit personnel, subject to the Codes of Ethics and their restrictive provisions, to invest in securities, including securities that may be purchased or held by the Trust on behalf of the Funds.
 
PROXY VOTING POLICIES AND PROCEDURES
 
The Trust has delegated the voting of portfolio securities on behalf of the Funds to the applicable subadviser. Each subadviser has adopted proxy voting policies and procedures (the “Proxy Voting Policies and Procedures”) for use in connection with determining how to vote proxies related to portfolio securities, including the procedures to be used if a vote presents a conflict of interest between the interests of a Fund’s shareholders and those of the applicable subadviser. The Proxy Voting Policies and Procedures are included under Appendix A.
 
After the Funds have commenced operations, information regarding how the Trust voted proxies, on behalf of the Funds, related to portfolio securities during the most recent 12-month period ended June 30 will be available without charge on the Trust’s website at www.astonfunds.com and on the SEC’s website at www.sec.gov.
 
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As described in the Prospectus, the Trust employs Aston to manage the investment and reinvestment of the assets of each Fund and to continuously review, supervise and administer each Fund’s investment programs under an investment advisory agreement dated _____ __, 201_ (the “Investment Advisory Agreement”). Aston has engaged subadvisers to manage the day-to-day investment management of each Fund’s portfolio. The advisory services provided by Aston for the Funds and the fees received by it for such services are described in the Prospectus.
 
Aston is a majority-owned and independently managed indirect subsidiary of Affiliated Managers Group, Inc. (“AMG”). A wholly-owned subsidiary of AMG, Manor LLC, serves as the General Partner of Aston and senior management and key employees of Aston have an equity interest in Aston. Aston commenced operations on December 1, 2006. and converted to a Delaware limited partnership on April 15, 2010 in connection with AMG’s acquisition of a controlling interest in Aston. Aston is located at 120 N. LaSalle Street, 25th Floor, Chicago, Illinois 60602. As of ________ __, 201_, Aston had approximately $__._ billion in assets under management.
 
AMG, a Delaware corporation with a principal place of business at 600 Hale Street, Prides Crossing, Massachusetts 01965, is an asset management company that holds interests in investment management firms. The common stock of AMG is publicly traded on the New York Stock Exchange under the symbol AMG. As of _________ __, 201_, AMG’s affiliated managers had approximately $___ billion in assets under management.
 
For the services provided and the expenses assumed pursuant to the Investment Advisory Agreement with Aston, Aston receives a management fee from each Fund at an annual rate based on each Fund’s average daily net assets, computed daily and payable monthly, at the following rates:
 
Fund
 
Gross Advisory Fee (as a
percentage of average daily net
assets)
     
ASTON/Pictet International Fund
 
_0.95%
ASTON/ Guardian Capital Global Dividend Fund
 
_0.80%
 
Aston has entered into an Expense Reimbursement Agreement with the Trust, on behalf of the Funds, through April 30, 2015, under which Aston will waive its fees or reimburse its expenses to the extent that a Fund’s annual operating expense ratio, not including interest, taxes, investment-related costs (such as brokerage commissions), extraordinary expenses and acquired fund fees and expenses, exceeds the applicable rates shown in the table below:
 
Fund
 
Class N
 
Class I
ASTON/Pictet International Fund
 
1.50%
 
1.25%
ASTON/Guardian Capital Global Dividend Fund
 
1.30%
 
1.05%
 
In connection with the Expense Reimbursement Agreement for each class of shares, each Fund has agreed that for a period of up to three years from the end of the fiscal year end in which such amount was waived or reimbursed, the Adviser is entitled to be reimbursed by the Fund for fees waived and expenses reimbursed from the commencement of operations of each class of shares through the completion of the first three full fiscal years of that class to the extent that the Fund’s expense ratio with respect to that class, not including interest, taxes, investment related costs (such as brokerage
 
33
 

 

 
 
commissions), extraordinary expenses and acquired fund fees and expenses, remains below the operating expense cap after such reimbursement.
 
