As filed with the Securities and Exchange Commission on November 8, 2013
1933 Act Registration No. 333-159992
1940 Act Registration No. 811-22309
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 11
AND/OR
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13
TRANSPARENT VALUE TRUST
(Exact Name of Registrant as Specified in Charter)
330 Madison Avenue, 10th Floor
New York, NY 10017
(Address of
Principal Executive Office) (Zip Code)
Registrants Telephone Number, including Area Code: (212) 908-5090
Armen Arus
Transparent Value Trust
330 Madison Avenue, 10th Floor
New York, NY 10017
(Name and
address of agent for service of process)
Copy to:
Timothy W. Levin
Morgan,
Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
(Name
and address of agent for service of process)
It is proposed that this filing
will become effective:
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Immediately upon filing pursuant to paragraph (b) of Rule 485.
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On (date) pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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75 days after filing pursuant to paragraph (a)(2) of Rule 485.
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On (date) pursuant to paragraph (a)(1) of Rule 485.
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On January 28, 2014 pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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Subject to Completion
The information contained herein is not complete and may be changed. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer
to sell these securities and is not soliciting an offer to buy these securities in any State in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such State.
Preliminary Prospectus dated November 8, 2013
T
RANSPARENT
V
ALUE
T
RUST
P
ROSPECTUS
[ ], 2014
T
RANSPARENT
V
ALUE
S
MALL
-C
AP
F
UND
CLASS A SHARES [
]
CLASS C SHARES [
]
CLASS F-1 SHARES [
]
CLASS I SHARES [
]
I
NVESTMENT
A
DVISER
:
G
UGGENHEIM
P
ARTNERS
I
NVESTMENT
M
ANAGEMENT
, LLC
330 Madison Avenue, 10th Floor
New
York, NY 10017
I
NVESTMENT
S
UB
-
A
DVISER
:
T
RANSPARENT
V
ALUE
A
DVISORS
, LLC
330 Madison Avenue, 10th Floor
New
York, NY 10017
www.transparentvalue.com
1-888-727-6885
The U.S.
Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
About This Prospectus
This prospectus has been arranged into different sections so that you can easily review important information about the Transparent Value
Small-Cap Fund (the TV Small-Cap Fund or the Fund). Please read this prospectus and keep it for future reference. For detailed information about the Fund, please see:
T
RANSPARENT
V
ALUE
S
MALL
-C
AP
F
UND
Fund Investment Objective
The Funds investment objective is to provide investment results that, before fees and expenses, correspond generally to the total return
performance of the Transparent Value Small-Cap Index
SM
(the Small-Cap Index or Index).
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts
on Class A Shares if you and your family invest, or agree to invest in the future, at least $25,000 in the Fund. More information about these and other discounts is available from your financial professional and in Sales Charges on
page
of this prospectus and in Purchasing and Redeeming Shares on page
of the Funds Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
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Class A
Shares
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Class C
Shares
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Class F-1
Shares
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Class I
Shares
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
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5.75%
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None
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None
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None
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Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)
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None*
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1.00%**
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None
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None
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions (as a percentage of offering price)
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None
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None
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None
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None
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Redemption Fee (as a percentage of amount redeemed, if applicable)
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None
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None
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None
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None
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*
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A 1.25% deferred sales charge will be imposed on purchases of $1,000,000 or more on Fund shares purchased without a front-end sales charge that are
redeemed within 18 months of purchase.
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**
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A 1.00% deferred sales charge will be imposed if Fund shares are redeemed within 12 months of purchase.
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1
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your
investment)
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Class A
Shares
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Class C
Shares
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Class F-1
Shares
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Class I
Shares
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Management Fees
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1.15%
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1.15%
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1.15%
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1.15%
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Distribution and Service (12b-1) Fees
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0.25%
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1.00%
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0.25%
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None
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Other Expenses*
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%
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%
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%
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%
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Shareholder Service Fees
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0.15%
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None
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None
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None
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Interest Expense
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%
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%
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%
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%
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Total Annual Fund Operating Expenses
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%
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%
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%
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%
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Less Expense Reimbursements**
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%
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%
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%
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%
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Net Annual Fund Operating Expenses
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%
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%
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%
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%
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*
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Because the Fund is new, Other Expenses are based on estimated amounts for the current fiscal year.
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**
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Guggenheim Partners Investment Management, LLC (Guggenheim or the Adviser) has contractually agreed to reduce fees and
reimburse expenses to the extent necessary to keep Net Expenses (excluding interest, taxes, acquired fund fees and expenses, brokerage commissions and extraordinary expenses (Excluded Expenses)) from exceeding 1.70%, 2.30%, 1.55% and
1.30% of the Funds average daily net assets of the Class A, Class C, Class F-1 and Class I Shares, respectively, until January 31, 2015 (the Agreement). To the extent Excluded Expenses are incurred (e,g., the estimated
interest expense of %), Net Annual Fund Operating Expenses may be higher than the contractual caps. This Agreement may be terminated by the Board, for any reason at any
time. If, at any point, Total Annual Fund Operating Expenses (not including Excluded Expenses) are below the contractual caps, the Adviser is entitled to be reimbursed by the Fund in an amount equal to the difference between the Funds
Total Annual Fund Operating Expenses (not including Excluded Expenses) and the contractual caps to recapture all or a portion of its prior fee reductions or expense reimbursements made during the preceding three-year period during which this
Agreement was in place. No reimbursement shall be paid to the Adviser until reported to the Board.
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Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that Fund operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
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1 Year
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3 Years
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Class A
Shares
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$
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$
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Class C
Shares
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$
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$
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Class F-1
Shares
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$
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$
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Class I
Shares
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$
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$
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2
You would pay the following expenses if you did not redeem your shares:
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1 Year
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3 Years
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Class A Shares
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$
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$
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Class C Shares
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$
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$
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Class F-1 Shares
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$
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$
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Class I Shares
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$
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$
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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
Funds performance.
Principal Investment Strategies
The Fund uses a passive management strategy designed to track the total return performance (before fees and expenses) of the Small-Cap Index.
The Small-Cap Index consists of common stock of companies, and units of beneficial ownership in real estate investment trusts, in the Dow Jones U.S. Small-Cap Total Stock Market IndexSM that Transparent Value, LLC has selected for inclusion in the
Index by applying Required Business Performance
®
(RBP
®
) Probability scores (as defined below). The RBP
®
Probability scores are derived from a quantitative process of Transparent Value, LLC. The RBP
®
Probability scores are intended to measure
the future business performance required of a company to support its stock price and to indicate the probability that the company will actually achieve that performance. The Small-Cap Index focuses on companies in the Dow Jones U.S. Small-Cap Total
Stock Market IndexSM that are believed to have above average economic and market sensitivity, greater exposure to market volatility and a high RBP
®
probability. As of December 31, 2013,
the Small-Cap Index was composed of 100 securities. A description of the Indexs methodology is available directly from Transparent Value, LLC (
http://www.rbpinstitute.com
).
The Fund will generally invest in all of the securities comprising the Index in proportion
to the weightings in the Index. Under various circumstances where it may not be possible or practicable (that is, in instances when a security in the Index becomes temporarily illiquid, unavailable or less liquid, or due to legal restrictions (for
instance tax diversification requirements that apply to the Fund but not the Index or the Adviser or Sub-Adviser is restricted from purchasing securities of a particular company)) to purchase all of the securities in the Index or amounts of such
securities in proportion to their weighting in the Index, Guggenheim, in consultation with Transparent Value Advisors, LLC (Transparent Value or the Sub-Adviser), will utilize a sampling methodology. Sampling means that
quantitative analysis is used to select securities that represent a sample of the securities in the Index with a similar investment profile as the Index in terms of key risk factors, performance attributes and other characteristics. Under normal
circumstances, the Fund invests at least 80% of its net assets, plus the amount of borrowings for investment purposes, in securities that comprise the Index. This investment policy may be changed by the Fund upon 60 days prior notice to
shareholders. The Index is rebalanced quarterly. In addition, the Index is reviewed on an ongoing basis to account for corporate actions such as mergers or de-listings. The Adviser may sell securities that are represented in the Index, or purchase
securities that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. As of December 31, 2013, market capitalizations of companies included in the Small-Cap Index ranged from approximately $x.x
billion to $x.x billion.
3
The Fund also may invest up to 20% of its net assets in common stocks and REITS not included in
the Index, but which the Adviser, after consultation with the Sub-Adviser, believes will help the Fund track the Index, as well as in ETFs, futures, put and call options, interest rate, index and total return swap contracts, cash and cash
equivalents. Such investments are intended to improve liquidity, reduce transaction costs and help the Fund stay fully invested, and are not intended to be used for hedging or speculative investment purposes. The Adviser and Sub-Adviser do not
invest Fund assets based on their opinion of a security, instrument or company.
The Fund may only concentrate its investments (i.e., hold
25% or more of its total assets) in a particular industry to the extent that the Index is so concentrated. The Fund is non-diversified and, as a result, may invest a larger percentage of its assets in securities of a single issuer than that of a
diversified fund. The Board of Trustees of the Trust may change the Funds investment objective, investment strategy, Index and other policies without shareholder notice or approval, except as otherwise indicated.
Due to its investment strategies, the turnover rate of the Fund should generally be similar to the turnover rate of the Index. As a result,
the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains liabilities than for a fund with a buy and hold strategy. Higher transaction costs may negatively impact the Funds
performance.
Principal Risks
As with all mutual funds, there is no assurance that the Fund will achieve its investment objective, and a shareholder is subject to the risk
that his or her investment could lose money. The principal risks affecting shareholders investments in the Fund are set forth below.
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any
government agency.
Common Stock Risk
Since it purchases common stock, the Fund is subject to the risk that stock prices
will fall over short or extended periods of time. Historically, the equity markets have moved in cycles, and the value of the Funds common stock may fluctuate drastically from day-to-day. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in
the Fund. In addition, common stock is generally subordinated to preferred stocks, bonds and other debt instruments upon the liquidation or bankruptcy of the issuing company.
Quantitative Investment Strategy Risk
The Fund seeks to track a quantitative strategy index, meaning that the Fund invests in
securities comprising an index created by a proprietary model. The success of the Funds principal investment strategies depends on the effectiveness of the model in screening securities for inclusion in the Index. The factors used in the
quantitative analysis and the weight placed on these factors may not be predictive of a securitys value. As a result, the Fund may have a lower return than if the Fund were managed using a fundamental investment strategy or an index based
strategy that did not incorporate quantitative analysis.
Risks of Index Investing
Unlike many investment companies, the
Fund is not actively managed. Therefore, the Fund would not sell an equity security because the securitys issuer was in financial trouble unless that security is removed from the Index.
4
Non-Correlation Risk
The Funds return may not match or achieve a high
degree of correlation with the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to its Index and also incurs costs in buying and selling securities, especially when rebalancing
the Funds securities holdings to reflect changes in the composition of the Index or in a representative sampling of the Index. The Fund may not be fully invested at times, either as a result of cash flows into the Fund or reserves of cash held
by the Fund to meet redemptions and pay expenses. To the extent the Fund uses a sampling methodology, the Fund will not fully replicate the Index and may hold securities not included in the Index. As a result, the Fund will be subject to the risk
that the Advisers investment management strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. If the Fund utilizes a sampling approach, it may not track the return of the Index as
well as it would if the Fund purchased all of the securities in the Index.
Small Capitalization Company Risk
The
Fund invests primarily in small-cap companies. While small-cap companies may offer greater potential for capital appreciation than larger more established companies, they may also involve greater risk of loss and price
fluctuation. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies because of the small-cap companies more limited product lines and financial resources. The trading
markets for securities of small-cap issuers may be less liquid and more volatile than securities of larger companies. This means that the Fund could have greater difficulty buying or selling a security of a small-cap issuer at an acceptable
price, especially in periods of market volatility.
Non-Diversified Risk
The Fund is non-diversified and, as a
result, may have greater exposure to volatility than other funds. Because a non-diversified fund may invest a larger percentage of its assets in securities of a single issuer than that of a diversified fund, the performance of that issuer can have a
substantial impact on the Funds share price. The Fund intends to maintain the required level of diversification so as to qualify as a regulated investment company for purposes of the Internal Revenue Code in order to avoid
liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with diversification requirements of the Internal Revenue Code could limit the investment flexibility of the Fund.
Concentration Risk
The Funds assets will only be concentrated in an industry or group of industries to the extent
that the Index concentrates in a particular industry or group of industries. By concentrating its assets in a single industry or group of industries, the Fund is subject to the risk that economic, political or other conditions that have a negative
effect on that industry or group of industries will negatively impact the Fund to a greater extent than if the Funds assets were invested in a wider variety of industries. The amount of Fund assets in a particular industry may not match the
industrys representation in the Index during rebalancing or when the Fund is small.
Derivatives Risk
A derivative is
a financial contract, the value of which depends on, or is derived from, the value of a financial asset (such as a stock, bond or currency), a physical asset (such as gold) or a market index (such as the S&P 500 Index). The Funds use
of futures contracts, options and swaps is subject to market risk, leverage risk, correlation risk and liquidity risk. Market risk is the risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. Liquidity
risk is the risk that a security may be difficult or impossible to sell at the time and price that the Fund would like. Leverage risk is the risk that the use of leverage can amplify the effects of market volatility on the Funds share
price and may also cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations. Correlation risk is the risk that changes in the value of the derivative may not correlate
perfectly with the underlying asset, rate or index. The Funds use of swap agreements is also subject to credit risk and valuation risk. Valuation risk is the risk that the derivative may be difficult to value and/or may be valued incorrectly.
Credit risk is the risk that the counterparty to a contract will default or otherwise become unable to honor a financial obligation. Each of these risks could cause the Fund to lose more than the principal amount invested in a derivative instrument.
5
REIT Risk
The Fund is subject to risks related to investment in real estate
investment trusts or REITs, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, lack of diversification, heavy cash flow dependency, self-liquidation, and potential failure to qualify for
tax-free pass through of income and exemption from registration as an investment company. By investing in REITs indirectly through the Fund, a shareholder will bear expenses of the REITs in addition to expenses of the Fund.
Performance Information
The Fund is new and, therefore, does not have performance history for a full calendar year. Once the Fund has completed a full calendar year
of operations, a bar chart and table will be included that will provide some indication of the risks of investing in the Fund by showing the variability of the Funds returns and comparing the Funds performance to its Index.
Fund Management
Investment
Adviser
Guggenheim serves as the investment adviser to the Fund.
Sub-Adviser
Transparent Value serves as
the investment sub-adviser to the Fund.
Portfolio Managers
Scott Hammond, a Senior Portfolio Manager for the Sub-Adviser and a Managing Director of the Adviser, is primarily responsible for the
day-to-day management of the Fund. He has served as a portfolio manager of the Fund since its inception.
Julian Koski, a Senior Portfolio
Manager for the Sub-Adviser and a co-developer of the RBP
®
methodology, is responsible for developing portfolio strategy and communicating the portfolio strategy to the market place. He has
served as co-head of portfolio strategy of the Fund since its inception.
Armen Arus, a Senior Portfolio Manager for the Sub-Adviser and a
co-developer of the RBP
®
methodology, is responsible for developing portfolio strategy and communicating the portfolio strategy to the market place. He has served as co-head of portfolio
strategy of the Fund since its inception.
Gennadiy Khayutin, a Senior Portfolio Manager for the Sub-Adviser and Managing Director of the
Adviser, is responsible for the development of portfolio strategy. He has served as a portfolio manager of the Fund since its inception.
Purchasing
and Selling Shares
To purchase Class A Shares, Class C Shares or Class F-1 Shares of the Fund for the first time, including an
initial purchase through an individual retirement account (IRA), you must invest at least $5,000. Subsequent investments must be made in amounts of at least $100. The Fund may accept initial or subsequent investments of smaller amounts
in Class A Shares, Class C Shares or Class F-1 Shares in its sole discretion.
6
The minimum initial investment for Class I Shares of the Fund is $2 million. The minimum amount
for subsequent investments in Class I Shares is $100,000. The Fund may also accept initial investments in Class I Shares of smaller amounts in its sole discretion.
The Fund redeems its shares continuously and investors may sell their shares back to the Fund on any day that the New York Stock Exchange
(the NYSE) is open for business (a Business Day). You will ordinarily submit your transaction order through your financial intermediary or other securities dealers through which you opened your shareholder account.
Tax Information
The Fund intends to
make distributions that may be taxed as ordinary income or capital gains.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related
companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediarys website for more information.
7
Additional Index Information
Transparent Value Small-Cap IndexSM (the Transparent Value Index) is part of the family of quantitative strategy indexes offered
by Transparent Value, LLC that use rules-based analytics supplied by Transparent Value, LLC. Transparent Value, LLC allows the Sub-Adviser to use the Transparent Value Index as the benchmark for the Fund. The Adviser and Sub-Adviser are
affiliates of Transparent Value, LLC, but do not have access to non-public index information used by Transparent Value, LLC other than the analytics supplied by Transparent Value, LLC and do not have any influence over an index.
The Transparent Value Index is the property of Transparent Value, LLC, which has contracted with S&P Dow Jones Indices LLC or its
affiliate (S&PDJI) to maintain and calculate the Transparent Value Index. The Dow Jones U.S. Small-Cap Total Stock Market IndexSM (the S&P Index) is the property of S&PDJI and/or their third party licensors
and has been licensed by S&PDJI for use by Transparent Value, LLC in connection with the Transparent Value Index. S&PDJI shall have no liability for any errors or omissions in calculating the Transparent Value Index.
8
The RBP
®
Methodology
The Sub-Adviser believes that its better to avoid losers rather than trying to pick winners. Picking winners
requires that an investor have knowledge of the future, which by definition is completely unknown. In contrast, the Sub-Adviser believes that in order to avoid losers an investor does not require knowledge of the future, but rather can rely on a
known quantity of information: the stock price and current and past financial information. The Sub-Adviser believes that a stock becomes a loser when management of that company cannot deliver the business performance necessary to support its then
current stock price.
The Sub-Adviser believes many stock analysts and investment managers in trying to pick winners employ subjective
valuation techniques and that the informational value of such analysis, when used as the basis for investment management programs, varies widely. For example, investment managers have often used analytical valuation techniques designed to determine
the underlying value of a stock in light of certain assumptions. Typically, these assumptions are defined with respect to basic business activities of a company (
e.g.,
the creation of new product lines, increases in sales, the addition of new
stores or the issuance of more insurance policies). These assumptions in turn lead to further assumptions about the companys future revenues, which in the context of such valuation techniques then indicate a value for the company and a price
per share of stock.
By contrast, the valuation techniques characterizing the
RBP
®
methodology calculate the business performance that a company must achieve in order to support its then-current stock price based on information disclosed in the companys publicly
available financial reports. This metric is called the Required Business Performance
®
or RBP
®
1
, and it is derived from a reverse discounted cash-flow analytic model using reported financial information. Then, based on growth and revenues during the prior three years, the RBP
®
methodology computes a probability (expressed as a percentage) that a company can achieve its then-current Required Business Performance. This metric is called the RBP
®
Probability score.
The Sub-Adviser believes that the RBP
®
Probability score is relevant for determining a companys intrinsic value. The Sub-Adviser also believes that, as a general matter, pricing inefficiencies occur when a companys actual
revenues and growth deviate significantly from the required revenues and growth as implied by the current market price of a companys stock. The RBP
®
methodology is designed to identify
instances of such inefficiencies and to quantify related pricing discrepancies.
Over specified time periods, RBP
®
Probability scores may indicate the likelihood that a company can achieve its Required Business Performance. The Sub-Adviser believes that the
RBP
®
methodology provides a disciplined, rules-based program which reduces the subjectivity and variability characterizing many, more traditional valuation techniques. There is no assurance
the RBP
®
methodology will successfully identify companies that will achieve their RBP
®
or outperform the performance of other indices.
Risk of Index Data Disruption
The
calculation or rebalancing of an Index may not be possible or feasible under certain circumstances, including, without limitation, a systems failure, natural or man-made disaster, act of God, act of terrorism, labor disruption or any similar
intervening circumstance, that is beyond the reasonable control of the Index provider and that the Index provider determines affects an Index or any Index component. Upon
1
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Required Business Performance and RBP are trademarks of Transparent Value, LLC.
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9
the occurrence of such events, the Index provider may, in its discretion, elect to determine the appropriate composition of an Index based on alternative calculation or rebalancing methodologies,
which may or may not accurately reflect changes in the market value of the Index components. Because of the Funds passive management strategies, the Fund will seek to provide investment results that correspond to the performance of its
Index, regardless of whether it is accurately calculated or rebalanced.
More Information about Fund
Investments
This prospectus describes the Funds principal investment strategies, and the Fund will normally invest in the types
of securities and other investments described in this prospectus. In addition to the securities and other investments and strategies described in this prospectus, the Fund also may invest to a lesser extent in other securities, use other strategies
and engage in other investment practices that are not part of its principal investment strategies. These non-principal investments and strategies, as well as those described in this prospectus, are described in detail in the Funds Statement of
Additional Information (SAI) (for information on how to obtain a copy of the SAI, see the back cover of this prospectus). Of course, there is no guarantee that the Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that the Fund uses under normal conditions. In response to adverse
market, economic, political, or other conditions, the Fund may temporarily depart from its normal investment policies and strategies provided that the alternative is consistent with the Funds investment objective and is believed to be, at the
time the decision is made, in the best interest of the Fund. For example, the Fund may invest beyond the normal limits in derivatives to maintain exposure to its Index if it is unable to invest directly in a component security.
More Information about Principal Risks
The following descriptions provide additional information about some of the risks of investing in the Fund:
Concentration Risk
The Funds assets will only be concentrated in an industry or group of industries to the extent that its
Index concentrates in a particular industry or group of industries. By concentrating its assets in a single industry or group of industries, the Fund is subject to the risk that economic, political or other conditions that have a negative effect on
that industry or group of industries will negatively impact the Fund to a greater extent than if the Funds assets were invested in a wider variety of industries. The amount of the Funds assets in a particular industry may not match the
industrys representation in the applicable Index during rebalancing or when the Fund is small.
Historically, the Index the Fund is
designed to track has been concentrated from time to time in one or more of the following industries: industrials, financials, consumer staples, health care, information technology, energy and consumer discretionary. The principal risks relating to
the Funds concentration in these industries are set forth below. However, the future composition of the Index may vary and, therefore, the Indexs historical industry concentrations may not match its future industry concentrations.
Further, in the future, the Index may not be concentrated or may be concentrated in one or more other industries not identified below that are included in the Indexes.
Industrials Risks -
A fund that concentrates in the industrial industry may be subject to greater risks than a portfolio without such a
concentration. Stock prices for industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic
conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the
10
performance of these companies. Companies in the industrial sector can be significantly affected by government spending policies because companies involved in this sector may rely to a
significant extent on U.S. and foreign government demand for their products and services. Thus, the financial condition of, and investor interest in, such companies may be heavily influenced by governmental spending policies which are typically
under pressure from efforts to control the U.S. (and other) government budgets. Some other companies in the industrial sector are cyclical and have occasional sharp price movements which may result from changes in the economy, fuel prices, labor
agreements and insurance costs.
Financials Risks
A fund that concentrates in the financial industry may be subject to
greater risks than a portfolio without such a concentration. Such a fund will be particularly subject to the risks associated with regulatory developments in, or related to, the financial sector. The financial sector consists of comparatively narrow
segments of the economy and, therefore, a fund that concentrates its investments in this sector may experience greater volatility than funds investing in a broader range of sectors. In addition, companies in the financial sector may be subject to
additional risks such as increased competition within the sector or changes in legislation or government regulations affecting the financial sector. The value of a Funds shares is particularly vulnerable to factors affecting the financial
sector, such as the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, extensive government regulation, and price competition.
Consumer Staples Risks
-
A fund that concentrates in the consumer staples industry may be subject to greater risks than a
portfolio without such a concentration. Companies in the consumer staples industry can be adversely affected by changes in the worldwide economy, consumer spending, confidence, competition, demographics and preferences, exploration, production
spending and the cost of commodities. Companies in this industry are also affected by changes in government regulations or policies, world events and economic conditions, as well as natural and man-made disasters and political, social or labor
unrest that affect production and distribution of consumer staple products.
Health Care Risks -
A fund that concentrates in the
health care industry may be subject to greater risks than a portfolio without such a concentration. Companies in the health care industry are subject to government regulation and reimbursement rates, as well as government approval of products and
services, which could have a significant effect on price and availability. A number of legislative proposals concerning healthcare have been considered and/or enacted by the U.S. Congress in recent years. These span a wide range of topics, including
cost control, national health insurance, incentives for compensation in the provision of health care services, tax incentives and penalties related to health care insurance premiums, and promotion of prepaid healthcare plans. A fund cannot predict
what proposals will be enacted or what effect such proposals may have on health care-related companies. Furthermore, the types of products or services produced or provided by health care companies quickly can become obsolete. In addition,
pharmaceutical companies and other companies in the health care industries can be significantly affected by patent expirations. In addition, many health care-related companies are smaller and less seasoned than companies in other industries.
Information Technology Risks -
A fund that concentrates in the information technology industry may be subject to greater risks than a
portfolio without such a concentration. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology
companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments and frequent new product introduction, unpredictable
changes in growth rates and competition for the services of qualified personnel. Information technology companies may be subject to extensive regulatory requirements
11
causing considerable expense and delay. Information technology companies are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely
affect the profitability of these companies.
Energy Risks
A fund that concentrates in the energy industry may be subject to
greater risks than a portfolio without such a concentration. The energy industry is cyclical and highly dependent on commodities prices. The market values of companies in the energy industry could be adversely affected by, among other factors,
levels and volatility of global energy prices, commodity price volatility, energy supply and demand, changes in exchange rates and interest rates, imposition of import controls, increased competition, capital expenditures on exploration and
production, depletion of resources, development of alternative energy sources and energy conservation efforts, technological developments, tax treatment and labor relations. Companies in this sector are subject to substantial government regulation
and contractual fixed pricing, which may increase the cost of business and limit these companies earnings, and a significant portion of their revenues depends on a relatively small number of customers, including governmental entities and
utilities. As a result, governmental budget constraints may have a material adverse effect on the stock prices of companies in this industry. Energy companies may also operate in or engage in transactions involving countries with less developed
regulatory regimes or a history of expropriation, nationalization or other adverse policies. Energy companies also face a significant risk of civil liability from accidents resulting in injury or loss of life or property, pollution or other
environmental mishaps, equipment malfunctions or mishandling of materials and a risk of loss from terrorism, political strife and natural disasters. Any such event could have serious consequences for the general population of the area affected and
result in a material adverse impact to a funds holdings and the performance of the fund.
Consumer Discretionary Risks
A fund that concentrates in the consumer discretionary industry may be subject to greater risks than a portfolio without such a concentration. Companies in the consumer discretionary industry can be significantly affected by the performance of
the overall economy, interest rates, competition and consumer confidence. Success of these companies can depend heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for,
and success of, products of consumer discretionary companies.
Information about Portfolio Holdings
The Funds portfolio holdings information is available on the Funds web site www.transparentvalue.com. The Fund
generally post a detailed list of the securities held by the Fund (portfolio holdings) within 60 days after the end of the quarter. The Adviser or Sub-Adviser may exclude any portion of the portfolio holdings from publication when deemed in the best
interest of the Fund. The postings generally remain until replaced by new postings as described above.
A description of the Funds
policy and procedures with respect to the circumstances under which the Fund discloses its portfolio securities is available in the SAI.
Investment Adviser
Guggenheim Partners Investment Management, LLC, a Delaware corporation, serves as the investment adviser to the Fund. The Advisers
principal place of business is located at 330 Madison Avenue, 10th Floor, New York, NY 10017. The Adviser, which was formed in 2001, is a diversified financial services firm with a sophisticated array of wealth and investment management services.
The Adviser is an indirect subsidiary of Guggenheim Partners, LLC, a diversified financial services firm that is an indirect subsidiary of Guggenheim Capital, LLC. As of December 31, 2013, the Adviser had approximately
[ ] in assets under management. The Trusts Board of Trustees (the Board) supervises the Adviser and establishes policies that the Adviser must follow in its management activities.
12
For its services to the Fund, the Adviser is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of 1.15% of the average daily net assets of the Fund. The Adviser has contractually agreed to reduce fees and reimburse expenses to the extent necessary to keep the Funds net expenses (excluding interest, taxes,
acquired fund fees and expenses, brokerage commissions and extraordinary expenses (Excluded Expenses)) from exceeding 1.70%, 2.30%, 1.55% and 1.30% of the average daily net assets of the Class A, Class C, Class F-1 and Class I
Shares, respectively, of the Fund until January 31, 2015 (the Agreement). If, at any point, total annual Fund operating expenses (not including Excluded Expenses) are below the contractual caps, the Adviser is entitled to be
reimbursed by the Fund in an amount equal to the difference between the Funds total annual Fund operating expenses (not including Excluded Expenses) and the contractual caps to recapture all or a portion of its prior fee reductions or expense
reimbursements made during the preceding three-year period during which this Agreement was in place. No reimbursement shall be paid to the Adviser with respect to the Fund until reported to the Board.
A discussion regarding the basis for the Boards approval of the Funds investment advisory agreement with the Adviser will be
available in the Funds March 31, 2014 Semi-Annual Report to Shareholders.
Investment Sub-Adviser
Transparent Value Advisors, LLC, a Delaware limited liability company formed in 2006, serves as the investment sub-adviser to the
Fund. The Sub-Adviser selected and developed the Funds investment strategies and analyzes the Funds performance and adherence to such strategies. The Sub-Advisers principal place of business is located at 330 Madison Avenue, 10th
Floor, New York, NY 10017. The Sub-Adviser is a wholly owned subsidiary of Transparent Value, LLC, which, in turn, is a wholly-owned subsidiary of Guggenheim Transparent Value, LLC. Guggenheim Transparent Value, LLC is a majority-owned, indirect
subsidiary of Guggenheim Partners, LLC. For its services, the Sub-Adviser is paid a fee by the Adviser from the advisory fee the Adviser receives from the Fund.
A discussion regarding the basis for the Boards approval of the Funds investment sub-advisory agreement between the Sub-Adviser
and the Adviser will be available in the Funds March 31, 2014 Semi-Annual Report to Shareholders.
Portfolio Managers
Scott Hammond is primarily responsible for the day-to-day management of the Fund. He has served as the Portfolio Manager of the Fund since its
inception. Mr. Hammond is a Senior Portfolio Manager of the Sub-Adviser and a Director of the Adviser. Prior to joining the Adviser and Sub-Adviser in July 2009, Mr. Hammond was Head of ETF Portfolio Management at Northern Trust, where he
oversaw the portfolio management of NETS, Northern Trusts family of ETFs. Mr. Hammond was also Portfolio Manager at Barclays Global Investors with responsibilities for the management of $90 billion in institutional assets, as well as
proprietary and client-driven research. He holds a Master of Business Administration from Purdue Universitys Krannert Graduate School of Management and a Bachelor of Arts in Economics from the University of New Hampshire.
Julian Koski is responsible for the development of portfolio strategy for the Sub-Adviser and the Fund and has been since the Funds
inception. He is a co-developer of the RBP methodology and a co-founder of Transparent Value, LLC. Prior to founding Transparent Value, LLC in June 2003, Mr. Koski was previously CEO at Financial Resource Group. He attended the
University of Witwatersrand and University of South Africa.
13
Armen Arus is responsible for the development of portfolio strategy for the Sub-Adviser and the
Fund, and has been since the Funds inception. He is a co-developer of the RBP methodology and a co-founder of Transparent Value, LLC. Prior to founding Transparent Value, LLC in June 2003, Mr. Arus was with Financial Resource Group LLC
where he worked on all aspects of executing private equity, M&A, and bridge-financing transactions. He attended the New York University Stern School of Business.
Gennadiy Khayutin is responsible for the development of portfolio strategy of the Fund. He has served as a Portfolio Manager of the Fund since
inception. Mr. Khayutin is a Senior Portfolio Manager of the Sub-Adviser and Managing Director of the Adviser. Prior to joining the Adviser and Sub-Adviser in May 2005, Mr. Khayutin was with Goldman Sachs & Co.s Healthcare
Group where he was responsible for structured debt products for a variety of healthcare and higher educational clients. He holds a Bachelor of Science in Finance and Information Systems from New York University.
The Funds SAI provides additional information about each portfolio managers compensation, other accounts managed, and ownership of
Fund shares.
Purchasing, Selling and Exchanging Fund Shares
This section tells you how to purchase, sell (sometimes called redeem) and exchange shares of the Fund.
How to Purchase Fund Shares
Class A Shares and Class C Shares are offered primarily through authorized securities brokers and other financial intermediaries. Class I
Shares are offered primarily for direct investment by pension and profit-sharing plans, employee benefit trusts, endowments, foundations, corporations and high-net worth individuals. Class I Shares may also be offered through certain financial
intermediaries. Class F-1 Shares may be purchased by institutional investors such as corporations, employer-sponsored retirement plans, endowments, foundations, insurance products, bank/trust products, and broker-dealer sponsored fee-based wrap
programs or other fee-based advisory accounts. Class F-1 Shares may also be purchased through financial intermediaries who have entered into an agreement with the Funds distributor to offer shares to self-directed investment brokerage accounts
that may or may not charge transaction fees. In addition, retail investors may purchase Class F-1 Shares directly from the Fund, at the Funds discretion.
To purchase Class F-1 Shares directly from the Fund, complete and send in the appropriate account application and initial investment, payable
to Transparent Value Funds, to: Transparent Value Funds, P.O. Box 46103, Denver, CO 80201. If you need an application or have questions, please call 1-888-727-6885 or visit the Funds website at www.transparentvalue.com.
You may also buy or sell shares of the Fund through accounts with brokers and other institutions that are authorized to place trades in Fund
shares for their customers. These institutions are responsible for transmitting all purchase and redemption requests, investment information, documentation and money to a Fund on time.
Certain financial intermediaries, including certain broker-dealers and shareholder organizations, are authorized to accept purchase and
redemption requests for Fund shares. These requests are executed at the NAV next determined after the intermediary receives the request. These intermediaries are responsible for transmitting requests and delivering funds on a timely basis.
14
If you deal directly with a financial intermediary or an institution, you will have to follow
their procedures for transacting with the Fund. For more information about how to purchase or sell Fund shares through a financial intermediary or an institution, you should contact them directly. Investors may be charged a fee for purchase and/or
redemption transactions effectuated through certain financial intermediaries and institutions.
Online Purchases (Class F-1 Shares only)
You may open a new Fund account and purchase Class F-1 Shares of any Transparent Value Fund, or you, may buy Class F-1 Shares in an existing
Fund account online. Federal regulations may require the Fund to obtain your name, your date of birth, your residential address or principal place of business and mailing address as well as your taxpayer identification number at the time you open
your account. Applications without this information may not be accepted. To the extent permitted by law, the Fund reserves the right to place limits on transactions in your account until your identity is verified.
To complete your purchase online, please visit www.transparentvalue.com and follow the appropriate instructions through the Invest
link of the website. You can elect to have funds electronically transferred from your designated bank account. A real-time confirmation of your transaction will be provided via the website.
By Automated Investments
You may
schedule purchases of additional shares to be made to your account on a periodic basis through an Automatic Investment Program. You may request this option at the time you establish your account by completing the appropriate sections of the Account
Application. You may select the frequency with which your money ($100 minimum) will be electronically transferred from your designated bank account to your Fund account. Certain tax-deferred accounts are not eligible for automated investments.
When purchasing shares through the Automatic Investment Program, if no date or dollar amount is specified on your application, investments of
$100 will be made on the 15th of each month. Your first automatic investment may take up to two weeks to establish. If the balance in the account you are buying into falls to zero as the result of a redemption or exchange, your Automatic Investment
Program will be discontinued.
We may make additional attempts to debit your predesignated bank account for automated investments that
initially fail. You are liable for any costs associated with these additional attempts. If your automated investment fails, you may purchase shares of the Fund by submitting good funds via another method accepted by the Fund (e.g., by wire
transfer). In this case, your purchase will be processed at the next NAV determined after we receive good funds, not at the NAV available as of the date of the original request. Wire fees may be charged.
The Fund reserves the right to reject any specific purchase order for any reason. The Fund is not intended for short-term trading by
shareholders in response to short-term market fluctuations. For more information about the Funds policy on short-term trading, see Excessive Trading Policies and Procedures.
The Fund does not generally accept investments by foreign investors (investors without a U.S. social security number or a U.S. tax
identification number). Foreign investors may be permitted to invest in the Fund subject to the satisfaction of enhanced due diligence. Please consult your financial intermediary or contact the Fund for more information.
15
General Information
You may purchase shares on any day that the NYSE is open for business (a Business Day). Shares cannot be purchased by Federal
Reserve wire on days that either the NYSE or the Federal Reserve is closed. The price per share will be the net asset value per share (NAV) next determined after the Fund receives your purchase order in proper form, plus any applicable
front-end sales charge. Proper form means that the Fund was provided with a complete and signed account application, including the investors social security number, tax identification number, and other identification required by
law or regulation, as well as sufficient purchase proceeds.
The Fund calculates its NAV once each Business Day as of the
regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). To receive the current Business Days NAV, the Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes
early such as on days in advance of certain holidays the Fund reserves the right to calculate NAV as of the earlier closing time. The Fund will not accept orders that request a particular day or price for the transaction or any other
special conditions.
The Fund will not accept purchases made with credit cards, credit card checks, or cash. Acceptable methods of payment
include check (not including third party checks) or electronic funds transfer. If a check received for the purchase of shares does not clear, the purchase will be cancelled, and you could be liable for any losses or fees incurred by the Fund. The
Fund reserves the right to reject a purchase order when the Fund determines that it is not in the best interests of the Fund or its shareholders to accept such order. The Fund, the Distributor, and the Transfer Agent will not be responsible for any
loss, liability, cost, or expenses for acting upon wire instructions or telephone instructions that they reasonably believe to be genuine. The Fund, the Distributor, and the Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form of personal identification prior to acting upon instructions received by telephone and recorded telephone instructions.
How the Funds Calculate NAV
The NAV for
one Fund share is the value of that shares portion of the net assets of the Fund. In calculating NAV, the Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably
believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the Fund is required to price those securities at fair value as determined in good
faith using methods approved by the Funds Board. Pursuant to the policies adopted by, and under the ultimate supervision of the Funds Board, these methods are implemented through the Funds Fair Value Committee, members of which are
appointed by the Board. The Funds determination of a securitys fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the Fund assigns to
a security may be higher or lower than the securitys value would be if a reliable market quotation for the security was readily available.
Although the Fund invests primarily in the stocks of U.S. companies that are traded on U.S. exchanges, there may be limited circumstances in
which the Fund would price securities at fair value for example, if the exchange on which a portfolio security is principally traded closed early or if trading in a particular security was halted during the day and did not resume prior to the
time the Fund calculated its NAV.
16
Minimum Purchases
To purchase Class A Shares, Class C Shares or Class F-1 Shares of the Fund for the first time, including an initial purchase through an
individual retirement account (IRA), you must invest at least $5,000. Subsequent investments must be made in amounts of at least $100. The Fund may accept initial and subsequent investments of smaller amounts in its sole discretion. The
IRA and Coverdell Education Savings Account (ESA) custodian charges an annual maintenance fee (currently $15) per IRA or ESA holder.
The minimum initial investment for Class I Shares of the Fund is $2 million. The minimum amount for subsequent investments in Class
I Shares is $100,000. The minimum initial and subsequent investment requirements are waived to $5,000 for initial and $100 for subsequent investments for Trustees of the Trust, persons affiliated with the Trust or the Adviser, and certain Fund
service providers. The minimum initial investment requirement for Class I Shares will be waived for investors in certain fee-based, wrap, or other investment platforms that do not require the Fund to pay any type of administrative payment per
shareholder account to any third party. These waivers are subject to change or elimination at any time. Please contact the Fund prior to making a purchase order to determine whether you are eligible for such waivers.
Minimum investment requirements do not apply to purchases by employees of the Adviser, Sub-Adviser or their affiliates (or to their spouses,
children or immediate relatives), or to certain retirement plans, fee-based programs or omnibus accounts. If you purchase shares through an intermediary, different minimum account requirements may apply.
Ticker Symbols and CUSIP Numbers
The
reference information listed below will be helpful to you when you purchase shares of the Fund, check daily NAV or obtain additional information.
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Fund Name
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Ticker
Symbol
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CUSIP
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Transparent Value Small-Cap Fund Class A Shares
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[ ]
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[ ]
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Transparent Value Small-Cap Fund Class C Shares
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[ ]
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[ ]
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Transparent Value Small-Cap Fund Class F-1 Shares
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[ ]
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[ ]
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Transparent Value Small-Cap Fund Class I Shares
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[ ]
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[ ]
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How to Sell Your Fund Shares
If you own your shares through an account with a broker or other institution, contact that broker or institution to sell your shares. Your
broker or institution may charge a fee for its services in addition to the fees charged by the Fund. If you own your shares directly, you may sell your shares on any Business Day by contacting the Fund directly by mail or telephone at
1-888-727-6885. IRA redemption instructions must be provided in writing. Unless contrary instructions are provided with the redemption order, the Fund will withhold 10% of the proceeds for the Internal Revenue Service.
The sale price will be the NAV next determined after the Fund or the applicable financial intermediary receives your request in proper form,
minus any applicable Contingent Deferred Sales Charges (CDSC).
17
By Systematic Withdrawal Plan (Via ACH)
If your account balance is at least $10,000, you may transfer as little as $100 per month from your account to another financial institution
through a Systematic Withdrawal Plan (via ACH). To participate in this service or to cancel or change a plan, contact your financial intermediary or write to the Fund at: Transparent Value Funds, P.O. Box 46103, Denver, CO 80201 (Express Mail
Address: Transparent Value Funds, c/o ALPS Fund Services, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203).
Receiving Your Money
Normally, the Fund will send your sale proceeds within seven days after the Fund receives your request in good order. Your proceeds can be
wired to your bank account (will be subject to a $10 fee), sent to you by check or sent via Automated Clearing House (ACH) to your bank account once you have established banking instructions with the Fund.
If you are selling shares that were
recently purchased by check or through ACH, redemption proceeds may not be available until your check has cleared or the ACH transaction has been completed (which may take up to 15 days from your date of purchase).