Aston may from time to time voluntarily waive a portion of its advisory fees with respect to a Fund and/or reimburse a portion of a Fund’s expenses. These voluntary waivers do not include fees and expenses from investment in other investment companies (acquired funds) or interest expense. Aston may terminate such voluntary waivers/reimbursements at any time.
 
Under the Investment Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Trust or a Fund in connection with the performance of the Investment Advisory Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its duties and obligations thereunder.
 
The Investment Advisory Agreement between the Trust and Aston may be terminated with respect to a Fund by vote of the Board or by the holders of a majority of the outstanding voting securities of the Fund, at any time without penalty, upon 60 days’ written notice to Aston. Aston may also terminate its advisory relationship with respect to a Fund upon 60 days’ written notice to the Trust. The Investment Advisory Agreement terminates automatically in the event of its assignment.
 
Under the Investment Advisory Agreement, Aston shall: (i) manage the investment and reinvestment of the assets of the Funds, (ii) continuously review, supervise and administer the investment program of the Funds, (iii) determine, in its discretion, the assets to be held uninvested, (iv) provide the Trust with records concerning the Adviser’s activities which are required to be maintained by the Trust and (v) render regular reports to the Trust’s officers and Board concerning the Adviser’s discharge of the foregoing responsibilities. The Adviser shall discharge the foregoing responsibilities subject to the oversight of the Trust’s officers and the Board and in compliance with the objectives, policies and limitations set forth in the Trust’s then effective prospectus and SAI.
 
The Investment Advisory Agreement has an initial term ending _______ __, 201_ and continues in effect for the Funds from year to year thereafter for so long as its continuation is approved at least annually (a) by a majority of the Trustees who are not parties to such agreement or interested persons of any such party except in their capacity as Trustees of a Fund or (b) by the shareholders of a Fund or the Board.
 
The Investment Advisory Agreement with Aston also provides that Aston shall have the authority subject to applicable provisions of the 1940 Act and the regulations thereunder, to select one or more subadvisers to provide day-to-day portfolio management with respect to all or a portion of the assets of a Fund and to allocate and reallocate the assets of a Fund between and among any subadvisers so selected pursuant to a “manager-of-managers” structure. Under this structure, Aston also has the authority to retain and terminate subadvisers, engage new subadvisers and make material revisions to the terms of the sub-investment advisory agreement for a Fund (the “Sub-Investment Advisory Agreement”) subject to approval of the Board, but not shareholder approval.
 
As described above, Aston is paid a management fee at an annual rate based on the average daily net assets of a Fund. Out of its fee, Aston pays the subadvisers. Because Aston will pay each subadviser’s fees out of its own fees from the Fund, there will not be any “duplication” of advisory fees paid by a Fund.
 
A discussion regarding the Board’s basis for approving the Investment Advisory Agreement for the Funds and Sub-Investment Advisory Agreements will be available in the Funds’ shareholder report dated ____ __, 201_.
 
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On _____ __, 201_, Aston entered into a Sub-Investment Advisory Agreement with Pictet Asset Management Limited (“PAM” or the “Subadviser”) with respect to the ASTON/Pictet International Fund. The Subadviser is the investment subadviser to the ASTON/Pictet International Fund. PAM is part of the Pictet group, which was founded in Geneva in 1805. PAM is located at Moor House, 120 London Wall, London, EC2Y 5ET, United Kingdom. Under the Sub-Investment Advisory Agreement, the Subadviser manages the portfolio of the Fund, selects investments and places all orders for purchases and sales of the Fund’s securities, subject to the general oversight of the Board and the Adviser.
 
On _____ __, 201_, Aston entered into a Sub-Investment Advisory Agreement with Guardian Capital LP (“Guardian” or the “Subadviser”) with respect to the ASTON/Guardian Capital Global Dividend Fund. The Subadviser is the investment subadviser to the ASTON/Guardian Capital Global Dividend Fund. Guardian was founded in 1962 as Guardian Management Ltd. and is a subsidiary of Guardian Capital Group Limited. Guardian is located at Commerce Court West, 199 Bay Street, Suite 3100, Toronto, ON, M5L 1E8. Under the Sub-Investment Advisory Agreement, the Subadviser manages the portfolio of the Fund, selects investments and places all orders for purchases and sales of the Fund’s securities, subject to the general oversight of the Board and the Adviser.
 