Redemptions In Kind
The Fund generally
pays sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise and for the protection of the Funds remaining shareholders, the Fund might pay all or part of your redemption proceeds in
securities (possibly including illiquid securities) with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were, you would have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. In addition, you would continue to be subject to the risks of any market fluctuation in the value of the securities you
receive in kind until they are sold, and you may not be able to sell such securities at or near the price the Fund valued them at, if at all.
Involuntary Redemptions of Your Shares
If your account balance drops below $5,000 because of redemptions, you may be required to sell your shares. The Fund will provide you at least
30 days written notice to give you sufficient time to add to your account and avoid the involuntary redemption of your shares.
Suspension of
Your Right to Sell Your Shares
The Fund may suspend your right to sell your shares during times when trading on the NYSE is
restricted or halted, or otherwise as permitted by the U.S. Securities and Exchange Commission (the SEC). More information about this is in the SAI.
How to Exchange Fund Shares
You may
exchange shares of any one Class of the Fund for the same Class of any other Fund. In addition, you may exchange your Class A Shares or Class C Shares of the Fund for Class I Shares of the same Fund, provided that (1) you hold your shares
through an institution that has a valid Class I Shares sales agreement with the Funds distributor authorizing such an exchange and (2) you are eligible to invest in Class I Shares in accordance with the criteria set forth in this
prospectus. In addition, Class C shareholders must have held the Class C shares being exchanged for a minimum of one year from the date of purchase of those shares, and Class A shareholders who purchased shares without a front-end sales charge
must have held the Class A shares being exchanged for a minimum of 18 months from the date of purchase of those shares. Any such exchange is subject to the Funds discretion to accept or reject the exchange.
18
If you purchased Class A Shares subject to a front-end sales charge, you will not be
reimbursed the sales charge upon exchange of the shares for Class I Shares of the same Fund.
You will ordinarily submit your exchange
transaction order through your financial intermediary or other securities dealers through which you opened your shareholder account. If you own your shares directly, you may exchange your shares by contacting the Fund directly by mail or telephone
at 1-888-727-6885.
The exchange privilege is not intended as a vehicle for short-term or excessive trading. The Fund may suspend or
terminate your exchange privilege if you engage in a pattern of exchanges that is excessive, as determined in the sole discretion of the Fund. For more information about the Funds policy on excessive trading, see Excessive Trading
Policies and Procedures.
If you exchange your shares of a Fund for shares of another class of the same Fund, it is not considered a
taxable event and should not result in capital gain or loss. If you exchange your shares of the Fund for shares of another Fund, it is considered a sale and purchase of shares for federal income tax purposes and may result in a capital gain or loss.
Telephone Transactions
Purchasing,
selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not
responsible for any losses or costs incurred by following telephone instructions they reasonably believe to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss.
Sales Charges
Front-End Sales Charges Class A Shares
The offering price of Class A Shares is the NAV next calculated after the Fund receives your request, plus the front-end sales charge.
The amount of any front-end sales charge included in your offering price varies depending on the amount of your investment.
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If Your Investment Is:
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Your Sales Charge as a
Percentage of Offering Price
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Your Sales Charge as a
Percentage of Your
Net
Investment
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Less than $25,000
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5.75%
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6.10%
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$25,000 but less than $50,000
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5.00%
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5.26%
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$50,000 but less than $100,000
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4.50%
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4.71%
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$100,000 but less than $250,000
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3.50%
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3.63%
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$250,000 but less than $500,000
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2.50%
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2.56%
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$500,000 but less than $750,000
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2.00%
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2.04%
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$750,000 but less than $1,000,000
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1.50%
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1.52%
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$1,000,000 and over*
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None
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None
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19
*
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If you are in a category of investors who may purchase Fund shares without a front-end sales charge, you will be subject to a 1.25% deferred sales
charge if you redeem your shares within 18 months of purchase.
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Since some of your investment goes to pay an upfront
sales charge when you purchase Class A Shares, you purchase fewer shares than you would with the same investment in Class C Shares. Nevertheless, you are usually better off purchasing Class A Shares, rather than Class C Shares, and paying
the front-end sales charge if you:
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plan to own the shares for an extended period of time, since the ongoing Rule 12b-1 fees on Class C Shares may eventually exceed the cost of the
front-end sales charge; and
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qualify for a reduced or waived sales charge.
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If you invest $1 million or more (and are not eligible for Class F-1 or Class I Shares), Class A Shares will always be the most
advantageous choice.
You may qualify for reduced sales charges or sales charge waivers. Please consult your broker or other financial
intermediary to see whether you qualify for a reduction or waiver of the sales charge. If you believe that you may qualify for a reduction or waiver of the sales charge, you should discuss this matter with your broker or other financial
intermediary. To qualify for these reductions or waivers, you or your financial intermediary must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment. This information could be used to
aggregate, for example, holdings in personal or retirement accounts, Fund shares owned by your immediate family members, and holdings in accounts at other brokers or financial intermediaries. The Fund or your financial intermediary may request
documentation from you in order to verify your eligibility for a breakpoint discount. This information may include account statements and records regarding Fund shares held at all financial intermediaries by you and members of your immediate family.
In addition to breakpoint discounts, the following sections describe other circumstances in which sales charges are waived or otherwise may be reduced.
Waiver of Front-End Sales Charge Class A Shares
Certain investors may be eligible for a waiver of the sales charges due to the nature of the investors and/or the reduced sales efforts
necessary to obtain their investments. The front-end sales charge will be waived on Class A Shares purchased:
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Through reinvestment of dividends and distributions;
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Through an account advised or sub-advised by the Adviser, the Sub-Adviser or their affiliates;
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By persons repurchasing shares they redeemed within the last 90 days (see Repurchase of Class A Shares);
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By employees, officers and directors, and members of their immediate family, of the Adviser, the Sub-Adviser, and their affiliates;
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By persons reinvesting distributions from qualified employee benefit retirement plans and rollovers from IRAs as long as the plan was previously
invested in one or more of the TVT Funds, including the Fund;
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By investors who acquire Class A Shares in one Fund through the exchange of Class A Shares in another Fund (See How to Exchange
Fund Shares);
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Through dealers, retirement plans, asset allocation programs and financial institutions that, under their dealer agreements with the distributor or
otherwise, do not receive any portion of the front-end sales charge;
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Purchases by registered representatives and other employees of certain financial intermediaries (and their immediate family members) having selling
agreements with the Adviser, the Sub-Adviser or the distributor;
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Through broker-dealer sponsored wrap program accounts and/or fee-based accounts maintained for clients of certain financial intermediaries who have
entered into selling agreements with the distributor;
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Through certain third-party fund supermarkets, if available. Some fund supermarkets offer Fund shares without a sales charge or with a
reduced sales charge. Other fees may be charged by the service-provider sponsoring the fund supermarket, and transaction charges may apply to purchases and sales made through a broker-dealer; and
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Certain other investors as deemed appropriate by the Adviser or Sub-Adviser.
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Repurchase of Class A Shares
You
may repurchase any amount of Class A Shares of the Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of Class A Shares (other than those which were purchased with reinvested dividends and
distributions) that you redeemed within the past 90 days. In effect, this allows you to reacquire shares that you may have had to redeem, without repaying the front-end sales charge. To exercise this privilege, the Fund must receive your purchase
order within 90 days of your redemption. In addition, you must notify your investment professional or institution when you send in your purchase order that you are repurchasing shares. Certain tax rules may limit your ability to recognize a loss on
the redemption of your Class A Shares, and you should consult your tax advisor if recognizing such a loss is important to you.
Rights of
Accumulation
In calculating the appropriate sales charge rate, this right allows you to add the value of the Class A Shares you
already own to the amount that you are currently purchasing. The Fund will combine the value of your purchases with the value of any Class A Shares you purchased previously for (i) your account, (ii) your spouses account,
(iii) a joint account with your spouse or (iv) your minor childrens trust or custodial accounts. A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of accumulation. The value of your
accumulated shares equals the cost or current value of those shares, whichever is higher. The current value of shares is determined by multiplying the number of shares by their highest current public offering price. If your investment qualifies for
a reduced sales load due to accumulation of purchases, you must notify the transfer agent at the time of purchase of the existence of other accounts and/or holdings eligible to be aggregated to reduce or eliminate the sales load. You may be required
to provide records, such as account statements, regarding the Fund shares held by you or related accounts at the Fund or at other financial intermediaries in order to verify your eligibility for a breakpoint discount as the Fund, their transfer
agent and financial intermediaries may not maintain this information. You will receive the reduced sales load only on the additional purchases and not retroactively on previous purchases. The Fund may amend or terminate this right of accumulation at
any time.
21
Letter of Intent
You may purchase Class A Shares at the sales charge rate applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class A Shares of the Fund over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Fund will only consider
the value of Class A Shares sold subject to a sales charge. As a result, Class A Shares purchased with dividends or distributions will not be included in the calculation. To be entitled to a reduced sales charge on the purchase of
Class A Shares based on shares you intend to purchase over the 13-month period, you must send the Fund a Letter of Intent. In calculating the total amount of purchases, you may include in your Letter purchases made up to 90 days before the date
of the Letter. Purchases resulting from the reinvestment of dividends and capital gains do not apply toward fulfillment of the Letter. The 13-month period begins on the date of the first purchase, including those purchases made in the 90-day period
before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted.
You are not legally
bound by the terms of your Letter of Intent to purchase the amount of your shares stated in the Letter. The Letter does, however, authorize the Fund to hold in escrow 5% of the total amount you intend to purchase. If you do not complete the total
intended purchase of Class A Shares at the end of the 13-month period, the Funds transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount
you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased).
Combined Purchase/Quantity
Discount Privilege
When calculating the appropriate sales charge rate, the Fund will combine same-day purchases of Class A
Shares (that are subject to a sales charge) made by you, your spouse and your minor children (under age 21). This combination also applies to Class A Shares you purchase with a Letter of Intent.
General Information about Sales Charges
Your securities dealer is paid a commission when you buy your shares and is paid a servicing fee as long as you hold your shares.
From time to time, some financial institutions may be reallowed up to the entire sales charge. Firms that receive a reallowance of the entire
sales charge may be considered underwriters for the purpose of federal securities law.
From time to time, one or more promotional
incentive programs for dealers may be instituted. Under any such program, dealers may receive cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include merchandise, travel expenses, prizes,
meals, lodgings and gifts that do not exceed $100 per year, per individual.
Information regarding the Funds sales charges may be obtained free of
charge by calling toll-free 1-888-727-6885.
Contingent Deferred Sales Charges (CDSC) Class A Shares
You will not pay a sales charge if you purchase $1,000,000 or more of Class A Shares. The offering price of Class A Shares is
calculated in the NAV. If you purchase $1,000,000 or more of Class A Shares and sell your shares within 18 months after your purchase, you may pay a CDSC of 1.25% on certain
22
purchases for either (1) the NAV of the shares at the time of purchase or (2) the NAV of the shares next calculated after the Fund receives your sale request, whichever is less. The
sales charge does not apply to shares you purchase through reinvestment of dividends or distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to
exchanges of Class A Shares of the Fund for Class A Shares of another Fund.
Contingent Deferred Sales Charges (CDSC) Class C Shares
A 1.00% CDSC will be deducted with respect to Class C Shares redeemed within 12 months of purchase, unless a CDSC waiver applies. The
CDSC will be based on the lower of the original purchase price or the value of the redemption of the Class C Shares redeemed, as applicable.
Since you pay no initial sales charge, an investment of less than $1 million in Class C Shares buys more shares than the same investment would
in Class A Shares. However, Class C Shares are subject to an annual distribution and service (12b-1) fee of 1.00%. Over time, the distribution and service fee may cost you more than paying a front-end sales charge on Class A Shares. Class
C Shares redeemed within one year of purchase are subject to a 1.00% CDSC.
Because Class A Shares will always be a more favorable
investment than Class C Shares for investments of $1 million or more, the Fund will generally not accept a purchase order for Class C Shares in the amount of $1 million or more. While the Fund will take reasonable steps to prevent investments of $1
million or more in Class C Shares, it may not be able to identify such investments made through certain financial intermediaries or omnibus accounts.
Class I Shares
Since you pay no
front-end sales charge, an investment of less than $1 million in Class I Shares buys more Shares than the same investment would in a Class that charges a front-end sales charge. There is also no CDSC imposed upon redemptions of Class I Shares, and
you do not pay ongoing service or distribution fees.
Distribution of Fund Shares
The Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940, as amended (the 1940 Act) for
Class A Shares, Class C Shares and Class F-1 Shares that allows the Fund to pay distribution and service fees for the sale and distribution of their Class A Shares, Class C Shares and Class F-1 Shares, and for services provided to
shareholders. Because these fees are paid out of the Funds assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. The Fund will pay distribution and
service fees at an annual rate not to exceed 0.25% of average daily net assets of the Fund attributable to Class A Shares and Class F-1 Shares, and at an annual rate not to exceed 1.00% of average daily net assets of the Fund attributable to
Class C Shares.
Shareholder Servicing Arrangements
The Fund may compensate financial intermediaries for providing a variety of services to shareholders. Financial intermediaries include
affiliated or unaffiliated brokers, dealers, banks (including bank trust departments), trust companies, registered investment advisers, financial planners, retirement plan administrators, insurance companies, and any other institution having a
service, administration, or any similar arrangement with the Fund, its service providers or their respective affiliates. This section and the following section briefly describe how financial intermediaries may be paid for providing these services.
23
The Fund generally pays financial intermediaries a fee that is based on the assets of the Fund
that are attributable to investments by customers of the financial intermediary. The services for which financial intermediaries are compensated may include record-keeping, transaction processing for shareholders accounts and other shareholder
services. In addition to these payments, your financial intermediary may charge you account fees, transaction fees for buying or redeeming shares of the Fund, or other fees for servicing your account. Your financial intermediary should provide a
schedule of its fees and services to you upon request.
The Fund has adopted a shareholder servicing plan that provides that the Fund may
pay financial intermediaries for shareholder services at an annual rate not to exceed 0.15% of the average daily net assets of the Funds Class A Shares. In addition to payments made directly to financial intermediaries by the Fund, the
Adviser or its affiliates may, at their own expense, pay financial intermediaries for these and other services to the Funds shareholders, as described in the section below.
Payments to Financial Intermediaries
From time to time, the Adviser and/or its affiliates, in their discretion, may make payments to certain affiliated or unaffiliated financial
intermediaries to compensate them for the costs associated with distribution, marketing, administration and shareholder servicing support. These payments may be in addition to any 12b-1 fees or shareholder servicing payments that are reflected in
the fees and expenses listed in the fee table section of this prospectus. These payments are sometimes characterized as revenue sharing payments and are made out of the Advisers and/or its affiliates own legitimate profits or
other resources, and are not paid by the Fund. A financial intermediary may provide these services with respect to Fund shares sold or held through programs such as retirement plans, qualified tuition programs, fund supermarkets, fee-based advisory
or wrap fee programs, bank trust programs and insurance (
e.g.
, individual or group annuity) programs. In addition, financial intermediaries may receive payments for making shares of the Fund available to their customers or registered
representatives, including providing the Fund with shelf space, placing it on a preferred or recommended fund list, or promoting the Fund in certain sales programs that are sponsored by financial intermediaries. To the extent permitted
by SEC and Financial Industry Regulatory Authority rules and other applicable laws and regulations, the Adviser and/or its affiliates may pay or allow other promotional incentives or payments to financial intermediaries. For more information, please
see Payments to Financial Intermediaries in the Funds SAI.
The level of payments to individual financial intermediaries
varies in any given year and may be negotiated on the basis of sales of Fund shares, the amount of Fund assets serviced by the financial intermediary or the quality of the financial intermediarys relationship with the Adviser and/or its
affiliates. These payments may be more or less than the payments received by the financial intermediaries from other mutual funds and may influence a financial intermediary to favor the sales of certain funds or share classes over others. In certain
instances, the payments could be significant and may cause a conflict of interest for your financial intermediary. Any such payments will not change the net asset value or price of the Funds shares. Please contact your financial intermediary
for information about any payments it may receive in connection with the sale of Fund shares or the provision of services to Fund shareholders, as well as information about any fees and/or commissions it charges.
24
Other Policies
Excessive Trading Policies and Procedures
The Fund is intended for long-term investment purposes only and discourages shareholders from engaging in market timing or other
types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds long-term shareholders and could adversely affect shareholder returns. The risks posed by frequent trading include
interfering with the efficient implementation of the Funds investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Fund to maintain higher cash balances to meet redemption
requests and experiencing increased transaction costs.
The Funds service providers will take steps reasonably designed to detect
and deter frequent trading by shareholders pursuant to the Funds policies and procedures described in this prospectus and approved by the Funds Board. For purposes of applying these policies, the Funds service providers may
consider the trading history of accounts under common ownership or control. The Funds policies and procedures include:
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The Fund reserves the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in
particular, if the Fund or the Adviser/Sub-Adviser reasonably believes that the trading activity would be harmful or disruptive to the Fund.
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The Fund and/or its service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is
consistent with the interests of the Funds long-term shareholders. The Fund does not knowingly accommodate frequent purchases and redemptions by Fund shareholders. Although these policies are designed to deter frequent trading, none of these
measures alone nor all of them taken together eliminate the possibility that frequent trading in the Fund will occur.
Financial
intermediaries (such as investment advisers and broker-dealers) often establish omnibus accounts in the Fund for their customers through which transactions are placed. In accordance with Rule 22c-2 under the 1940 Act, the Fund has entered into
information sharing agreements with certain financial intermediaries. Under these agreements, a financial intermediary is obligated to: (1) enforce during the term of the agreement, the Funds or, in certain instances, the financial
intermediarys market-timing policy; (2) furnish the Fund, upon its request, with information regarding customer trading activities in shares of the Fund; and (3) enforce the Funds or, in certain instances, the financial
intermediarys market-timing policy with respect to customers identified by the Fund as having engaged in market timing. When information regarding transactions in the Funds shares is requested by the Fund and such information is in the
possession of a person that is itself a financial intermediary to a financial intermediary (an indirect intermediary), any financial intermediary with whom the Fund has an information sharing agreement is obligated to obtain transaction
information from the indirect intermediary or, if directed by the Fund, to restrict or prohibit the indirect intermediary from purchasing shares of the Fund on behalf of other persons. Please contact your financial intermediary for more information.
Customer Identification and Verification
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to
obtain, verify and record information that identifies each person who opens an account.
25
What this means to you: When you open an account, the Fund will ask your name, address, date of
birth, Social Security number and other information that will allow the Fund to identify you. This information is subject to verification to ensure the identity of all persons opening a mutual fund account.
The Fund is required by law to reject your new account application if the required identifying information is not provided.
In certain instances, the Fund is required to collect documents to fulfill their legal obligation. Documents provided in connection with your
application will be used solely to establish and verify a customers identity.
Attempts to collect the missing information required
on the application will be performed by either contacting you or, if applicable, your broker. If this information cannot be obtained within a reasonable timeframe established in the sole discretion of the Fund, your application will be rejected.
Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your
investment will be accepted and your order will be processed at the next-determined NAV per share.
The Fund reserves the right to close
or liquidate your account at the NAV next-determined and remit proceeds to you via check if they are unable to verify your identity. Attempts to verify your identity will be performed within a reasonable timeframe established in the sole discretion
of the Fund. Further, the Fund reserves the right to hold your proceeds until your original check clears the bank, which may take up to 15 days from the date of purchase. In such an instance, you may be subject to a gain or loss on Fund shares and
will be subject to corresponding tax implications.
Anti-Money Laundering Program
Customer identification and verification is part of the Funds overall obligation to deter money laundering under federal law. The Fund
has adopted an anti-money laundering compliance program designed to prevent the Fund from being used for money laundering or the financing of illegal activities. In this regard, the Fund reserves the right to: (i) refuse, cancel or rescind any
purchase or exchange order; (ii) freeze any account and/or suspend account services; or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when,
in the sole discretion of Fund management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority. If your account is closed at the request of
governmental or law enforcement authority, you may not receive proceeds of the redemption if the Fund is required to withhold such proceeds.
Dividends and Distributions
The Fund distributes its net investment income and makes distributions of its net realized capital gains and dividends, if any, at least
annually. If you own Fund shares on the Funds record date, you will be entitled to receive the distribution.
You will receive
dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for
dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice.
26
Taxes
Please consult your tax advisor regarding your specific questions about federal, state and local income taxes.
Below is a summary of
some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its net investment income and net realized capital gains, if any. The dividends and
distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from the Fund may be taxable whether or not you reinvest them. Dividend distributions, including
distributions of short-term capital gains are generally taxable at ordinary income tax rates. Distributions of long-term capital gains and distributions of qualified dividend income are generally taxable at the rates applicable to long-term capital
gains.
The sale of Fund shares may be a taxable event. For tax purposes, an exchange of the Fund shares for shares of a different fund is
the same as a sale. The gain or loss on the sale of Fund shares generally is required to be treated as a short-term capital gain or loss if you held the shares for 12 months or less or as long-term capital gain or loss if you held the shares for
longer. Any loss realized upon a taxable disposition of Fund shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received (or deemed received) by you with
respect to the Fund shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if you purchase other substantially identical shares within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Beginning January 1, 2013, U.S. individuals
with income exceeding $200,000 ($250,000 if married and filing jointly) are subject to a new 3.8% Medicare contribution tax on their net investment income, including interest, dividends and capital gains (including capital gains realized
on the sale or exchange of shares of the Fund.
Because each shareholders tax situation is different, you should consult your tax
advisor about the tax implications of an investment in the Fund.
More information about taxes is in the SAI.
27
Financial Highlights
The Fund is newly organized and its shares have not previously been offered. Therefore, it does not have any financial history. Additional
information about the investments for the Fund will be available in its annual and semi-annual reports when they are prepared.
28
Index Provider Information
NEITHER S&P DOW JONES INDICES LLC, ITS AFFILIATES NOR THEIR THIRD PARTY LICENSORS GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR
COMPLETENESS OF THE S&P INDEXES OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES LLC, ITS
AFFILIATES AND THEIR THIRD PARTY LICENSORS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P DOW JONES INDICES LLC MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO ANY LICENSED TRADEMARKS, S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES LLC, ITS
AFFILIATES OR THEIR THIRD PARTY LICENSORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.
The Fund is not sponsored, endorsed, sold or
promoted by S&P Dow Jones Indices LLC or its third party licensors. Neither S&P Dow Jones Indices LLC nor its third party licensors makes any representation or warranty, express or implied, to the owners of the Fund or any member of the
public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P Index to track general market performance. S&P Dow Jones Indices LLCs and its third party licensors only
relationship to Transparent Value, LLC and the Fund with respect to the S&P Index is the licensing of S&P Index which is determined, composed and calculated by S&P Dow Jones Indices LLC or its third party licensors without regard to
Transparent Value, LLC or the Fund. S&P Dow Jones Indices LLC and its third party licensors have no obligation to take the needs of Transparent Value, LLC or the owners of the Fund into consideration in determining, composing or calculating the
S&P Index. Neither S&P Dow Jones Indices LLC nor its third party licensors is responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the
determination or calculation of the equation by which the shares of the Fund are to be converted into cash. S&P Dow Jones Indices LLC has no obligation or liability in connection with the administration, marketing or trading of the Fund.
29
Transparent Value Trust
Investment Adviser
Guggenheim Partners Investment
Management, LLC
330 Madison Avenue, 10th Floor
New York, NY
10017
Investment Sub-Adviser
Transparent Value
Advisors, LLC
330 Madison Avenue, 10th Floor
New York, NY
10017
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203
Legal Counsel
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
How To Obtain More Information About The Fund
More information about the Fund is available, without charge, upon request, through the following:
Statement of Additional Information (SAI):
The SAI, dated
[ ], 2014, includes detailed information about the Fund and Transparent Value Trust. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This
means that the SAI, for legal purposes, is a part of this prospectus.
Annual and Semi-Annual Reports:
These reports, when
available, list the Funds holdings and contain information from the Adviser and Sub-Adviser about investment strategies, and recent market conditions and trends that significantly impacted Fund performance of the previous fiscal year. The
reports also contain detailed financial information about the Fund.
To Obtain an SAI, Annual or Semi-Annual Reports, or More Information:
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By Telephone:
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1-888-727-6885
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By Mail:
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P.O. Box 46103, Denver, CO 80201
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By Internet:
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www.transparentvalue.com
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From the SEC:
You can also obtain the SAI or the Annual and Semi-Annual Reports, as well as
other information about the Fund, from the EDGAR Database on the SECs website at:
http://www.sec.gov
. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for
30
information on the operation of the Public Reference Room, call 202-551-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: U.S. Securities
and Exchange Commission, Public Reference Section, Washington, DC 20549. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address:
publicinfo@sec.gov
.
The Transparent Value Trusts 1940 Act registration number is 811-22309.
31
© 2014 Transparent Value, LLC. All rights reserved. No part of this document may be
circulated, quoted or reproduced for distribution without prior written approval from Transparent Value, LLC. Transparent Value
®
, RBP
®
,
Required Business Performance
®
and the Transparent Value logo are registered trademarks of Transparent Value, LLC, or one of its subsidiaries. See the market clearly is a trademark
of Transparent Value, LLC, and its affiliates. Other featured words or symbols used to identify the source of goods and services may be the trademarks of their respective owners.
Transparent Value, LLC (Transparent Value) is a subsidiary of Guggenheim Partners, LLC.
An investment in the Fund involves risks, including loss of principal.
As of the date of this Prospectus, the Fund has not commenced operations and does not have an operating history.
Transparent Value Funds are distributed by ALPS Distributors, Inc.
Subject to Completion
The information contained herein is not complete and may be changed. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This statement of additional information shall
not constitute an offer to sell these securities and is not soliciting an offer to buy these securities in any State in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any
such State.
Preliminary Statement of Additional Information dated November 8, 2013
STATEMENT OF ADDITIONAL INFORMATION
T
RANSPARENT
V
ALUE
S
MALL
-C
AP
F
UND
CLASS A SHARES [
] CLASS F-1 SHARES
[
]
CLASS C SHARES
[
] CLASS I SHARES [
]
a series of TRANSPARENT VALUE TRUST
[ ], 2014
Investment Adviser:
GUGGENHEIM PARTNERS INVESTMENT MANAGEMENT, LLC
Investment Sub-Adviser:
TRANSPARENT VALUE ADVISORS, LLC
This Statement of Additional Information (SAI) is not a prospectus. This SAI is intended to provide additional information
regarding the activities and operations of the Transparent Value Trust (the Trust) and the Transparent Value Small-Cap Fund (the Fund). This SAI is incorporated by reference and should be read in conjunction with the
Funds prospectus dated [ ], 2014 (the Prospectus). Capitalized terms not defined herein are defined in the Prospectus. Shareholders may obtain copies of the Funds Prospectus or
Annual or Semi-Annual Report (when available) free of charge by writing to the Trust at P.O. Box 46103, Denver, CO 80201 or calling the Fund at 1-888-727-6885. Investors should consider the investment objectives, risks, charges and expenses of the
Fund carefully before investing.
TABLE OF CONTENTS
ii
THE TRUST
General.
The Fund is a separate series of the Trust, a Delaware statutory trust organized on June 8, 2009. The Trust is an
open-end investment management company registered under the Investment Company Act of 1940, as amended (the 1940 Act) and commonly known as a mutual fund. The Declaration of Trust permits the Trust to offer separate series
(funds) of shares of beneficial interest (shares) and different classes of shares of each series. The Fund offers Class A Shares, Class C Shares, Class F-1 Shares and Class I Shares. Each share of the Fund represents an
equal proportionate interest in that Fund.
See
Description of Shares.
All consideration received by the Trust for
shares of the Fund and all assets of the Fund belong solely to that Fund and would be subject to liabilities related thereto. The Fund pays its (i) operating expenses, including fees of its service providers, expenses of preparing prospectuses,
proxy solicitation material and reports to shareholders, costs of custodial services and registering its shares under federal and state securities laws, pricing, insurance expenses, brokerage costs, interest charges, taxes and organization expenses
and (ii) pro rata share of the Trusts other expenses, including audit and legal expenses. Expenses attributable to the Fund shall be payable solely out of the assets of the Fund. Expenses not attributable to a specific fund of the Trust
are allocated across all funds of the Trust on the basis of relative net assets.
Description of Multiple Classes of Shares.
The
Trust is authorized to offer shares of the Fund in some or all of the following classes: Class A Shares, Class C Shares, Class F-1 Shares and Class I Shares. The different classes provide for variations in distribution and shareholder servicing
expenses. Minimum investment requirements and investor eligibility are described in the Prospectus. For more information on shareholder servicing and distribution expenses, see The Distributor. The Trust reserves the right to create and
issue additional classes of shares.
Voting Rights.
Each shareholder of record is entitled to one vote for each share held on the
record date of the meeting. The Fund will vote separately on matters relating solely to it. As a Delaware statutory trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Approval of shareholders will be
sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate the Fund without shareholder approval. While
the Trustees have no present intention of exercising this power, they may do so if the Fund fails to reach a viable size within a reasonable amount of time or for such other reasons as may be determined by the Board of Trustees (the
Board).
In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon
written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting.
DESCRIPTION OF PERMITTED INVESTMENTS
The following are descriptions of the Funds permitted investments and investment practices and the associated risk factors. The Fund
will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with the Funds investment objective and permitted by the Funds stated investment
policies.
1
Principal Strategies
COMMON STOCK
Common stocks represent ownership
interests in a company. Investments in common stocks in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of common stocks in which the Fund invests will cause the net asset value of
the Fund to fluctuate. The Fund purchases common stock traded in the United States on registered exchanges or the over-the-counter market.
REAL ESTATE
INVESTMENT TRUSTS (REITS)
Within the parameters of its specific investment policies, the Fund may invest in exchange-traded
REITs. REITs pool investors funds for investment primarily in income producing real estate or real estate loans or interests. A REIT is not taxed on income distributed to shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it distribute to its shareholders at least 90% of its taxable income (other than net capital gains) for each taxable year.
REITs are sometimes informally characterized as equity REITs, mortgage REITs, and hybrid REITs. Equity REITs, which invest the majority of
their assets directly in real property, derive their income primarily from rents. Equity REITs may also realize capital gains by selling properties that have appreciated in value. Mortgage REITs, which invest the majority of their assets in real
estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs.
Non-Principal Strategies
INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, including money market funds, subject to applicable limitations under
Section 12(d)(1) of the 1940 Act. Pursuant to Section 12(d)(1), the Fund may invest in the securities of another investment company (the acquired company) provided that the Fund, immediately after such purchase or acquisition,
does not own in the aggregate: (i) more than 3% of the total outstanding voting stock of the acquired company; (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the
Fund; or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the Fund) having an aggregate value in excess of 10% of the value of the total assets of the Fund, subject to certain
exceptions. To the extent allowed by law or regulation, the Fund may invest its assets in securities of investment companies that are money market funds, including those advised by Guggenheim Partners Investment Management, LLC (the
Adviser), or otherwise affiliated with the Adviser, in excess of the limits discussed above.
If the Fund invests in, and,
thus, is a shareholder of, another investment company, the Funds shareholders will indirectly bear the Funds proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both
the management fees payable directly by the Fund to the Adviser and the other expenses that the Fund bears directly in connection with the Funds own operations.
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U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities. Securities issued or guaranteed by the U.S. government or its agencies or instrumentalities
include U.S. Treasury securities, which are backed by the full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities and times of issuance. U.S. Treasury bills have initial maturities of one-year or less;
U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities of the
U.S. government including, but not limited to, obligations of U.S. government agencies or instrumentalities such as the Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie
Mae), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the Federal Agricultural
Mortgage Corporation (Farmer Mac).
Some obligations issued or guaranteed by U.S. government agencies and instrumentalities,
including, for example, Ginnie Mae pass-through certificates, are supported by the full faith and credit of the U.S. Treasury. Other obligations issued by or guaranteed by federal agencies, such as those securities issued by Fannie Mae, are
supported by the discretionary authority of the U.S. government to purchase certain obligations of the federal agency, while other obligations issued by or guaranteed by federal agencies, such as those of the Federal Home Loan Banks, are supported
by the right of the issuer to borrow from the U.S. Treasury. While the U.S. government provides financial support to such U.S. government-sponsored federal agencies, no assurance can be given that the U.S. government will always do so, since the
U.S. government is not so obligated by law. U.S. Treasury notes and bonds typically pay coupon interest semi-annually and repay the principal at maturity.
On September 7, 2008, the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac, placing the two federal
instrumentalities in conservatorship. Under the takeover, the U.S. Treasury agreed to acquire $1 billion of senior preferred stock of each instrumentality and obtained warrants for the purchase of common stock of each instrumentality (the
Senior Preferred Stock Purchase Agreement or Agreement). Under the Agreement, the U.S. Treasury pledged to provide up to $200 billion per instrumentality as needed, including the contribution of cash capital to the
instrumentalities in the event their liabilities exceed their assets. This was intended to ensure that the instrumentalities maintain a positive net worth and meet their financial obligations, preventing mandatory triggering of receivership. On
December 24, 2009, the U.S. Treasury announced that it was amending the Agreement to allow the $200 billion cap on the U.S. Treasurys funding commitment to increase as necessary to accommodate any cumulative reduction in net worth over
the next three years. As a result of this Agreement, the investments of holders, including the Fund, of mortgage-backed securities and other obligations issued by Fannie Mae and Freddie Mac are protected.
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U.S. Treasury Obligations.
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S. Treasury and separately traded
interest and principal component parts of such obligations that are transferable through the federal book entry system known as Separately Traded Registered Interest and Principal Securities (STRIPS) and Treasury Receipts
(TRs).
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Receipts.
Interests in separately traded interest and principal component parts of U.S.
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government obligations that are issued by banks or brokerage firms and are created by depositing U.S. government obligations into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. TRs and STRIPS are
interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities.
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U.S. Government Zero Coupon Securities.
STRIPS and receipts are sold as zero coupon securities - that is, fixed income securities that have
been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of this
discount is accreted over the life of the security, and the accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are
non-zero
coupon securities with similar maturity and credit qualities.
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U.S. Government Agencies.
Some obligations issued or guaranteed by agencies of the U.S. government are supported by the full faith and
credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the U.S. Treasury, while still others are supported only by the credit of the instrumentality. Guarantees of principal by agencies or instrumentalities of
the U.S. government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to
the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of the Funds shares.
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BORROWING
While the Fund does not anticipate doing so, the Fund may borrow money, as permitted under the 1940 Act, for investment purposes. Borrowing
for investment purposes is one form of leverage. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk, but also increases investment opportunity. Because substantially all of
the Funds assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the net asset value per share (NAV) of the Fund will increase more when the Funds portfolio assets increase in value and
decrease more when the Funds portfolio assets decrease in value than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the
borrowed funds. Under adverse conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales.
The Fund may also borrow money to facilitate management of the Funds portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or disadvantageous. Such borrowing is not for investment purposes and will be repaid by the borrowing Fund promptly. As required by the 1940 Act, the Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed (not including temporary borrowings not in excess of 5% of the Funds total assets). If, at any
time, the value of the Funds assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Funds borrowings to the extent necessary to meet this 300%
coverage requirement. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so.
REPURCHASE AGREEMENTS
The Fund may invest in
repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances. A repurchase agreement is an agreement under which the Fund acquires a financial instrument (
e.g.
, a security issued by the U.S.
government or an agency thereof, a bankers acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next Business Day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by the Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by the Fund (including accrued interest earned thereon) must have a total
value in excess of the value of the repurchase agreement and are held by the custodian until repurchased. No more than an aggregate of 15% of the Funds net assets will be held in illiquid securities, including repurchase agreements having
maturities longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to
repurchase the underlying security at a time when the value of the security has declined, the Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization
under the U.S. Bankruptcy Code or other laws, a court may determine that the underlying security
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is collateral for a loan by the Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at
an agreed-upon price, date and interest payment and have the characteristics of borrowing. The securities purchased with the funds obtained from the agreement and securities collateralizing the agreement will have maturity dates no later than the
repayment date. Generally the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to
keep some of the interest income associated with those securities. Such transactions are only advantageous if the Fund has an opportunity to earn a greater rate of interest on the cash derived from these transactions than the interest cost of
obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and the Fund intends to use the reverse repurchase technique only
when the Adviser believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of the Funds assets. The Funds exposure to reverse repurchase agreements
will be covered by securities having a value equal to or greater than such commitments. Under the 1940 Act, reverse repurchase agreements are considered borrowings. Although there is no limit on the percentage of total assets the Fund may invest in
reverse repurchase agreements, the Fund does not expect to engage in reverse repurchase agreements with respect to more than 33 1/3% of their respective total assets, including the proceeds received by the Fund in connection with the transaction.
OTHER SHORT-TERM INSTRUMENTS
In addition
to repurchase agreements, the Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may
include but are not limited to: (i) shares of money market funds (including those advised by the Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored
enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions; (iv) commercial
paper rated at the date of purchase Prime-1 by Moodys or A-1 by S&P, or if unrated, of comparable quality as determined by the Adviser or Sub-Adviser; (v) non-convertible corporate debt securities (
e.g.
,
bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that are rated in the top-two short-term categories by two Nationally Recognized Statistical Rating Organizations (NRSROs), or, if unrated, deemed
to be of equal quality by the Adviser or Sub-Adviser; and (vi) short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the Adviser or Sub-Adviser, are of comparable quality to
obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current basis (cash on delivery now) or a forward-settled basis (cash on delivery at a future date). Money market instruments also include
shares of money market funds. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international transactions.
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FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Fund may utilize exchange-traded futures and options contracts and swap agreements. Such investments are intended to improve liquidity,
reduce transaction costs and help the Fund stay fully invested, and are not intended to be used for hedging or speculative investment proposes. The Fund will segregate or earmark on the books of the Fund cash and/or appropriate liquid assets if
required to do so by U.S. Securities and Exchange Commission (the SEC) or Commodity Futures Trading Commission (CFTC) regulation or interpretation.
Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity or security at a
specified future time and at a specified price. Index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the index specified in the contract from one day to the
next. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges.
The Fund is
required to make a good faith margin deposit in cash or U.S. government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery
or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures
contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy margin requirements, payment of additional variation margin will be required. Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess
margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such cases, the Fund would expect to earn interest income on its margin deposits. Closing out an open
futures position is done by taking an opposite position (buying a contract which has previously been sold or selling a contract previously purchased) in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract position is opened or closed.
The Fund may purchase and sell put and call
options. Such options may relate to particular securities and may or may not be listed on a national securities exchange and issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than
ordinary investment risk. Options on particular securities may be more volatile than the underlying securities, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying
securities themselves.
The Fund may use exchange-traded futures and options, together with positions in cash and money market
instruments, to simulate full investment in its underlying Index. Exchange-traded futures and options contracts are not currently available for all of the Indexes. Under such circumstances, the Adviser may seek to utilize other instruments that it
believes to be correlated to the applicable Index components or a subset of the components.
As a result of recent amendments to rules
under the Commodity Exchange Act (CEA) by the Commodity Futures Trading Commission (CFTC), the Fund must either operate within certain guidelines and restrictions with respect to the Funds use of futures, options on
such futures,
7
commodity options and certain swaps, or the Adviser will be subject to registration with the CFTC as a commodity pool operator (CPO). Consistent with the CFTCs
new regulations, the Adviser has claimed an exclusion from the definition of the term CPO under the CEA with respect to the Fund and, therefore, the Adviser is not subject to registration or regulation as a CPO under the CEA. As a result, the
Adviser will operate the Fund within certain guidelines and restrictions with respect to their use of futures, options on such futures, commodity options and certain swaps.
Restrictions on the Use of Futures and Options. In connection with its management of the Fund, the Adviser has also claimed an exclusion from
registration as a commodity trading advisor under the CEA and, therefore, is not subject to the registration and regulatory requirements of the CEA with respect to the Fund. The Fund reserves the right to engage in transactions involving futures and
options thereon to the extent allowed by the CFTC regulations in effect from time to time and in accordance with the Funds policies. The Fund would take steps to prevent its futures positions from leveraging its securities
holdings. When it has a long futures position, it will maintain with its custodian bank, cash or equivalents. When it has a short futures position it will maintain with its custodian bank assets substantially identical to those underlying the
contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
Short Sales.
The Fund may engage in short sales that are either uncovered or against the box. A
short sale is against the box if at all times during which the short position is open the Fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities that are sold short. A short sale against the box is a taxable transaction to the Fund with respect to the securities that are sold short.
Uncovered short sales are transactions under which the Fund sells a security it does not own. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price
at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out.
Until the Fund closes its short position or replaces the borrowed security, the Fund may: (a) segregate cash or liquid securities at such
a level that the amount segregated plus the amount deposited with the broker as collateral will equal the current value of the security sold short; or (b) otherwise cover the Funds short position by holding the security.
Swap Agreements.
The Fund may enter into swap agreements, including interest rate, index, and total return swap agreements. Swap
agreements are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make payments to
the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be done on a net basis,
i.e.
, where the two parties make net payments with the Fund receiving or paying, as the case may be, only
the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or equivalents having an aggregate value at
least equal to the accrued excess is maintained by the Fund.
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FUTURE DEVELOPMENTS
The Fund may take advantage of opportunities in the area of options and futures contracts, options on futures contracts, warrants, swaps and
any other investments which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Funds investment objective and
legally permissible for the Fund. Before entering into such transactions or making any such investment, the Fund will provide appropriate disclosure.
SECURITIES LENDING
The Trust, on behalf of the
Fund, has entered into a Securities Lending Authorization Agreement (the Lending Agreement) with The Bank of New York Mellon (the Bank). Pursuant to the Lending Agreement, the Fund may lend securities representing up to
33-1/3% of the value of its total assets (including the loan collateral) to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan,
collateral in the form of cash, cash equivalents or securities issued or guaranteed by the United States Government or its agencies or instrumentalities equal to at least 102% (for U.S. securities) or 105% (for foreign securities) of the market
value of the securities loaned as determined at the time of loan origination. This collateral must be valued daily by the Bank and, if the market value of the loaned securities increases, the borrower must furnish additional collateral to the
lending Fund so that the collateral is maintained in an amount equal to at least 100% of the current market value of the loaned securities. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or
interest paid on the securities. In addition, any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. Loans are subject to termination at any time by the
lending Fund or the borrower. Also, voting rights on the loaned securities may pass to the borrower. However, the Fund has the right to recall a security (or terminate a loan) for the purpose of exercising the securitys voting rights.