Each Sub-Investment Advisory Agreement provides that neither the Subadviser nor any of its directors, officers, stockholders, agents or employees shall have any liability to a Fund or any shareholder of a Fund for any error of judgment, any mistake of law, or any loss arising out of any investment, or for any other act or omission in the performance by the Subadviser of its duties under the Sub-Investment Advisory Agreement except for liability resulting from willful misfeasance, bad faith, or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under the Sub-Investment Advisory Agreement. Each Sub-Investment Advisory Agreement continues for the same term as the Investment Advisory Agreement and is subject to the same requirements for renewal.
 
For the services provided pursuant to each Sub-Investment Advisory Agreement, Aston pays each subadviser a fee computed daily and payable monthly. The standard sub-advisory fee rate is 50% of the applicable advisory fee less any expense waivers or reimbursements and certain payments to third-party intermediaries. In certain limited circumstances, exceptions to the standard fee schedule apply.
 
Pictet Asset Management Limited
 
The table below shows other accounts for which the portfolio manager of the ASTON/Pictet International Fund is primarily responsible for the day-to-day portfolio management as of December 31, 2013.
                 
Portfolio Manager
 
Number of
Accounts
Managed
 
Total Assets
Managed (in
millions)
 
Number of
Accounts
Managed with
Advisory Fee
Based on
Performance
 
Assets Managed
with Advisory
Fee Based on
Performance
                 
Fabio Paolini, CFA
               
Registered Investment Companies
 
_
 
$_._
 
_
 
_
Other Pooled Investment Vehicles
 
_
 
$_._
 
_
 
_
Other Accounts
 
_
 
$_._
 
_
 
_
 

 
35
 

 

 
 
Compensation. [The portfolio managers’ compensation consists of three components: a competitive annual salary, a revenue share tied directly to each manager’s strategy and the benefits from equity ownership. Revenue share related incentives are based on the overall revenue derived from the applicable investment strategy. The percentage of revenue is determined by the investment team’s gross performance versus a peer group universe, on a blended basis, generally over a trailing one year, three year and five year time horizon].
 
Material Conflicts of Interest. [The portfolio managers oversee multiple accounts in the investment strategy which includes the Fund. The portfolio managers make decisions at the strategy level and implement those decisions at the account level based on the specific investment objectives, policies, practices and other relevant investment considerations that the portfolio managers believe are applicable to each account. Consequently, the portfolio managers may purchase securities for one account and not another account, and the performance of securities purchased for one account may vary from the performance of securities purchased for other accounts. PAM has adopted policies and procedures that it believes address the conflicts associated with managing multiple accounts for multiple clients, although there is no assurance that such policies and procedures will adequately address such conflicts.]
 
Ownership of Securities. As of the date of the SAI, the Fund had yet to commence operations and the portfolio managers did not beneficially own equity securities in the Fund.
 
Guardian Capital LP
 
The table below shows other accounts for which the portfolio manager of the ASTON/Guardian Capital Global Dividend Fund is primarily responsible for the day-to-day portfolio management as of December 31, 2013.
                 
Portfolio Manager
 
Number of
Accounts
Managed
 
Total Assets
Managed
(in millions)
 
Number of
Accounts
Managed with
Advisory Fee
Based on
Performance
 
Assets Managed
with Advisory
Fee Based on
Performance
                 
Srikanth Iyer
               
Registered Investment Companies
 
_
 
$_._
 
_
 
$_._
Other Pooled Investment Vehicles
 
_
 
$_._
 
_
 
$_._
Other Accounts
 
_
 
$_._
 
_
 
$_._
 

Compensation. [The portfolio manager’s compensation consists of three components: a competitive annual salary, a revenue share tied directly to each manager’s strategy and the benefits from equity ownership. Revenue share related incentives are based on the overall revenue derived from the applicable investment strategy. The percentage of revenue is determined by the investment team’s gross performance versus a peer group universe, on a blended basis, generally over a trailing one year, three year and five year time horizon.]
 
Material Conflicts of Interest. [The portfolio manager oversees multiple accounts in the investment strategy which includes the Fund. The portfolio managers make decisions at the strategy level and implement those decisions at the account level based on the specific investment objectives, policies, practices and other relevant investment considerations that the portfolio managers believe are applicable to each account. Consequently, the portfolio managers may purchase securities for one account and not another account, and the performance of securities purchased for one account may vary from the performance of securities purchased for other accounts. Guardian has adopted policies and procedures
 
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that it believes address the conflicts associated with managing multiple accounts for multiple clients, although there is no assurance that such policies and procedures will adequately address such conflicts.]
 
Ownership of Securities. As of the date of the SAI, the Fund had yet to commence operations and the portfolio manager did not beneficially own equity securities in the Fund.
 
 
 The Administration Agreement was effective with respect to the Funds as of ______ __, 201_. Under the Administration Agreement between Aston and the Trust, the Administrator is responsible for: (1) coordinating with the custodian and transfer agent and monitoring the services they provide to the Funds, (2) coordinating with and monitoring any other third parties furnishing services to the Funds, (3) providing the Funds with necessary office space, telephones and other communications facilities and personnel competent to perform administrative and clerical functions, (4) supervising the maintenance by third parties of such books and records of the Funds as may be required by applicable federal or state law, (5) preparing or supervising the preparation by third parties of all federal, state and local tax returns and reports of the Funds required by applicable law, (6) preparing and, after approval by the Funds, filing and arranging for the distribution of proxy materials and periodic reports to shareholders of the Funds as required by applicable law, (7) preparing and, after approval by the Trust, arranging for the filing of such registration statements and other documents with the SEC and other federal and state regulatory authorities as may be required by applicable law, (8) reviewing and submitting to the officers of the Trust for their approval invoices or other requests for payment of the Funds’ expenses and instructing the custodian to issue checks in payment thereof and (9) taking such other action with respect to the Trust or the Funds as may be necessary in the opinion of the Administrator to perform its duties under the Administration Agreement.
 
As compensation for services performed under the Administration Agreement, the Administrator receives an administration fee payable monthly at the annual rate set forth below as a percentage of the average daily net assets of the Trust.
 
Administration Fees
 
 The fee schedule to the Administration Agreement is as follows:
 
Percentage
 
Average Daily Net Assets
(Aggregate Fund Complex)
     
0.0437%
 
Up to $7.4 billion
0.0412%
 
Over $7.4 billion
 
 The Administrator also receives a monthly base fee in the amount of $1,000 per Fund.
 
 
BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon” or the “Subadministrator”), 4400 Computer Drive, Westborough, Massachusetts 01581, provides certain administrative services for the Funds and Aston pursuant to a Subadministration and Accounting Services Agreement (the “Subadministration Agreement”) between Aston and BNY Mellon. The Subadministration Agreement was effective with respect to the Funds as of ______ __, 201_.
 
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As Subadministrator, BNY Mellon provides the Trust with subadministrative services, including fund accounting, regulatory reporting, necessary office space, equipment, personnel and facilities. Compensation for these services is paid under the Subadministration Agreement with the Administrator.
 
 
The Subadministrator receives an administration fee payable by the Administrator. Under the terms of the Subadministration Agreement, subadministration fees (inclusive of tax service fees) paid by the Administrator, are accrued daily and paid monthly, at the annual rate of 0.0167% of average daily net assets of the Trust inclusive of fees for tax services. In addition, the Administrator pays the Subadministrator a base subadministration fee monthly in the amount of $1,000 per Fund. The fees may be subject to an annual increase by BNY Mellon, in an amount not to exceed the cumulative percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) U.S. City Average, all items (unadjusted) published since the last such increase in fees. The first such annual increase, of 1.7%, was effective October 1, 2013.
 