Efforts to recall such securities promptly may be unsuccessful, especially for foreign securities or thinly traded securities such as small-cap stocks. In addition, because recalling a security may involve expenses to the Fund, it is expected that
the Fund will do so only where the items being voted upon are, in the judgment of the Adviser or Sub-Adviser, either material to the economic value of the security or threaten to materially impact the issuers corporate governance policies or
structure.
Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or
restrictions upon the Funds ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the
underlying securities. Under the Lending Agreement, the Bank will generally bear the risk that a borrower may default on its obligation to return loaned securities.
The Fund may invest the cash received as collateral through loan transactions in other eligible securities, which may include shares of a
registered money market fund or of an unregistered money market fund. Such money market funds might not seek or be able to maintain a stable $1 per share net asset value. Investing the cash collateral subjects the Fund to market risk. The Fund
remains obligated to return all collateral to the borrower under the terms of its securities lending arrangements even if the value of the investments made with the collateral has declined.
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Accordingly, if the value of a security in which the cash collateral has been invested declines, the loss would be borne by the Fund, and the Fund may be required to liquidate other investments
in order to return collateral to the borrower at the end of a loan.
The Fund may pay a part of the interest earned from the investment of
collateral or other fee to an unaffiliated third party for acting as the Funds securities lending agent.
SPECIAL
CONSIDERATIONS AND RISKS
A discussion of the principal risks associated with an investment in the Fund is contained in the
Prospectus. The discussion below supplements, and should be read in conjunction with, the Prospectus.
Principal Risks
Investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance
with changes in the financial condition of the issuers of the portfolio securities, the value of securities generally and other factors.
An investment in the Fund should also be made with an understanding of the risks inherent in an investment in securities, including the risk
that the financial condition of issuers may become impaired or that the general condition of the securities markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of shares).
Securities are susceptible to general market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors
including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises.
Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the
issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities, which typically have
a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks, which typically have a liquidation preference and which may have stated optional or mandatory redemption
provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
Investment in REITs may subject the Fund to risks associated with the direct ownership of real estate, such as decreases in real estate
values, overbuilding, increased competition, and other risks related to local or general economic conditions, increases in operating costs and property taxes, changes in zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent, and fluctuations in rental income. Equity REITs generally experience these risks directly through fee or leasehold interests, whereas mortgage REITs generally experience these risks indirectly through
mortgage interests, unless the mortgage REIT forecloses on the underlying real estate. Changes in interest rates may also affect the value of the Funds investment in REITs. For instance, during periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, and prepayment may diminish the yield on securities issued by those REITs.
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Certain REITs have relatively small market capitalizations, which may tend to increase the
volatility of the market price of their securities. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of
projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund, a shareholder will bear not only his or her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. In addition, REITs
depend generally on their ability to generate cash flow to make distributions to shareholders.
The principal trading market for some of
the securities in an Index may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be
made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the Funds shares will be adversely affected if trading markets for the Funds portfolio securities are limited
or absent or if bid/ask spreads are wide.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an exchange which provides a secondary market. However, there can be no
assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the applicable Fund may be required to make delivery of the instruments underlying futures contracts it has sold.
The Fund will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options
for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some
strategies (
e.g.
, selling uncovered index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts, when available, in this manner. The risk of a futures position may still be large as
traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin
deposit. The Fund, however, intend to utilize futures and options contracts in a manner designed to limit their risk exposure to that which is comparable to what they would have incurred through direct investment in securities.
Utilization of futures transactions by the Fund involves the risk of imperfect or even negative correlation to the benchmark Index if the
index underlying the futures contracts differs from the benchmark Index. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures contract or option.
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of
contract, no
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trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the
limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
RISKS OF SWAP AGREEMENTS
Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, the Fund will
have contractual remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect such Funds rights as a creditor.
The use of interest-rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
TAX RISKS
As with any investment, you should
consider how your investment in shares of the Fund will be taxed. The tax information in the Prospectus and this SAI is provided as general information. You should consult your own tax professional about the tax consequences of an investment in
shares of the Fund.
Unless your investment in shares is made through a tax-exempt entity or tax-deferred retirement account, such as an
individual retirement account, you need to be aware of the possible tax consequences when the Fund makes distributions or you sell Fund shares.
INVESTMENT LIMITATIONS
Fundamental Policies
The following investment limitations are fundamental policies of the Fund that cannot be changed without the vote of the holders of a majority
of the Funds outstanding shares. The phrase majority of the outstanding shares means the vote of (i) 67% or more of the Funds shares present at a meeting, if more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the Funds outstanding shares, whichever is less.
The Fund may not:
1.
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Concentrate its investments in an industry or group of industries (
i.e.
, hold 25% or more of its total assets in the securities of issuers
in a particular industry or group of industries), except that the Fund will concentrate to approximately the same extent that its underlying Index concentrates in the securities of such particular industry or group of industries. For purposes of
this limitation, shares of investment companies, securities of the U.S. government (including its agencies and instrumentalities) and repurchase agreements collateralized by U.S. government securities are not considered to be issued by members of
any industry.
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12
2.
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Borrow money or issue senior securities (as defined under the 1940 Act), except to the extent permitted under the 1940 Act, the rules and
regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
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3.
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Make loans, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to time.
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4.
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Purchase or sell commodities or real estate, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
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5.
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Underwrite securities issued by other persons, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
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Non-Fundamental Policies
In addition to the Funds investment objective, the following limitations are non-fundamental and may be changed by the
Trusts Board without shareholder approval. These non-fundamental policies are based upon the regulations currently set forth in the 1940 Act.
1.
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The Fund may not hold illiquid securities in an amount exceeding, in the aggregate, 15% of the Funds net assets.
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2.
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The Fund may not change its investment strategy to invest at least 80% of its net assets in securities of small-cap companies that comprise its
underlying Index at the time of initial purchase without 60 days prior written notice to shareholders.
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Except
with respect to Fund policies concerning borrowing and illiquid securities, if a percentage restriction is adhered to at the time of an investment, a later increase or decrease in percentage resulting from changes in values or assets will not
constitute a violation of such restriction. With respect to the limitation on illiquid securities, in the event that a subsequent change in net assets or other circumstances causes the Fund to exceed its limitation, the Fund will take steps to bring
the aggregate amount of illiquid instruments back within the limitation as soon as reasonably practicable. With respect to the limitation on borrowing, in the event that a subsequent change in net assets or other circumstances causes the Fund to
exceed its limitation, the Fund will take steps to bring the aggregate amount of borrowing back within the limitation within three days thereafter (not including Sundays and holidays) or such longer period as the SEC may prescribe by rules or
regulations.
The following descriptions of certain provisions of the 1940 Act may assist investors in understanding the above policies
and restrictions:
Concentration
. The SEC has defined concentration as investing 25% or more of an investment companys total
assets in an industry or group of industries, with certain exceptions.
Borrowing
. The 1940 Act presently allows a fund to borrow
from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (including the amount borrowed, but excluding temporary borrowings not in excess of 5% of its total assets).
13
Senior Securities
. Senior securities may include any obligation or instrument issued by a
fund evidencing indebtedness. The 1940 Act generally prohibits funds from issuing senior securities, although it does not treat certain transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, firm
commitment agreements and standby commitments, with appropriate earmarking or segregation of assets to cover such obligation.
Lending
. Under the 1940 Act, a fund may only make loans if expressly permitted by its investment policies. The Funds current
investment policy on lending is as follows: the Fund may not make loans if, as a result, more than 33 1/3% of its total assets (including any loan collateral) would be lent to other parties, except that the Fund may: (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii) enter into repurchase agreements; and (iii) lend its securities.
Underwriting
. Under the 1940 Act, underwriting securities involves a fund purchasing securities directly from an issuer for the purpose
of selling (distributing) them or participating in any such activity either directly or indirectly.
Real Estate
. The 1940 Act does
not directly restrict an investment companys ability to invest in real estate, but does require that every investment company have a fundamental investment policy governing such investments. The Fund will not purchase or sell real estate,
except that the Fund may purchase marketable securities issued by companies which own or invest in real estate (including REITs).
Commodities
. The Fund will not purchase or sell physical commodities or commodities contracts, except that the Fund may purchase:
(i) marketable securities issued by companies which own or invest in commodities or commodities contracts; and (ii) commodities contracts relating to financial instruments, such as financial futures contracts and options on such contracts.
THE ADVISER
General.
The Adviser, Guggenheim Partners Investment Management, LLC, a Delaware corporation, serves as the investment adviser (the
Adviser) to the Fund. The Advisers principal place of business is located at 330 Madison Avenue, 10th Floor, New York, NY 10017. The Adviser, which was formed in 2001, is a diversified financial services firm with a sophisticated
array of wealth and investment management services. The Adviser is an indirect subsidiary of Guggenheim Partners, LLC, a diversified financial services firm that is an indirect subsidiary of Guggenheim Capital, LLC. As of December 31, 2013, the
Adviser had approximately $[ ] billion in assets under management.
Advisory Agreement with the Trust.
The
Trust and the Adviser have entered into an investment advisory agreement (the Advisory Agreement) with respect to the Fund. Under the Advisory Agreement, the Adviser serves as the investment adviser, makes investment decisions for the
Fund, and manages the investment portfolios and business affairs of the Fund, subject to the supervision of, and policies established by, the Trustees of the Trust. The Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder or its reckless disregard of its obligation and duties under this Advisory Agreement.
After the initial two-year term, the continuance of the Advisory Agreement must be specifically
14
approved at least annually: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the
Advisory Agreement or interested persons or any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and is
terminable by the Trust without penalty at any time by not less than ten (10) days written notice to the Adviser stating that the termination of the Advisory Agreement has been approved either (i) by the Trustees of the Trust or,
(ii) with respect to the Fund, by a majority of the outstanding shares of the Fund. In addition, the Adviser may at any time terminate the Advisory Agreement on not more than sixty (60) days nor less than thirty (30) days
written notice to the Trust. As used in the Advisory Agreement, the terms majority of the outstanding voting securities, interested persons and assignment have the same meaning as such terms in the 1940 Act.
Advisory Fees Paid to the Adviser.
For its services under the Advisory Agreement, the Adviser is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of 1.15% of the average daily net assets of the Fund.
The Adviser has contractually
agreed to reduce fees and reimburse expenses to the extent necessary to keep net expenses (excluding interest, taxes, acquired fund fees and expenses, brokerage commissions and extraordinary expenses (excluded expenses)) from exceeding
1.70%, 2.30%, 1.55% and 1.30% of the average daily net assets of the Class A, Class C, Class F-1 and Class I Shares, respectively, of the Fund until January 31, 2015. If at any point total annual Fund operating expenses (not including
excluded expenses) are below the contractual caps, the Adviser may retain the difference between the total annual Fund operating expenses (not including excluded expenses) and the contractual caps to recapture all or a portion of its prior fee
reductions or expense reimbursements made during the preceding three-year period during which this agreement was in place. No reimbursement shall be paid to the Adviser with respect to the Fund until reported to the Board. This agreement may be
terminated: (i) by the Board, for any reason at any time; or (ii) by the Adviser, upon no more than sixty (60) days nor less than thirty (30) days prior written notice to the Trust, effective as of the close of
business on the last day of the then-current one-year period.
THE SUB-ADVISER
General.
Transparent Value Advisors, LLC (the Sub-Adviser), a Delaware limited liability company, serves as the investment
sub-adviser to the Fund. The Sub-Adviser selected and developed the Funds investment strategies and analyzes the Funds performance and adherence to such strategies. The Sub-Advisers principal place of business is located at 330
Madison Avenue, 10th Floor, New York, NY 10017. The Sub-Adviser was formed in 2006 as an asset management and financial information services company.
The Sub-Adviser is a wholly owned subsidiary of Transparent Value, LLC, which, in turn, is a wholly owned subsidiary of Guggenheim Transparent
Value, LLC. Guggenheim Transparent Value, LLC is a majority-owned, indirect subsidiary of Guggenheim Partners, LLC, which is in turn an indirect majority-owned subsidiary of Guggenheim Capital, LLC. Farhan Sharaff, Chief Investment Officer of the
Sub-Adviser, serves as a member of the Board of Trustees of the Trust. Mr. Sharaff is also a Senior Managing Director of the Adviser.
Sub-Advisory Agreement with the Trust.
The Sub-Adviser and the Adviser have entered into an investment sub-advisory agreement (the
Sub-Advisory Agreement). Under the Sub-Advisory Agreement, the Sub-Adviser provides services and advice to the Fund and the Adviser
15
in connection with the Funds efforts to replicate its Index. The Sub-Advisory Agreement provides that the Sub-Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder or its reckless disregard of its obligation and duties under the Sub-Advisory Agreement.
After the initial two-year term, the continuance of the Sub-Advisory Agreement must be specifically approved at least annually: (i) by
the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Sub-Advisory Agreement or interested persons or any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. The Sub-Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any time without penalty by the Trustees of the Trust or, with respect to
the Fund, by a majority of the outstanding shares of the Fund. In addition, the Adviser or Sub-Adviser may at any time terminate the Sub-Advisory Agreement by not more than sixty (60) days nor less than thirty (30) days written
notice to the Sub-Adviser or the Adviser, respectively. As used in the Sub-Advisory Agreement, the terms majority of the outstanding voting securities, interested persons and assignment have the same meaning as
such terms in the 1940 Act.
Sub-Advisory Fees Paid to the Sub-Adviser.
For its services under the Sub-Advisory Agreement, the
Sub-Adviser is entitled to a fee, which is calculated daily and paid monthly, by the Adviser, out of the advisory fees it receives from the Fund, at an annual rate of 1.15% for the Fund based on the average daily net assets of the Fund.
THE PORTFOLIO MANAGERS
Scott Hammond is primarily responsible for the day-to-day management of the Fund. Julian Koski is responsible for developing the Funds
portfolio strategy and communicating the portfolio strategy to the market place. Armen Arus is responsible for developing the Funds portfolio strategy and communicating the portfolio strategy to the market place. Gennadiy Khayutin is
responsible for the development of portfolio strategy of the Fund. This section includes information about Mr. Hammond, Mr. Koski, Mr. Arus, and Mr. Khayutin, including information about other accounts they manage, the dollar
range of Fund shares they own and how they are compensated.
The Adviser and Sub-Adviser compensate Mr. Hammond for his management of
the Fund. His compensation consists of a fixed annual salary (a base salary) and an annual discretionary bonus. The base salary is determined based on (i) a review of compensation payable for a similar position across the investment
management industry and (ii) an evaluation of the Mr. Hammonds overall performance (e.g., Mr. Hammonds contribution to the Advisers or Sub-Advisers overall investment process, his or her ability to work
effectively with colleagues throughout the greater Guggenheim Partners organization, etc.), and (iii) his contributions to the Advisers or Sub-Advisers asset growth and business relationships. The discretionary bonus is determined
in accordance with (a) Mr. Hammonds contributions to the firm, (b) the investment performance of the Fund under his management relative to the performance of the indexes upon which they are based during the prior one-year period
or the appropriate portion thereof with respect to funds that commenced investment operations during such period, and (c) the financial performance of the Adviser and the Sub-Adviser.
The Sub-Adviser compensates Mr. Koski for the development of portfolio strategies and communicating those strategies to the market. His
compensation consists of a fixed annual salary
16
(a base salary) and an annual discretionary bonus. The base salary is determined based on (i) a review of compensation payable for a similar position across the investment
management industry and (ii) an evaluation of Mr. Koskis overall performance (e.g., Mr. Koskis contribution to the Sub-Advisers overall investment process, his ability to effectively communicate the investment
strategy to the market, etc.), and (iii) his contributions to the Sub-Advisers asset growth and business relationships. The discretionary bonus is based on a percentage of the Sub-Advisers profits, as determined by the board of the
Sub-Adviser. In addition, Mr. Koski is a part owner of the Sub-Adviser.
The Sub-Adviser compensates Mr. Arus for the
development of portfolio strategies and communicating those strategies to the market. His compensation consists of a fixed annual salary (a base salary) and an annual discretionary bonus. The base salary is determined based on (i) a
review of compensation payable for a similar position across the investment management industry and (ii) an evaluation of his overall performance (e.g., his contribution to the Sub-Advisers overall investment process, his ability to
effectively communicate the investment strategy to the market, etc.), and (iii) his contributions to the Sub-Advisers asset growth and business relationships. The discretionary bonus is based on a percentage of the Sub-Advisers
profits, as determined by the board of the Sub-Adviser. In addition, Mr. Arus is a part owner of the Sub-Adviser.
Compensation. The
Sub-Adviser compensates Mr. Khayutin for the development of portfolio strategies. His compensation consists of a fixed annual salary (a base salary) and an annual discretionary bonus. The base salary is determined based on
(i) a review of compensation payable for a similar position across the investment management industry and (ii) an evaluation of his overall performance (e.g., his contribution to the Sub-Advisers overall investment process, etc.),
and (iii) his contributions to the Sub-Advisers asset growth and business relationships. The discretionary bonus is based on a percentage of the Sub-Advisers profits, as determined by the board of the Sub-Adviser. In addition,
Mr. Khayutin is a part owner of the Sub-Adviser.
Fund Shares Owned by Portfolio Managers.
The Fund is required to disclose
the dollar amount range of each portfolio managers beneficial ownership of shares of the Fund as of the end of the most recently completed fiscal year. Dollar amount ranges disclosed are established by the SEC. Beneficial
ownership is determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (the 1934 Act). Because the Fund is new, as of the date of this SAI, neither Mr. Hammond, Mr. Koski, Mr. Arus, nor
Mr. Khayutin beneficially owned shares of the Fund.
Other Accounts.
In addition to the Fund, Mr. Hammond is responsible
for the day-to-day management of certain other accounts as of [ ], as listed below. As of [ ], Mr. Koski, Mr. Arus and Mr. Khayutin serve as
portfolio manager for the other accounts listed below. None of the accounts below are subject to a performance based advisory fee.
17
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Name
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Registered Investment
Companies
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Other Pooled
Investment Vehicles
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Other Accounts
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Number of
Accounts
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Total Assets
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Number of
Accounts
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Total Assets
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Number of
Accounts
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Total Assets
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Julian Koski
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Scott Hammond
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Armen Arus
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Gennadiy Khayutin
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Conflicts of Interests.
It is possible that conflicts of interest may arise in connection with the
portfolio managers management of the Fund on the one hand and other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources
and investment opportunities among the Fund and other accounts he advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, a portfolio manager may take action with respect to
another account that differs from the action taken with respect to the Fund. Whenever conflicts of interest arise, each portfolio manager will endeavor to exercise his discretion in a manner that he believes is equitable to all interested persons.
The Adviser has adopted policies that are designed to eliminate or minimize conflicts of interest, although there is no guarantee that procedures adopted under such policies will detect each and every situation in which a conflict arises.
THE ADMINISTRATOR AND TRANSFER AGENT
General.
ALPS Fund Services, Inc. serves as the Trusts administrator (the Administrator) and is located at 1290
Broadway, Suite 1100, Denver, CO 80203. In addition, ALPS Fund Services, Inc. serves as the Funds transfer agent and dividend disbursing agent (the Transfer Agent) under a transfer agency and service agreement with the Trust.
Administration Agreement with the Trust.
The Trust and the Administrator have entered into an administration, bookkeeping and pricing
services agreement (the Administration Agreement). Under the Administration Agreement, the Administrator provides the Trust with administrative, bookkeeping and pricing services.
The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or negligence on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder.
18
Administration Fees Paid to the Administrator.
For its services under the Administration
Agreement, the Administrator is entitled to a fee, which is detailed below in the following schedule:
The greater of the following annual minimum fee or
basis point fee schedule:
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Services
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Fees
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With Chief Compliance Officer Services
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$680,000
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or
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Annual Net Assets
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Basis Points
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Between $0 - $1 billion
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5.0
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$1 billion - $3 billion
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4.0
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Above $3 billion
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3.0
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THE DISTRIBUTOR
General.
The Trust and ALPS Distributors, Inc. (the Distributor), an affiliate of the Administrator, are parties to a
distribution agreement (the Distribution Agreement), whereby the Distributor acts as principal underwriter for the Trusts shares. The principal business address of the Distributor is 1290 Broadway, Suite 1100, Denver, CO 80203.
After the initial two-year term, the continuance of the Distribution Agreement must be specifically approved at least annually:
(i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in
the operations of the Distribution Agreement or any related agreement, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement will terminate automatically in the event of its assignment (as such
term is defined in the 1940 Act), and is terminable at any time without penalty by the Distributor, the Board or, with respect to the Fund, by a majority of the outstanding shares of the Fund, upon not more than 60 days written notice by
either party. The Distribution Agreement provides that the Distributor shall not be protected against any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder. As used in the Distribution Agreement, the terms majority of the outstanding voting securities, interested persons and assignment have the
same meaning as such terms in the 1940 Act.
Distribution Plan.
The Trust has adopted a Distribution and Service Plan (the
Plan) in accordance with the provisions of Rule 12b-1 under the 1940 Act, which regulates 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 (as defined in the 1940 Act) of the Trust and have no direct or indirect financial interest in the Plan or
in any agreements related to the Plan (Qualified Trustees). 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. The Plan may
not be amended to increase materially the amount that may be spent thereunder without approval by a majority of the outstanding shares of any class of the Fund that is affected by such increase. All material amendments of the Plan will require
approval by a majority of the Trustees of the Trust and of the Qualified Trustees.
19
The Plan provides that Class A Shares and Class F-1 Shares of the Fund pay the Distributor
an annual fee of up to a maximum of 0.25% of the average daily net assets of the shares, and that Class C Shares of the Fund pay the Distributor an annual fee up to a maximum of 1.00% of the daily net assets of the shares. Under the Plan, the
Distributor may make payments pursuant to written agreements to financial institutions and intermediaries such as banks, savings and loan associations, and insurance companies, including, without limit, investment counselors, broker-dealers and the
Distributors affiliates and subsidiaries (collectively, Agents) as compensation for services and reimbursement of expenses incurred in connection with distribution assistance. The Plan is characterized as a compensation plan since
the distribution fee will be paid to the Distributor without regard to the distribution expenses incurred by the Distributor or the amount of payments made to other financial institutions and intermediaries. The Trust intends to operate the Plan in
accordance with its terms and with the Financial Industry Regulatory Authority (FINRA) rules concerning sales charges.
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Description of Distribution Services.
Distribution services may include: (i) services in connection with distribution assistance; or
(ii) payments to financial institutions and other financial intermediaries, such as banks, savings and loan associations, insurance companies, investment counselors,
broker-dealers,
mutual fund
supermarkets and the Distributors affiliates and subsidiaries, as compensation for services or reimbursement of expenses incurred in connection with distribution assistance. The Distributor may, at its discretion, retain a portion
of such payments to compensate itself for distribution services and distribution related expenses such as the costs of preparation, printing, mailing or otherwise disseminating sales literature, advertising, and prospectuses (other than those
furnished to current shareholders of the Fund), promotional and incentive programs, and such other marketing expenses that the Distributor may incur.
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Dealer Concessions.
Class A Shares of the Fund are sold subject to a front-end sales charge as described in the Prospectus. For
the Class A Shares, the underwriters commission (paid to the Distributor) is the sales charge shown less any applicable dealer concession. The dealer concession is paid to those firms selling shares as a member of the Funds
broker-dealer network. The dealer concession is the same for all dealers. The following table lists sales charges, breakpoint discounts and dealer concession that apply to the purchase of Class A Shares.
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Purchase Amount
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Sales Charge
(as a % of offering
price)(1)
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Expected Dealer Concession (as a % of
offering price)
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Less than $25,000
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5.75%
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5.00%
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$50,000 but less than $100,000
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4.50%
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3.75%
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$100,000 but less than $250,000
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3.50%
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2.75%
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$250,000 but less than $500,000
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2.50%
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2.00%
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$500,000 but less than $750,000
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2.00%
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1.75%
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$750,000 but less than $1,000,000
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1.50%
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1.25%
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$1,000,000 or greater
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None
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None(2)
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20
(1)
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The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the
offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or
lower depending on whether there was a downward or upward rounding.
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(2)
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The Distributor at its own discretion will pay a commission to dealers on purchases of $1,000,000 or more as follows: 0.0% to 1.00% on sales up to $5,000,000; 0.0% to 0.50% on sales of $5,000,000 to $10,000,000, and
0.0% to 0.10% on any amount of $10,000,000 or more.
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If you are in a category of investors who may purchase Fund shares
without a front-end sales charge, you will be subject to a 1.25% deferred sales charge if you redeem your shares within 18 months of purchase.
Shareholder Servicing Plan
. The Fund has adopted a shareholder servicing plan (the Service Plan) under which a shareholder
servicing fee equal to an annual rate of up to 0.15% of the average daily net assets of the Funds Class A Shares will be paid to other service providers. Under the Service Plan, other service providers may perform, or may compensate other
service providers for performing, certain shareholder and administrative services as discussed below.
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Description of Shareholder Services.
Shareholder services may include: (i) maintaining accounts relating to clients that invest in
shares; (ii) arranging for bank wires; (iii) responding to client inquiries relating to the services performed by the services provider; (iv) responding to inquiries from clients concerning their investment in shares;
(v) assisting clients in changing dividend options, account designations and addresses; (vi) providing information periodically to clients showing their position in shares; (vii) forwarding shareholder communications from the Fund
such as proxies, shareholder reports, annual reports, and dividend distribution and tax notices to clients; and (viii) processing dividend payments from the Fund on behalf of clients.
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PAYMENTS TO FINANCIAL INTERMEDIARIES
The Adviser and/or its affiliates, in their discretion, may make payments from their own resources and not from Fund assets to affiliated or
unaffiliated brokers, dealers, banks (including bank trust departments), trust companies, registered investment advisers, financial planners, retirement plan administrators, insurance companies, and any other institution having a service,
administration, or any similar arrangement with the Fund, their service providers or their respective affiliates, as incentives to help market and promote the Fund and/or in recognition of their distribution, marketing, administrative services,
and/or processing support.
These additional payments may be made to financial intermediaries that sell Fund shares or provide services to
the Fund, the Distributor or shareholders of the Fund through the financial intermediarys retail distribution channel and/or fund supermarkets. Payments may also be made through the financial intermediarys retirement, qualified tuition,
fee-based advisory, wrap fee bank trust, or insurance (
e.g.
, individual or group annuity) programs. These payments may include, but are not limited to, placing the Fund in a financial intermediarys retail distribution channel or on a
preferred or recommended fund list; providing business or shareholder financial planning assistance; educating financial intermediary personnel about the Fund; providing access to sales and management representatives of the financial intermediary;
promoting sales of Fund
21
shares; providing marketing and educational support; maintaining share balances and/or for sub-accounting, administrative or shareholder transaction processing services. A financial intermediary
may perform the services itself or may arrange with a third party to perform the services.
The Adviser and/or its affiliates may also
make payments from their own resources to financial intermediaries for costs associated with the purchase of products or services used in connection with sales and marketing, participation in and/or presentation at conferences or seminars, sales or
training programs, client and investor entertainment and other sponsored events. The costs and expenses associated with these efforts may include travel, lodging, sponsorship at educational seminars and conferences, entertainment and meals to the
extent permitted by law.
Revenue sharing payments may be negotiated based on a variety of factors, including the level of sales, the
amount of Fund assets attributable to investments in the Fund by financial intermediaries customers, a flat fee or other measures as determined from time to time by the Adviser and/or its affiliates. A significant purpose of these payments is
to increase the sales of Fund shares, which in turn may benefit the Adviser through increased fees as Fund assets grow.
THE
CUSTODIAN
The Bank of New York Mellon, One Wall Street, New York, NY 10286, serves as the custodian of the Fund. The Custodian holds
cash, securities and other assets of the Fund as required by the 1940 Act.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[ ], [ ], serves as the independent
registered public accounting firm for the Fund. [ ] will audit and report on the Trusts annual financial statements and will perform other professional accounting, auditing and tax advisory
services when engaged to do so by the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius, LLP, 1701 Market Street, Philadelphia, PA 19103-2921 serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
Board Responsibilities.
The management and affairs of the Trust and the Fund are supervised by the Trustees under the laws of the State
of Delaware. Each Trustee is responsible for overseeing the Fund. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust.
Members of the Board.
Set forth below are the names, ages, positions with the Trust, length of term of office, and the principal
occupations and other directorships for the last five years of each of the persons currently serving as a Trustee of the Trust. Independent Trustees are those Trustees who are not interested persons of the Trust as such term is defined
in the 1940 Act. Unless otherwise noted, the business address of each Trustee is 330 Madison Avenue, 10th Floor, New York, NY 10017.
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Name and
Age
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Position with
Trust
and
Length of
Term
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Principal Occupations in the
Past 5 years
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Other Directorships Held During
the Past 5 Years
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Number
of
Portfolios
in Fund
Complex
Overseen
by the
Complex
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Interested Trustee
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Farhan Sharaff*
63
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Trustee
Since December 2009
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Senior Managing Director of Guggenheim Partners Investment Management, LLC and Chief Investment Officer of Transparent Value Advisors, LLC since 2009. Equities
Chief Investment Officer of Guggenheim Partners Investment Management, LLC since 2009. Partner and CIO, MJX Capital Advisors LLC, from 2005 to 2009.
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Director of Guggenheim Global Investments PLC.
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Independent Trustees
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John Masterson
53
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Trustee, Chairman of the Nominating Committee
Since December 2009
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Retired. Director of Bogota Savings Bank since 2012. Partner and Managing Director, Global Securities Department, Goldman Sachs & Co. from 2002 to 2007.
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Trustee of NT Alpha Strategies Fund.
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Robert J. Casale
74
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Chairman of the Board of Trustees
Since December 2009
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Chairman and CEO, The BISYS Group from 2006 to 2007
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Director of Northeast Securities, Inc. (2002 - 2013).
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Dennis A. Cullen
65
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Trustee, Chairman of the Audit Committee
Since December 2009
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Retired. Managing Partner, Chicago Asset Funding LLC 2008 to 2011. Managing Director, The Liberty Hampshire Company, LLC from 1997 to 2008.
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Director of Heritage Life Insurance Company, Equitrust Life Insurance Company, Sun Life Assurance Company of Canada (US) and Sun Life and Annuity Company of
New York.
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Denotes Trustees who may be deemed to be interested persons of the Fund as that term is defined in the 1940 Act by virtue of their
affiliation with the Adviser, Sub-Adviser, Distributor and/or their affiliates.
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Board Leadership.
The Board of
Trustees has overall responsibility for the oversight of the Trust. The Chairman of the Board of Trustees is an Independent Trustee. The Chairman of the Board of Trustees role is to preside at all meetings of the Board of Trustees, and to act
as a liaison with service providers, officers, attorneys, and other Trustees generally between meetings.
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The Chairman may also perform such other functions as may be delegated by the Board of Trustees from time to time. The Board does not have a lead Independent Trustee. The Independent Trustees
meet regularly outside the presence of Adviser management, in executive session or with other service providers to the Trust. The Board of Trustees has regular meetings four times a year and may hold special meetings if required before its next
regular meeting. The Board of Trustees has established two standing committees in connection with its governance of the Fund: Audit and Nominating Committees. Each committee meets regularly to conduct the oversight functions delegated to that
committee by the Board of Trustees and reports its findings to the Board of Trustees. The Board of Trustees and each standing committee conduct annual assessments of their oversight function, structure, and effectiveness. The Board of Trustees has
determined through its self-evaluation process that the Trusts leadership structure is appropriate because the structure permits the Board of Trustees to exercise independent judgment over management and to allocate areas of responsibility
among committees and the full Board of Trustees to effectively oversee the Trust. The Board made this determination in consideration of, among other things, the fact that the chairperson of each Committee of the Board is an independent Trustee, the
amount of assets under management in the Trust, and the number of Fund (and classes of shares) overseen by the Board. The Board also believes that its leadership structure facilitates the orderly and efficient flow of information to the Independent
Trustees from Fund management.
Risk Oversight.
Day-to-day management of the Fund, including the monitoring of various risks to
which the Fund is subject, is the responsibility of the Adviser, the Funds Sub-Adviser or other service providers (depending on the nature of the risk), subject to the supervision of the Adviser. The Fund is subject to a number of risks,
including investment, compliance, operational, and valuation risks, among others. While the Adviser, the Funds Sub-Adviser or other service providers perform a number of risk management functions, it is not possible to eliminate all of the
risks applicable to the Fund. Risk oversight forms part of the Board of Trustees general oversight of the Fund and is addressed as part of various Board of Trustees and committee activities. The Board of Trustees, directly or through the Audit
Committee, also reviews reports from, among others, management, the independent registered accounting firm for the Fund, the Funds Sub-Adviser, and internal auditors for the Adviser or its affiliates, as appropriate, regarding risks faced by
the Fund and managements or each service providers risk functions. The committee system facilitates the timely and efficient consideration of matters by the Trustees, and facilitates effective oversight of compliance with legal and
regulatory requirements of the Funds activities and associated risks. The Board of Trustees has appointed a Chief Compliance Officer, who oversees the implementation and testing of the Funds compliance program, assists the Board of
Trustees in monitoring compliance risks, and reports to the Board of Trustees regarding compliance matters for the Fund and its service providers. The Independent Trustees have engaged independent legal counsel to assist them in performing their
oversight responsibilities.
Information About Trustees Experience, Qualifications, Attributes and Skills to Serve on the Board.
The Trust has concluded that each of the Trustees should serve on the Board because of their ability to review and understand information
about the Fund provided to them by management, to identify and request other information they may deem relevant to the performance of their duties, to question management and other service providers regarding material factors bearing on the
management and administration of the Fund, and to exercise their business judgment in a manner that serves the best interests of the Funds shareholders. The Trust has concluded that each of the Trustees should serve as a Trustee based on their
own experience, qualifications, attributes and skills as described below.
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The Trust has concluded that Mr. Sharaff should serve as Trustee because of the experience
he gained serving as an investment manager for a wealth management and alternative investment advisory provider, his role and familiarity with the Adviser and Sub-Adviser, and his knowledge of the financial services industry. Mr. Sharaff was
elected to serve as Trustee of the Trust in December 2009.
The Trust has concluded that Mr. Masterson should serve as Trustee
because of the experience he gained serving as a partner and managing director of the global securities department of a global investment banking and securities firm and his knowledge of the financial services industry. Mr. Masterson was
elected to serve as Trustee of the Trust in December 2009.
The Trust has concluded that Mr. Casale should serve as Trustee because
of the experience he has gained as a senior adviser of a private equity investment firm and the chairman and CEO of a large mutual fund and hedge fund services firm, as well as his knowledge of the financial services industry. Mr. Casale was
elected to serve as Trustee of the Trust in December 2009.
The Trust has concluded that Mr. Cullen should serve as Trustee because
of the experience he has gained as a managing partner of a financial advisory service provider and managing director of a risk management services firm, as well as his knowledge of the financial services industry. Mr. Cullen was elected to
serve as Trustee of the Trust in December 2009.
In its periodic assessment of the effectiveness of the Board, the Board considers the
complementary individual skills and experience of the individual Trustees primarily in the broader context of the Boards overall composition so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and
experience to oversee the business of the Fund.
Board Committees.
The Board has established the following standing committees:
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Audit Committee.
The Board has a standing Audit Committee that is composed of each of the Independent Trustees of the Trust. The Audit
Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Funds independent registered public accounting firm and whether to
terminate this relationship; reviewing the independent registered public accounting firms compensation, the proposed scope and terms of its engagement, and the firms independence; pre-approving audit and non-audit services provided by
the Funds independent registered public accounting firm to the Trust and certain other affiliated entities; serving as a channel of communication between the independent registered public accounting firm and the Trustees; reviewing the results
of each external audit, including any qualifications in the independent registered public accounting firms opinion, any related management letter, managements responses to recommendations made by the independent registered public
accounting firm in connection with the audit, reports submitted to the Committee by the internal auditing department of the Trusts Administrator that are material to the Trust as a whole, if any, and managements responses to any such
reports; reviewing the Funds audited financial statements and considering any significant disputes between the Trusts management and the independent registered public accounting firm that arose in connection with the preparation of those
financial statements; considering, in consultation with the independent registered public accounting firm and the Trusts senior internal accounting executive, if any, the independent registered public accounting firms report on the
adequacy of the Trusts internal financial controls; reviewing, in consultation with the Funds independent registered public accounting firm, major changes regarding auditing and
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accounting principles and practices to be followed when preparing the Funds financial statements; and other audit related matters. Messrs. Casale, Cullen and Masterson currently serve as
members of the Audit Committee. The Audit Committee met three times during the fiscal year ended September 30, 2013.
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Nominating Committee.
The Board has a standing Nominating Committee that is composed of each of the Independent Trustees of the Trust. The
Nominating Committee operates under a written charter approved by the Board. The principal responsibility of the Nominating Committee is to consider, recommend and nominate candidates to fill vacancies on the Trusts Board, if any. The
Nominating Committee generally will not consider nominees recommended by shareholders. Messrs. Casale, Cullen and Masterson currently serve as members of the Nominating Committee. The Nominating Committee met once during the fiscal year ended
September 30, 2013.
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Fund Shares Owned by Board Members.
The Trust is required to show the dollar amount
range of each Trustees beneficial ownership of shares of the Fund and each other series of the Trust as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC.
Beneficial ownership is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act.
The following table sets forth
information regarding the ownership of the Fund by each of the Trustees, and information regarding the aggregate ownership by each Trustee, as of [ ], 2013.
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Name
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Dollar Range of Equity
Securities in the Fund*
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Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Trustee in Family of
Investment Companies
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Farhan Sharaff
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John
Masterson
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Robert J. Casale
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Dennis A. Cullen
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* Key to Dollar Ranges
A None
B $1 - $10,000
C $10,001 - $50,000
D $50,001 - $100,000
E Over $100,000
As of [ ], 2013, no Trustee who is not an interested person of the
Trust owned any securities of the Adviser, Sub-Adviser, Distributor or their affiliates.
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Board Compensation.
Each Trustee who is not an interested person of the Trust
may receive compensation for their services to the Trust. Each such Trustee will be paid $35,000 per annum for attendance at regularly scheduled quarterly meetings of the Board (including any scheduled meetings of the Trusts audit committee or
nominating committee), plus an additional $1,000 and $2,500 per special meeting attended telephonically and in-person, respectively. Each such Trustee is also reimbursed for any out-of-pocket and travel expenses incurred in connection with their
attendance at meetings of the Board.
Compensation Received From the Trust (as of September 30, 2013)
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Name
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Aggregate
Compensation
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Pension or Retirement
Benefits Accrued as
Part
of Fund Expenses
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Estimated Annual
Benefits Upon
Retirement
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Total Compensation from the Trust and
Fund
Complex*
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Interested Trustees
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Farhan Sharaff
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N/A
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N/A
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N/A
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N/A
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Independent Trustees
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John Masterson
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Robert J. Casale
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Dennis A. Cullen
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The Trust is the only investment company in the Fund Complex.
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Trust Officers.
Set forth below are the names, ages, positions with the Trust, length of term of office, and the principal occupations
for the last five years of each of the persons currently serving as executive officers of the Trust. The business address of Messrs. Uhl and Greenly and Ms. Mills is 1290 Broadway, Suite 1100, Denver, CO 80203. The business address of Messrs.
Arus and Kemp is 330 Madison Avenue, 10th Floor, New York, NY 10017. The Chief Compliance Officer is the only officer who receives compensation from the Trust for his services.
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Name and Age
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Position with
Trust and Length
of Term
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Principal Occupations in Past 5 Years
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Armen Arus
41
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President
Since February
2010
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Co-Chief Executive Officer and Chief Operating Officer of Transparent Value, LLC since 2003. Managing Director
of Guggenheim Partners Investment Management, LLC since 2009. Co-CEO, Guggenheim Transparent Value, LLC since 2009.
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Ted Uhl
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Chief Compliance
Officer
Since October
2010
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Deputy Compliance Officer of ALPS Fund Services, Inc. (ALPS) since June 2010. Senior Risk Manager
of ALPS from 2006 until June 2010. Prior to ALPS, Sr. Analyst with Enenbach and Associates (RIA), and Sr. Financial Analyst at Sprint.
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Keith D. Kemp
53
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Treasurer
Since February
2010
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Director of Transparent Value, LLC since 2010; Director of Guggenheim Partners Investment Management LLC since
2010; Chief Operating Officer of Macquarie Capital Investment Management from 2007 to 2009.
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Name and Age
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Position with
Trust and Length
of
Term
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Principal Occupations in Past 5 Years
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Pete Greenly
44
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Assistant
Treasurer
Since September
2012
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Fund Controller, ALPS Fund, Services, Inc. since June 2011; Manager of Valuations with Great West Life and
Annuity from 2011 to 2012, Supervisor of Fund Accounting at Janus Capital from February 2011 to November 2011, Project Manager at Old Mutual Capital from 2007 - 2010, Manager of Fund Accounting and Operations with Founders Asset Management, LLC
from
1994 2006.
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Rhonda A. Mills
47
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Secretary
Since February
2012
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Vice President and Associate Counsel of ALPS, ALPS Advisors, Inc., ALPS Distributors, Inc. and FTAM
Distributors, Inc. since 2011. Managing Member, Mills Law, LLC from 2010 to 2011. Counsel, Old Mutual Capital, Inc. from 2006 2009.
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PURCHASING AND REDEEMING SHARES
You will ordinarily submit your purchase or redemption transaction order through your financial intermediary or other securities dealers
through which you opened your shareholder account. Purchases and redemptions may be made on any day the New York Stock Exchange (the NYSE) is open for business. Shares of the Fund are offered and redeemed on a continuous basis.
Currently, the Trust is closed for business when the following holidays are observed: New Years Day, Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
It is currently the Trusts policy to pay all redemptions in cash. The Trust retains the right, however, to alter this policy to provide
for redemptions in whole or in part by a distribution in-kind of securities held by the Fund in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A shareholder will at
all times be entitled to aggregate cash redemptions from all funds of the Trust up to the lesser of $250,000 or 1% of the Trusts net assets during any 90-day period.
The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which
trading on the NYSE is restricted, or during the existence of an emergency (as determined by the SEC by rule or regulation) as a result of which disposal or valuation of the Funds securities is not reasonably practicable, or for such other
periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of the Fund for any period during which the NYSE, the Adviser, the Sub-Adviser, the Administrator, the Transfer Agent and/or the Custodian are
not open for business.
DETERMINATION OF NET ASSET VALUE
General Policy.
The Fund adheres to Section 2(a)(41), and Rule 2a-4 thereunder, of the 1940 Act with respect to the valuation of
portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Board. In complying with the 1940
Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance.
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Equity Securities.