 
Foreside Funds Distributors LLC (formerly, BNY Mellon Distributors, LLC) (the “Distributor”), 400 Berwyn Park, 899 Cassatt Road, Berwyn, PA 19312, and the Trust are parties to a distribution agreement effective April 1, 2012 (the “Distribution Agreement”) under which the Distributor serves as statutory underwriter and facilitates the registration and distribution of shares of each series of the Trust on a continuous basis. The Distribution Agreement was effective with respect to the Funds as of ______ __, 201_.
 
After the initial term, the Distribution Agreement shall be renewed for successive one-year terms, provided such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the outstanding voting securities of the Trust, provided that in either event the continuance is also approved by a majority of the Trustees who are not parties to the Distribution Agreement and who are not “interested persons” (as defined in the 1940 Act) of any party to the Distribution Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement may be terminated without penalty, on at least 60 days’ written notice, by the Board, by vote of a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the outstanding voting securities of the Trust, or by the Distributor. This Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act and the rules thereunder).
 
 
The Board has adopted a distribution and services plan (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act, which permits the Class N shares of the Funds to pay certain expenses associated with the distribution of Fund shares and the provision of services to shareholder accounts.
 
Rule 12b-1 regulates the circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares. Continuance of the Plan must be approved annually by a majority of the Trustees of the Trust and by a majority of the Trustees who are not “interested persons” of the Trust or the Distributor, as that term is defined in the 1940 Act (“Independent Trustees”). In adopting the Plan, the Independent Trustees concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that the Plan will benefit a Fund and its shareholders by resulting in greater sales of Fund shares. The Plan requires that quarterly written reports of amounts spent under the Plan and the purposes of such expenditures be furnished to and reviewed by the Trustees. In accordance with Rule 12b-1 under the 1940 Act, the Plan may be terminated with respect
 
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to a Fund by a vote of a majority of the Independent Trustees, or by a vote of a majority of the outstanding shares of the Fund. The Plan may be amended by vote of the Board, including a majority of the Independent Trustees, cast in person at a meeting called for such purpose, except that any change that would effect a material increase in any distribution fee with respect to a Fund (or class) requires the approval of the Fund’s (or class’s) shareholders. All material amendments of the Plan will require approval by a majority of the Trustees of the Trust and of the Independent Trustees.
 
To the Trust’s knowledge, no “interested person” of the Trust, nor any Independent Trustee has a direct or indirect financial interest in the operation of the Plan.
 
Under the Plan, each Fund may pay amounts not exceeding, on an annual basis, 0.25% of the Fund’s average daily net assets for Class N shares. From this amount, the Distributor may make payments to financial institutions and intermediaries such as banks, savings and loan associations, insurance companies, investment counselors, broker-dealers, and the Distributor’s affiliates and subsidiaries as compensation for services, reimbursement of expenses incurred in connection with distribution assistance or provision of shareholder services. The Plan is characterized as a reimbursement plan and is directly tied to expenses incurred by the Distributor; the payments the Distributor receives during any year may not exceed its actual expenses.
 
 
The Trust requests that banks, broker-dealers and other intermediaries holding omnibus accounts with the Funds impose redemption fees at the shareholder account level. However, redemption fees may not apply to certain types of accounts held through intermediaries, including: (1) certain pension, profit-sharing and retirement plans; (2) certain broker wrap-fee and other fee-based programs; (3) certain omnibus accounts where the omnibus account holder does not have the system capability to impose a redemption fee on its underlying customers’ accounts; and (4) certain intermediaries that do not have, or do not report to the Funds, sufficient information to impose a redemption fee on their customers’ accounts.
 