Securities listed on a securities exchange, market or automated
quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on
which they are traded on valuation date (or at approximately 4:00 p.m., Eastern Time, if a securitys primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid
price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. If such prices are not readily available or determined to not represent the fair value of the security as of the Funds pricing time, the security will be
valued at fair value as determined by a valuation committee pursuant to the valuation policies approved by the Board.
Money Market
Securities and other Debt Securities.
If available, money market securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to
identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money market
securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not readily available or determined to not represent the fair value of
the security as of the Funds pricing time, the security will be valued at fair value as determined by a valuation committee pursuant to the valuation policies approved by the Board.
Use of Third-Party Independent Pricing Agents.
Pursuant to contracts with the Administrator, market prices for most securities held by
the Fund are provided daily by third-party independent pricing agents that are approved by the Board. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator.
Fair Value Procedures.
Pursuant to procedures approved by the Board, the Board has designated a valuation committee to make all
necessary determinations of fair value for portfolio securities for which market quotations are not readily available. Fair value of a portfolio security shall typically be the amount that the owner of the security or asset might
reasonably expect to receive upon its current sale. Generally, the Adviser or Sub-Adviser will monitor the valuation of the portfolio securities and immediately notify the committee if it reasonably believes that the value of any security should be
determined by the committee. In addition, the Administrator shall, within the scope of its pricing responsibilities, monitor the need for determining the fair value of any portfolio securities, and shall promptly notify the committee or the Adviser
or Sub-Adviser if it becomes aware of any circumstances that it believes may indicate the need to make such a determination. Absent extraordinary circumstances, the Adviser or Sub-Adviser must provide the committee with a valuation recommendation
specifying the information supporting the recommendation, which shall be reflected in the minutes of the committee meeting, and shall be available for inspection by the Trusts independent registered public accounting firm. The committee may
approve the proposed pricing methodology if the committee determines that such methodology will produce a price for the security each day that represents a fair value of the security on that day. The committee will also determine the
frequency with which the valuation determination will be reviewed. All determinations of value made by the committee, including the factors considered and the valuation methodology employed, will be fully documented and retained as part of the
Trusts records.
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TAXES
The following is only a summary of certain additional federal income tax considerations generally affecting the Fund and their shareholders
that is intended to supplement the discussion contained in the Funds prospectus. No attempt is made to present a detailed explanation of the tax treatment of the Fund or its shareholders, and the discussion here and in the Funds
prospectus is not intended as a substitute for careful tax planning. Shareholders are urged to consult their tax advisors with specific reference to their own tax situations, including their state and local tax liabilities.
The following general discussion of certain federal income tax consequences is based on the Internal Revenue Code (the Code) and
the regulations issued thereunder as in effect on the date of this SAI. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect
to the transactions contemplated herein.
Qualification as a Regulated Investment Company.
The Fund intends to qualify and elect to
be treated as a regulated investment company (RIC) under Subchapter M of the Code. By following such a policy, the Fund expects to eliminate or reduce to a nominal amount the federal taxes to which they may be subject. The
Board reserves the right not to maintain the qualification of the Fund as a RIC if it determines such course of action to be beneficial to shareholders.
In order to be taxable as a RIC, the Fund must distribute at least 90% of its net investment income (which includes dividends, taxable
interest and the excess of net short-term capital gains over net long-term capital losses, less operating expenses) and at least 90% of its net tax exempt interest income, for each tax year, if any, to its shareholders and also must meet several
additional requirements. Among these requirements are the following: (i) at least 90% of the Funds gross income each taxable year must be derived from dividends, interest, payments with respect to certain securities loans, and gains from
the sale or other disposition of stock, securities, or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities,
or currencies, and net income derived from an interest in a qualified publicly traded partnership; (ii) at the close of each quarter of the Funds taxable year, at least 50% of the value of the Funds total assets must be represented
by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of the Funds assets and that
does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of the Funds taxable year, not more than 25% of the value of the Funds assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any one issuer or the securities (other than the securities of another RIC) of two or more issuers that the Fund controls and that are engaged in the same, similar or related
trades or business, or the securities of one or more qualified publicly traded partnerships. Although the Fund intends to distribute substantially all of its net investment income and may distribute its capital gains for any taxable year, the Fund
will be subject to federal income taxation to the extent any such income or gains are not distributed.
The Fund is treated as a separate
corporation for federal income tax purposes. The Fund therefore is considered to be a separate entity in determining its treatment under the rules for
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RICs described herein and in the Prospectus. Losses in one fund do not offset gains in another and the requirements (other than certain organizational requirements) for qualifying RIC status are
determined at the fund level rather than at the Trust level.
If the Fund fails to satisfy the qualifying income or diversification
requirements in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements.
Additionally, relief is provided for certain
de minimis
failures of the diversification requirements where the Fund corrects the failure within a specified period of time. If the Fund fails to qualify as a RIC, and these relief provisions are
not available, the Fund will be taxable at regular corporate rates (and, to the extent applicable, corporate alternative minimum tax). In such an event, all distributions (including capital gains distributions) will be taxable as ordinary dividends
to the extent of the Funds current and accumulated earnings and profits, subject to the dividends-received deduction for corporate shareholders and possibly lower tax rates applicable to qualified dividend income distributed to individuals. In
addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before re-qualifying as a RIC.
Deferral of Late Year Losses.
The Fund may elect to treat part or all of any qualified late year loss as if it had been
incurred in the succeeding taxable year in determining the Funds taxable income, net capital gain, net short-term capital gain, and earnings and profits. A qualified late year loss generally includes net operating loss incurred
after December 31 of the current taxable year, net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable year, and certain other late-year losses.
Capital Loss Carryovers.
If the Fund has a net capital loss (that is, capital losses in excess of capital gains), the
excess of the Funds net short-term capital losses over its net long-term capital gains is treated as a short-term capital loss arising on the first day of the Funds next taxable year, and the excess (if any) of the Funds net
long-term capital losses over its net short-term capital gains is treated as a long-term capital loss arising on the first day of the Funds next taxable year. As of September 30, 2013, the fund does not have unused capital losses for
Federal income tax purposes.
Federal Excise Tax.
If the Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98.2% of its capital gain net income (the excess of short- and long-term capital gains over short- and long-term capital losses) for the one-year period ending October 31 of that year (and any retained amount from the
prior calendar year on which the Fund paid no federal income tax), the Fund will be subject to a nondeductible 4% federal excise tax on the undistributed amounts. The Fund intends to make sufficient distributions to avoid imposition of this tax, or
to retain, at most, their net capital gains and pay tax thereon.
Distributions to Shareholders.
The Fund may derive capital gains
and losses in connection with sales or other dispositions of their portfolio of securities. Distributions of net short-term capital gains will be taxable to you as ordinary income. Distributions of net long-term capital gains will be taxable to you
as long-term capital gain regardless of how long you have held your shares. Distributions of dividends will be taxed as ordinary income except that distributions of qualified dividend income may be taxed at the lower capital gains rates available
for individual shareholders.
Certain distributions from the Fund may qualify as qualified dividend income. Qualified dividend income
distributed to an individual may be taxable at the lower, long-term capital gains
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rates. A distribution from the Fund generally qualifies as qualified dividend income to the extent it is designated as such by the Fund and was distributed from dividends received by the Fund
from taxable domestic corporations and certain qualified foreign corporations, subject to limitations including holding period limitations imposed on the Fund and its shareholders. Long-term capital gains and qualified dividend income are currently
taxable at a maximum rate of 20% (lower rates apply to individuals in lower tax brackets).
In the case of corporate shareholders, Fund
distributions (other than capital gains distributions) generally qualify for the dividend-received deduction to the extent such distributions are so designated and do not exceed the gross amount of qualifying dividends received by the Fund for the
year. Generally, and subject to certain limitations (including certain holding period limitations), a dividend will be treated as a qualifying dividend if it has been received from a domestic corporation. All such qualifying dividends (including the
deducted portion) must be included in your alternative minimum taxable income calculation.
The Fund will inform you of the amount of your
ordinary income dividends, qualified dividend income and capital gain distributions, if any, at the time they are paid and will advise you of their tax status for federal income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, the Fund may designate and distribute to you, as ordinary income, qualified dividend income or capital gain, a percentage of income that is not equal to the actual amount of such income earned during the period
of your investment in the Fund.
If the Funds distributions exceed its taxable income and capital gains realized during a taxable
year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholders cost
basis in the Fund and result in a higher reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold. Shareholders may wish to avoid purchasing shares at a time when the Funds NAV
reflects gains that are either unrealized, or realized but not distributed. Realized gains must generally be distributed even when the Funds NAV also reflects unrealized losses.
Dividends and other distributions by the Fund are generally treated under the Code as received by the shareholders at the time the dividend or
distribution is made. However, if any dividend or distribution is declared by the Fund in October, November or December of any calendar year and payable to its shareholders of record on a specified date in such a month but is actually paid during
the following January, such dividend or distribution will be deemed to have been received by each shareholder on December 31 of the year in which the dividend was declared.
Sales, Exchanges, or Redemptions.
Any gain or loss recognized on a sale, exchange or redemption of shares of the Fund by a shareholder
who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss if the shares have been held for more than twelve months and otherwise will be treated as a short-term capital gain or
loss. However, if shares on which a shareholder has received a net capital gain distribution are subsequently sold, exchanged, or redeemed and such shares have been held for six months or less, any loss recognized will be treated as a long-term
capital loss to the extent of the net capital gain distribution. In addition, the loss realized on a sale or other disposition of shares will be disallowed to the extent a shareholder repurchases (or enters into a contract to or option to
repurchase) shares within a period of 61 days (beginning 30 days before and ending 30 days after the disposition of the shares). This loss disallowance rule will apply to shares received through the reinvestment of dividends during the 61-day
period.
32
Effective beginning January 1, 2013, U.S. individuals with income exceeding $200,000
($250,000 if married and filing jointly) are subject to a new 3.8% Medicare contribution tax on their net investment income, including interest, dividends, and capital gains (including capital gains realized on the sale or exchange of
shares of the Fund).
In certain cases, the Fund will be required to withhold at a 28% withholding rate, and remit to the U.S. Treasury,
back up withholding on any distributions paid to a shareholder who (1) has failed to provide a correct taxpayer identification number, (2) is subject to backup withholding by the Internal Revenue Service (IRS), (3) has not
certified to the Fund that such shareholder is not subject to backup withholding, or (4) has failed to certify that he or she is a U.S. citizen or U.S. resident alien.
The Fund (or its administrative agent) is required to report to the IRS and furnish to Fund shareholders the cost basis information for Fund
shares purchased on or after January 1, 2012, and sold on or after that date. In addition to the requirement to report the gross proceeds from the sale of Fund shares, the Fund is also required to report the cost basis information for such
shares and indicate whether these shares had a short-term or long-term holding period. In the absence of an election by a shareholder to elect from available IRS accepted cost basis methods, the Fund will use a default cost basis method (average
cost). The cost basis method elected or applied may not be changed after the settlement date of a sale of Fund shares. Fund shareholders should consult with their tax advisers concerning the most desirable IRS-accepted cost basis method for their
tax situation and to obtain more information about how cost basis reporting applies to them.
The Fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by the Fund are treated as ordinary income or capital gain, accelerate the recognition of income to the Fund
and/or defer the Funds ability to recognize losses. In turn, those rules may affect the amount, timing or character of the income distributed to you by the Fund.
With respect to investments in STRIPS, TRs and other zero coupon securities which are sold at original issue discount and thus do not make
periodic cash interest payments, the Fund will be required to include as part of its current income the imputed interest on such obligations even though the Fund has not received any interest payments on such obligations during that period. Because
the Fund distributes all of its net investment income to its shareholders, the Fund may have to sell Fund securities to distribute such imputed income which may occur at a time when the Adviser would not have chosen to sell such securities and which
may result in taxable gain or loss.
Any market discount recognized on a bond is taxable as ordinary income. A market discount bond is a
bond acquired in the secondary market at a price below redemption value or adjusted issue price if issued with original issue discount. Absent an election by the Fund to include the market discount in income as it accrues, gain on the Funds
disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the accrued market discount.
The Fund is required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized gains
and losses on certain futures contracts as of the end of the year, as well as those actually realized during the year. Gain or loss from futures and
33
options contracts on broad-based indices required to be marked-to-market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule may alter the timing and character
of distributions to shareholders. The Fund may be required to defer the recognition of losses on futures contracts, options contracts and swaps to the extent of any unrecognized gains on offsetting positions held by the Fund. The Fund distributes to
shareholders at least annually any net capital gains which have been recognized for federal income tax purposes, including unrealized gains at the end of the Funds fiscal year on futures or options transactions. Such distributions are combined
with distributions of capital gains realized on the Funds other investments and shareholders are advised on the nature of the distributions.
Real Estate Investment Trusts (REITs).
Investments in REIT equity securities may require the Fund to accrue and distribute
income not yet received. To generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold.
The Funds investments in REIT equity securities may at other times result in the Funds receipt of cash in excess of the REITs earnings if the Fund distributes these amounts, these distributions could constitute a return of capital
to Fund shareholders for federal income tax purposes. Dividends received by the Fund from a REIT generally will not constitute qualified dividend income and will not qualify for the dividends received deduction.
Foreign Taxes.
Dividends and interests received by the Fund may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on the Funds stock or securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes
on capital gains with respect to investments by foreign investors.
Certain Tax Exempt Investors
. Certain tax-exempt shareholders,
including qualified pension plans, individual retirement accounts, salary deferral arrangements, 401(k)s, and other tax-exempt entities, generally are exempt from federal income taxation except with respect to their unrelated business taxable income
(UBTI). Under current law, the Fund generally serves to block UBTI from being realized by their tax-exempt shareholders. However, a tax-exempt shareholder could realize UBTI by virtue of an investment in the Fund where, for example,
(i) the Fund invests that hold residual interests of REMICs or (ii) shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of section 514(b) of the Code, or (iii) the Fund
invests in a REIT that is a taxable mortgage pool (TMP) or that has a subsidiary that is a TMP or that invests in a residual interest of a REMIC. Charitable remainder trusts are subject to special rules and should consult their tax advisor. The IRS
has issued some limited guidance with respect to these issues and prospective shareholders, especially charitable remainder trusts, are encouraged to consult with their tax advisors regarding these issues.
Tax Shelter Reporting Regulations.
Under promulgated Treasury regulations, generally, if a shareholder recognizes a loss on disposition
of the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities
are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. In
addition, pursuant to recently enacted legislation, significant penalties may be imposed for the failure to comply with the reporting requirements. The fact that a loss is reportable under these regulations does not affect the legal determination of
whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
FATCA:
A U.S. withholding tax at a 30% rate will be imposed on dividends beginning after June 30, 2014 (and proceeds of sales in
respect of Fund shares received by Fund shareholders beginning after December 31, 2016) for shareholders who own their shares through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership
are not satisfied.
34
State Taxes.
The Fund is not liable for Delaware corporate income tax because it is
registered as an investment company under the 1940 Act. Distributions by the Fund to shareholders and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisors regarding state and local
taxes applicable to an investment in the Fund.
The foregoing discussion is a summary only and is not intended as a substitute for careful
tax planning. Purchasers of Fund shares should consult their own tax advisors as to the tax consequences of investing in such shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable
provisions of the Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
FUND TRANSACTIONS
Brokerage Transactions.
Generally, equity securities, both listed and over-the-counter, are bought and sold through brokerage
transactions for which commissions are payable. Purchases from underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include a dealers markup or reflect a dealers
markdown. Money market securities and other debt securities are usually bought and sold directly from the issuer or an underwriter or market maker for the securities. Generally, the Fund will not pay brokerage commissions for such purchases. When a
debt security is bought from an underwriter, the purchase price will usually include an underwriting commission or concession. The purchase price for securities bought from dealers serving as market makers will similarly include the dealers
mark up or reflect a dealers mark down. When the Fund executes transactions in the over-the-counter market, they will generally deal with primary market makers unless prices that are more favorable are otherwise obtainable.
In addition, the Adviser may place a combined order for two or more accounts it manages, including the Fund, engaged in the purchase or sale
of the same security if, in its judgment, joint execution is in the best interest of each participant and will result in best price and execution. Transactions involving commingled orders are allocated in a manner deemed equitable to each account or
fund. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or the Fund may obtain, it is the opinion of the Adviser that the advantages of
combined orders outweigh the possible disadvantages of separate transactions. Nonetheless, the Adviser believes that the ability of the Fund to participate in higher volume transactions will generally be beneficial to the Fund.
Brokerage Selection.
The Trust does not expect to use one particular broker or dealer, and when one or more broker is believed capable
of providing the best combination of price and execution, the Funds Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other
brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided.
Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause the Fund to pay a broker or dealer a commission
for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In
35
addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance.
Brokerage and research services include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities;
(2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental
thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to its investment decision-making processes and, therefore, to the Fund.
To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with
individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services
for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market
action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be
used by the Adviser in connection with the Fund or any other specific client account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required
to be performed by the Funds Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services.
In some cases the Adviser may receive a service from a broker that has both a research and a non-research use. When
this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions,
while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its
allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
From time to time, the Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may
be a member of the selling group that will, in addition to selling securities, provide the Adviser with research services. The FINRA has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the
seller will provide research credits in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e).
Brokerage with Fund Affiliates.
The Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates
of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. These rules require that commissions paid to the affiliate by the Fund for exchange transactions not
exceed
usual and customary brokerage commissions. The rules define usual and customary commissions to include amounts which are reasonable and fair compared to the commission, fee or other remuneration received
or to be received by other brokers in connection
36
with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. The Trustees, including those who are not
interested persons of the Fund, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically.
Portfolio Turnover Rate.
Portfolio turnover rate is defined under SEC rules as the greater of the value of the securities purchased or
securities sold, excluding all securities whose maturities at the time of acquisition were one year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining
maturities of less than one year are excluded from the calculation of the portfolio turnover rate. Instruments excluded from the calculation of portfolio turnover generally would include the futures contracts in which the Fund may invest since such
contracts generally have remaining maturities of less than one-year. The Fund may at times hold investments in other short-term instruments, such as repurchase agreements, which are excluded for purposes of computing portfolio turnover.
PORTFOLIO HOLDINGS
The Board has approved, and is responsible for oversight of, a policy and procedures that govern the timing and circumstances regarding the
disclosure of Fund portfolio holdings information to shareholders and third parties. These policies and procedures are designed to ensure that disclosure of information regarding the Funds portfolio securities is in the best interests of Fund
shareholders, and include procedures to address conflicts between the interests of the Funds shareholders, and those of the Funds Adviser, Sub-Adviser, principal underwriter or any affiliated person of the Fund, the Adviser, Sub-Adviser
or the principal underwriter.
Pursuant to applicable law, the Fund is required to disclose their complete portfolio holdings quarterly,
within 60 days of the end of each fiscal quarter. The Fund discloses a complete schedule of investments in each Semi-Annual Report and Annual Report to Fund shareholders (as available), which are filed with the SEC on Form N-CSR and distributed to
shareholders. The Funds complete schedule of investments following the first and third fiscal quarters is available in quarterly holdings reports filed with the SEC on Form N-Q. Quarterly holdings reports filed with the SEC on Form N-Q are not
distributed to Fund shareholders, but are available, free of charge, on the EDGAR database on the SECs web site at
www.sec.gov
.
In addition, the Funds portfolio holdings information is available on the Funds web site
www.transparentvalue.com
. The Fund generally post a detailed list of the securities held by the Fund (portfolio holdings) within 60 days after
the end of the quarter. The Adviser or Sub-Adviser may exclude any portion of the portfolio holdings from publication when deemed in the best interest of the Fund. The postings generally remain until replaced by new postings as described above. This
information is publicly available to all categories of persons.
The Funds policies and procedures provide that an authorized
person may authorize disclosure of portfolio holdings information to third parties at differing times and/or with different lag times than the information posted to the Internet, including disclosing portfolio holdings to third parties as frequently
as daily with no lag time; provided that the recipient is, either by contractual agreement or otherwise by law, (i) required to maintain the confidentiality of the information and (ii) prohibited from using the information to facilitate or
assist in any securities transactions or investment program other than to engage in bona fide hedging transactions for legitimate business purposes. No compensation or other consideration is paid to or received by any party in connection with the
disclosure of portfolio holdings information, including the Fund, Adviser and
37
its affiliates or recipient of the Funds portfolio holdings information. The Fund will review a third partys request for portfolio holdings information to determine whether the third
party has legitimate business objectives in requesting such information.
With the exception of disclosures to certain service providers
and to rating and ranking organizations as described below, the Fund requires any third party receiving non-public holdings information to enter into a confidentiality agreement with the Adviser. The confidentiality agreement provides, among other
things, that non-public portfolio holdings information will be kept confidential, that the recipient has a duty not to trade on the non-public information other than to engage in bona fide hedging transactions for legitimate business purposes and
the recipient will use such information solely to analyze and rank the Fund, to perform due diligence and asset allocation or for another legitimate business purpose, depending on the recipient of the information. The Adviser currently does not have
any arrangements to provide Fund portfolio holdings information (including security name, ticker symbol, CUSIP, number of shares, current market value and percentage of portfolio, as well as percentage weightings for the Funds top ten
holdings) to third parties prior to the date on which portfolio holdings information is posted on the Funds web site.