 In addition, redemption fees do not apply to: (i) premature distributions from retirement accounts due to the disability or health of the shareholder; (ii) minimum required distributions from retirement accounts; (iii) return of excess contributions in retirement accounts where the excess is reinvested into the Funds; (iv) redemptions resulting in the settlement of an estate due to the death of the shareholder; (v) redemptions of shares purchased through an Automatic Investment Plan; (vi) redemptions as part of a systematic withdrawal plan; and (vii) reinvested distributions (dividends and capital gains). Contact your financial intermediary or refer to your plan documents for more information on how the redemption fee is applied to your shares.
 
In addition to the circumstances noted in the preceding paragraph, the Funds’ Administrator may waive the redemption fee at its discretion where it believes such waiver is in the best interests of a Fund and in accordance with the Funds’ policies and procedures, including, but not limited to, when it determines that imposition of the redemption fee is not necessary to deter short-term trading.
 
 
The Bank of New York Mellon, One Wall Street, New York, NY 10286, serves as custodian of the Trust’s assets on behalf of the Funds.
 
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BNY Mellon Investment Servicing (US) Inc., 4400 Computer Drive, Westborough, Massachusetts 01581, serves as transfer agent and dividend paying agent for the Trust.
 
 
Vedder Price P.C., with offices at 222 North LaSalle Street, Chicago, Illinois 60601, serves as counsel to the Trust.
 
Mayer Brown LLP, with offices at 71 South Wacker Drive, Chicago, Illinois 60606, serves as counsel to the Independent Trustees.
 
__________, with offices at ______________, is the Trust’s independent registered public accounting firm.
 
 
Each Subadviser is responsible for decisions to buy and sell securities for the Fund, for the placement of its portfolio business and the negotiation of commissions, if any, paid on such transactions. In placing trades for a Fund, the Subadviser will follow the Trust’s policy of seeking best execution of orders under the circumstances. Securities traded in the over-the-counter market are generally traded on a net basis with dealers acting as principal for their own accounts without a stated commission. In over-the-counter transactions, orders are placed directly with a principal market-maker unless a better price and execution can be obtained by using a broker. Brokerage commissions are paid on transactions in listed securities, futures contracts and options.
 
Each Subadviser attempts to obtain the best overall price and most favorable execution of transactions in portfolio securities. However, subject to policies established by the Board, a Fund may pay a broker-dealer a commission for effecting a portfolio transaction for a Fund in excess of the amount of commission another broker-dealer would have charged if the Subadviser determines in good faith that the commission paid was reasonable in relation to the brokerage or research services provided by such broker-dealer, viewed in terms of that particular transaction or such firm’s overall responsibilities with respect to the clients, including the Fund, as to which it exercises investment discretion. In selecting and monitoring broker-dealers and negotiating commissions, consideration will be given to a broker-dealer’s reliability, the quality of its execution services on a continuing basis and its financial condition, among other things. Research services furnished by broker-dealers through whom a Fund effects securities transactions may be used by the Subadviser, as the case may be, in servicing all of their respective accounts; not all such services may be used in connection with the Fund. The term “research services” may include, but is not limited to, advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or purchasers or sellers of securities; and analyses or reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy or the performance of accounts.
 
It is likely that the broker-dealers selected based on the foregoing considerations will include firms that also sell shares of a Fund to their customers. However, the Subadviser does not consider sales of Fund shares as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund and, accordingly, the Trust has implemented policies and procedures reasonably designed to prevent sales of Fund shares from being considered as a factor in the selection of broker-dealers to execute portfolio transactions for a Fund.
 
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Each Subadviser may effect portfolio transactions for other investment companies and advisory accounts. The Subadviser will attempt to equitably allocate portfolio transactions among a Fund and other client accounts whenever concurrent decisions are made to purchase or sell securities by the Fund and other accounts. In making such allocations between a Fund and other client accounts, the main, but not exclusive, factors to be considered are the availability of cash for investment, the duration of the portfolio, the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the size of investment commitments generally held and the opinions of the persons responsible for recommending investments to the Fund and the others. In some cases, these procedures could have an adverse effect on a Fund. In the opinion of the Subadviser, however, the results of such procedure will generally be in the best interest of each of the clients.