The
Funds Custodian and Administrator may receive portfolio holdings information as frequently as daily in connection with their services to the Fund. In addition to any contractual provisions relating to confidentiality of information that may be
included in the service providers contract with the Trust, these arrangements impose obligations on the Funds service providers that would prohibit them from disclosing or trading on the Funds non-public information. Financial printers
and pricing information vendors may receive portfolio holdings information, as necessary, in connection with their services to the Fund.
From time to time, rating and ranking organizations, such as S&P, Lipper and Morningstar, Inc., may request non-public portfolio holdings
information in connection with rating the Fund. Similarly, institutional investors, financial planners, pension plan sponsors and/or their consultants or other third-parties may request portfolio holdings information in order to assess the risks of
the Funds portfolio along with related performance attribution statistics. The lag time for such disclosures will vary. The Fund believes that these third parties have legitimate objectives in requesting such portfolio holdings information.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of funds and shares of the fund. The share of a fund represents an
equal proportionate interest in that fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the fund. Shareholders have no pre-emptive rights. The Declaration of Trust provides that the Trustees of
the Trust may create additional series or classes of shares. All consideration received by the Trust for shares of any additional funds and all assets in which such consideration is invested would belong to that fund and would be subject to the
liabilities related thereto. Share certificates representing shares will not be issued. The Funds shares, when issued, are fully paid and non-assessable.
LIMITATION OF TRUSTEES LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact
38
or law. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, investment adviser or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee. The Declaration of Trust also provides that the Trust shall indemnify each person who is, or has been, a Trustee, officer, employee or agent of the Trust, any person who
is serving or has served at the Trusts request as a Trustee, officer, employee or agent of another organization in which the Trust has any interest as a shareholder, creditor or otherwise to the extent and in the manner provided in the
By-Laws. However, nothing in the Declaration of Trust shall protect or indemnify a Trustee against any liability for his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee. Nothing contained in this section attempts to disclaim a Trustees individual liability in any manner inconsistent with the federal securities laws.
PROXY VOTING
The Board has delegated responsibility for decisions regarding proxy voting for securities held by the Fund to the Adviser. The Adviser will
vote such proxies in accordance with its proxy policies and procedures, which are included in Appendix B to this SAI. The Board will periodically review the Funds proxy voting record.
The Trust is required to disclose annually the Funds complete proxy voting record on Form N-PX. A description of the policies and
procedures that the Adviser uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended
June 30, will be available on Form N-PX: (i) without charge, upon request, by calling 1- 888-727-6885 or by writing to the Fund at P.O. Box 46103, Denver, CO 80201 and (ii) on the SECs web site at
http://www.sec.gov
.
CODES OF ETHICS
The Board on behalf of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. In
addition, the Adviser, Sub-Adviser and the Distributor have each adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics apply to the personal investing activities of trustees, officers and certain employees (access
persons). Rule 17j-1 and the Codes are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code of Ethics, access persons are permitted to engage in personal securities
transactions, but are required to report their personal securities transactions for monitoring purposes. Subject to and consistent with the Funds Code of Ethics, access persons are permitted to engage in personal securities transactions in
securities that are held by the Fund. All access persons are required to obtain approval before investing in initial public offerings or private placements or are prohibited from making such investments. Copies of these Codes of Ethics are on file
with the SEC, and are available to the public.
5% AND 25% SHAREHOLDERS
Any person who owns, directly or through one or more controlled companies, more than 25% of the voting securities of a company is presumed to
control such company. Accordingly, to the extent that a person is identified as the beneficial owner of more than 25% of the Fund, or is identified as the record owner of more than 25% of the Fund and has voting and/or investment powers,
that person may be presumed to control the Fund. A controlling persons vote could have a more significant effect on matters presented to shareholders for approval than the vote of
39
other Fund shareholders. As of [ ], no person owned of record or beneficially 25% or greater of the Funds outstanding voting securities or 5%
or greater of any class of the Funds outstanding equity securities.
As of [ ], the trustees and
officers of the Trust as a group owned less than 1% of the Funds shares.
FINANCIAL STATEMENTS
You may obtain a prospectus, annual report or semi-annual report, when available, at no charge by contacting the Trust at P.O. Box 46103,
Denver, CO 80201, or by calling 1-888-727-6885.
40
APPENDIX A DESCRIPTION OF RATINGS
41
RATINGS
The following descriptions are summaries of published ratings.
Description of Commercial Paper Ratings
A-1
|
This is the highest category by Standard and Poors (S&P) and
indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
|
A-2
|
Capacity for timely payment on issues with this designation is satisfactory
and the obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories.
|
PRIME-1
|
Issues rated Prime-1 (or supporting institutions) by Moodys have a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following characteristics:
|
|
|
|
Leading market positions in well-established industries.
|
|
|
|
High rates of return on funds employed.
|
|
|
|
Conservative capitalization structure with moderate reliance on debt and ample asset protection.
|
|
|
|
Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
|
|
|
|
Well-established access to a range of financial markets and assured sources of alternate liquidity.
|
The rating F1 (Highest Credit Quality) is the highest commercial rating assigned by Fitch Inc. Paper rated F1 is regarded as having the
strongest capacity for timely payment of financial commitments. The rating F2 (Good Credit Quality) is the second highest commercial paper rating assigned by Fitch Inc., which reflects a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the higher ratings.
The rating TBW-1 by Thomson BankWatch
(Thomson) indicates a very high likelihood that principal and interest will be paid on a timely basis.
Description of Municipal Note
Ratings
Moodys Short-Term MIG/VMIG Ratings U.S. Tax-Exempt Municipals
There are four rating categories for short-term obligations that define an investment grade situation. These are designated Moodys
Investment Grade as MIG 1 (best quality) through MIG 4 (adequate quality). Short-term obligations of speculative quality are designated SG.
A-1
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The
first element represents an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other represents an evaluation of the degree of risk associated with the demand feature. The short-term rating assigned
to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR,
e.g.
, Aaa/NR or NR/VMIG 1.
Issues that are subject to a periodic reoffer and resale in the secondary market in a dutch auction are assigned a long-term
rating based only on Moodys assessment of the ability and willingness of the issuer to make timely principal and interest payments. Moodys expresses no opinion as to the ability of the holder to sell the security in a secondary market
dutch auction. Such issues are identified by the insertion of the words dutch auction into the name of the issue.
Issues or the features associated with MIG or VMIG ratings are identified by date of issue, date of maturity or maturities or rating
expiration date and description to distinguish each rating from other ratings. Each rating designation is unique with no implication as to any other similar issue of the same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issues specific structural or credit features.
|
|
|
MIG 1/VMIG 1
|
|
This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
|
|
|
MIG 2/VMIG 2
|
|
This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
|
|
|
MIG 3/VMIG 3
|
|
This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
|
|
|
MIG 4/VMIG 4
|
|
This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
|
|
|
SG
|
|
This designation denotes speculative quality. Debt instruments in this category lack margins of protection.
|
An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in
three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment:
|
|
|
Amortization Schedule - the larger the final maturity relative to other maturities, the more likely it will be treated as a note, and
|
|
|
|
Source of Payment - the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.
|
A-2
S&P note rating symbols are as follows:
|
|
|
SP-1
|
|
Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a
debt service is given a plus (+) designation.
|
|
|
SP-2
|
|
Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes
over the term of the votes.
|
Description of Corporate Bond Ratings
S&P
Bonds rated AAA have the
highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Debt rated BB and B is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Debt rated BB has less near-term vulnerability to
default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
Moodys
Baa
Bonds which are rated Baa are considered as medium grade obligations;
i.e.
, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
A-3
B
Bonds which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moodys bond
ratings, where specified, are applicable to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one-year. Obligations relying upon support mechanisms
such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located.
Unless noted as an exception, Moodys rating on a banks ability to repay senior obligations extends only to branches located in
countries which carry a Moodys Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the banks rating or Moodys Sovereign Rating for the Bank Deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moodys ratings do not incorporate an opinion as to whether payment of the obligation will be affected
by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investors home country and either the issuers home country or the country where an issuer branch
is located are not incorporated into Moodys ratings.
Moodys makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moodys represent any specific bank or insurance company obligation is legally
enforceable or a valid senior obligation of a rated issuer.
Note:
Moodys applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower
end of that generic rating category.
Bonds that are rated Aaa by Moodys are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as gilt edge. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa by Moodys are judged to be of high quality by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa securities. Bonds which are rated A possess
A-4
many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium-grade
obligations (
i.e.
, they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Bonds
which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Moodys bond ratings, where specified, are applied to financial contracts,
senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one-year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located.
Unless noted as an exception, Moodys rating on a banks ability to repay senior obligations extends only to branches located in countries which carry a Moodys Sovereign Rating for Bank Deposits. Such branch obligations are rated at
the lower of the banks rating or Moodys Sovereign Rating for Bank Deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled,
Moodys ratings do not incorporate an opinion as to whether payment of the obligation will be affected by actions of the government controlling the currency of denomination. In addition, risks associated with bilateral conflicts between an
investors home country and either the issuers home country or the country where an issuers branch is located are not incorporated into Moodys short-term debt ratings.
Moodys makes no representation that rated bank or insurance company obligations are exempt from the registration under the U.S.
Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moodys represent that any specific bank or insurance company obligation is legally enforceable or a valid senior obligation of a rated issuer.
If an issuer represents to Moodys that its short-term debt obligations are supported by the credit of another entity or entities,
then the name or names of such supporting entity or entities are listed within the parenthesis beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moodys evaluates the financial strength of the affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment.
Moodys makes no representation and gives no opinion on the legal validity or enforceability of any support arrangement.
Moodys ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely
as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling.
A-5
Fitch Inc. (Fitch)
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA
class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market.
Bonds rated A are considered to be investment grade and of high credit quality. The obligors ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligors ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligors ability to pay interest and repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of principal and interest reflects the obligors limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
Thomson
Bonds rated AAA by Thomson
BankWatch indicate that the ability to repay principal and interest on a timely basis is extremely high. Bonds rated AA indicate a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to
issues rated in the highest category. Bonds rated A indicate the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings.
Bonds rated BBB (the lowest investment-grade category) indicate an acceptable capacity to repay principal and interest. Issues rated BBB
are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings.
While not
investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Issues rated
B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis.
A-6
APPENDIX B PROXY VOTING POLICIES AND PROCEDURES
GUGGENHEIM PARTNERS INVESTMENT MANAGEMENT, LLC
PROXY VOTING POLICY AND PROCEDURES
POLICY
Guggenheim Partners Investment
Management, LLC (GPIM) generally is responsible for voting proxies with respect to securities held in client accounts, including clients registered as investment companies under the Investment Company Act of 1940 (Funds) and
clients that are pension plans (Plans) subject to the Employee Retirement Income Security Act of 1974 (ERISA). This document sets forth GPIMs policies and guidelines with respect to proxy voting and its procedures to
comply with SEC Rule 206(4)-6 under the Investment Advisers Act of 1940. Rule 206(4)-6 requires each registered investment adviser that exercises proxy voting authority with respect to client securities to:
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Adopt and implement written policies and procedures reasonably designed to ensure that the adviser votes client securities in the best interest of
clients; such policies and procedures must address the manner in which the adviser will resolve material conflicts of interest that can arise during the proxy voting process;
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Disclose to clients how they may obtain information from the adviser about how the adviser voted proxies with respect to their securities; and
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Describe to clients the advisers proxy voting procedures and, upon request, furnish a copy of the policies and procedures.
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Where GPIM has been delegated the responsibility for voting proxies, it must take reasonable steps under the
circumstances to ensure that proxies are received and voted in the best long-term interests of its clients. This generally means voting proxies with a view to enhancing the value of the shares of stock held in client accounts, considering all
relevant factors and without undue influence from individuals or groups who may have an economic interest in the outcome of the proxy vote. GPIMs authority is initially established by its advisory contracts or comparable documents. Clients,
however, may change their proxy voting direction at any time.
The financial interest of GPIMs clients is the primary consideration
in determining how proxies should be voted. Any material conflicts of interest between GPIM and its clients with respect to proxy voting are resolved in the best interests of the clients.
PROCEDURES
1. Overview
Guggenheim Partners
Investment Management, LLC (GPIM) utilizes the services of an outside proxy voting firm, Institutional Shareholder Services Inc. (ISS), to act as agent for the proxy process, to maintain records on proxy votes for its
clients, and to provide independent research on corporate governance, proxy and corporate responsibility issues. The proxy voting guidelines (the Guidelines), attached as Appendix A and Appendix B to these Proxy Voting Policy and
Procedures, set forth the ISS guidelines that GPIM uses in voting specific proposals. Depending on the objective of Fund or client account and the portfolio team managing, GPIM will assign the proxy voting guidelines in Appendix A or B to determine
how proxies will be voted. GPIM reviews these voting recommendations and generally votes proxies in accordance with such recommendations.
However, the vote entered on a clients behalf with respect to a particular proposal may differ from the Guidelines if it is determined
to be in the best interest of the client. If a proposal is voted in a manner different than set forth in the Guidelines, the reasons therefore shall be documented in writing by the appropriate investment team(s) and retained by Operations. The
manner in which specific proposals are to be voted may differ based on the type of client account. For example, a specific proposal may be considered on a case-by-case basis for socially aware client accounts, while all other accounts may always
vote in favor of the proposal.
In the absence of contrary instructions received from GPIM, ISS will vote proxies in accordance with the
Guidelines attached as Appendix A or Appendix B hereto, as such Guidelines may be revised from time to time by representatives from Investment Management and Compliance (the ad hoc Committee). ISS will employ these guidelines based on
account set up instructions received from Operations. ISS will notify Operations of all proxy proposals that do not fall within the Guidelines (i.e. proposals which are either not addressed in the Guidelines or proposals for which GPIM has indicated
that a decision will be made on a case-by-case basis). Such proposals will be forwarded by Operations to the investment team(s) responsible for the client account. If the investment team(s) responsible determines that there is no material conflict
of interest, the proposal will be voted in accordance with the recommendation of said team(s).
2. Resolving Potential Conflicts of Interest
GPIM may occasionally be subject to conflicts of interest in the voting of proxies due relationships it maintains with persons having an
interest in the outcome of certain votes. The proxies that are not addressed by the Guidelines or are to be voted on a case-by-case basis will be forwarded to the appropriate investment management team(s) by Operations. Determination of whether
there is a material conflict of interest between GPIM and a client due to (a) the provision of services or products by a GPIM affiliate to the company on whose behalf proxies are being solicited, (b) personal relationships that may exist
between personnel of GPIM or its affiliates and proponents of a proxy issue or (c) any other issue, shall be made by senior members of the investment team responsible for voting the proxy. If a conflict of interest exists, the investment team
will consult the Committee (and Legal, as necessary) to determine how to vote the proxy consistent with the procedures below.
In the absence of established Guidelines (e.g., in instances where the Guidelines provide for a
case-by case review), GPIM may vote a proxy regarding that proposal in any of the following manners:
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Refer Proposal to the Client GPIM may refer the proposal to the client and obtain instructions from the client on how to vote the proxy
relating to that proposal.
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Obtain Client Ratification If GPIM is in a position to disclose the conflict to the client (
i.e.
, such information is not
confidential), GPIM may determine how it proposes to vote the proposal on which it has a conflict, fully disclose the nature of the conflict to the client, and obtain the clients consent for how GPIM will vote on the proposal (or otherwise
obtain instructions from the client on how the proxy on the proposal should be voted).
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Use an Independent Third Party for All Proposals Subject to any client imposed proxy voting policies, GPIM may vote all proposals in a proxy
according to the policies of an independent third party (or to have the third party vote such proxies).
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Use an Independent Third Party to Vote the Specific Proposals that Involve a Conflict Subject to any client imposed proxy voting policies,
GPIM may use an independent third party to recommend how the proxy for specific proposals that involve a conflict should be voted (or to have the third party vote such proxies).
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method selected by GPIM to resolve the conflict may vary from one instance to another depending upon the facts and circumstances of the situation, but in each case, consistent with its duty of loyalty and care.
3. Special Situations (As Applicable)
3.1. Securities Subject to Lending Arrangements
For various legal or administrative reasons, GPIM is often unable to vote securities that are, at the time of such vote, on
loan pursuant to a clients securities lending arrangement with the clients custodian. GPIM will refrain from voting such securities where the cost to the client and/or administrative inconvenience of retrieving securities then on loan
outweighs the benefit of voting, assuming retrieval under such circumstances is even feasible and/or possible. In certain extraordinary situations, GPIM may seek to have securities then on loan pursuant to such securities lending arrangements
retrieved by the clients custodians for voting purposes. This decision will generally be made on a case-by-case basis depending on whether, in GPIMs judgment, the matter to be voted on has critical significance to the potential value of
the securities in question, the relative cost and/or administrative inconvenience of retrieving the securities, the significance of the holding, and whether the stock is considered a long-term holding. There can be no guarantee that any such
securities can be retrieved for such purpose.
3.2 Special Issues with Voting Foreign Proxies
Voting proxies with respect to shares of foreign stocks may involve significantly greater effort and corresponding cost due to
the variety of regulatory schemes and corporate practices in foreign countries with respect to proxy voting. Because the cost of voting on a particular proxy proposal could exceed the expected benefit to a client (including an ERISA Plan), GPIM may
weigh the costs and benefits of voting on proxy proposals relating to foreign securities and make an informed decision on whether voting a given proxy proposal is prudent.
3.3 Share Blocking
In certain countries the exercise of voting rights could restrict the ability of an accounts portfolio manager to freely
trade the security in question (share blocking). The portfolio manager retains the final authority to determine whether to block the shares in the clients account or to forego voting the shares.
3.4 Lack Of Adequate Information, Untimely Receipt Of Proxy Or Excessive Costs
GPIM may be unable to enter an informed vote in certain circumstances due to the lack of information provided in the proxy
statement or by the issuer or other resolution sponsor, and may abstain from voting in those instances. Proxy materials not delivered in a timely manner may prevent analysis or entry of a vote by voting deadlines. GPIMs practice is to abstain
from voting a proxy in circumstances where, in its judgment, the costs exceed the expected benefits to the client.
4. Undue Influence
If at any time any person involved in the GPIMs proxy voting process is pressured or lobbied either by GPIMs personnel or
affiliates or third parties with respect to a particular proposal, he or she should provide information regarding such activity to GPIM Compliance or Legal. A determination will then be made regarding this information, keeping in mind GPIMs
duty of loyalty and care to its clients.
5. Recordkeeping
GPIM is required to keep the following records:
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proxy statements received regarding client securities;
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records of votes cast on behalf of clients;
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any documents prepared by GPIM that were material to making a decision how to vote, or that memorialized the basis for the decision; and
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records of client requests for proxy voting information and a copy of any written response by GPIM to any client request (regardless of whether
such client request was written or oral).
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The foregoing records will be retained for such period of time as is required
to comply with applicable laws and regulations.
GPIM may rely on proxy statements filed on the SECs EDGAR system instead of keeping
its own copies, and may rely on proxy statements and records of proxy votes cast by GPIM that are maintained with a third party, such as ISS, provided that GPIM has obtained an undertaking from the third party to provide a copy of the documents
promptly upon request.
6. Disclosure
Rule 206(4)-6 requires GPIM to disclose in response to any client request how the client can obtain information from GPIM on how the
clients securities were voted. GPIM will disclose in Form ADV Part 2 that clients can obtain information on how their securities were voted by submitting a written request to GPIM. Upon receipt of a written request from a client, GPIM will
provide the information requested by the client within a reasonable amount of time.
Rule 206(4)-6 also requires GPIM to describe its
proxy voting policies and procedures to clients, and upon request, to provide clients with a copy of those policies and procedures. GPIM will provide such a description in its Form ADV Part 2. Upon receipt of a written request from a client, GPIM
will provide a copy of this policy within a reasonable amount of time.
If approved by the client, this policy and any requested records may be provided
electronically.
EXHIBIT A
2013 U.S. Proxy Voting Concise Guidelines
December 19, 2012
Institutional Shareholder Services Inc.
Copyright
©
2012 by ISS
www.issgovernance.com
ISS 2013 U.S. Proxy Voting Concise Guidelines
ISS 2013 U.S. Proxy Voting Concise Guidelines
The policies contained herein are a sampling of select, key proxy voting guidelines and
are not exhaustive. A full listing of ISS 2013 proxy voting guidelines can be found at
http://www.issgovernance.com/files/2013ISSUSSummaryGuidelines.pdf
Routine/Miscellaneous
Auditor Ratification
Vote FOR proposals to
ratify auditors unless any of the following apply:
An auditor has a financial interest in or association with the company, and is therefore not
independent;
There is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the
companys financial position;
Poor accounting practices are identified that rise to a serious level of concern, such as: fraud; misapplication
of GAAP; and material weaknesses identified in Section 404 disclosures; or
Fees for non-audit services (Other fees) are excessive.
Non-audit fees are excessive if:
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Non-audit (other) fees > audit fees + audit-related fees + tax compliance/preparation fees.
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u
u
u
u
u
Board of Directors:
Voting on Director Nominees in Uncontested Elections
Votes on director nominees should be determined CASE-BY-CASE.
Four fundamental
principles apply when determining votes on director nominees:
1. Board
Accountability
Vote AGAINST
1
or WITHHOLD from the entire board of directors (except new nominees
2
, who should be considered CASE-BY-CASE) for the following:
1
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In general, companies with a plurality vote standard use Withhold as the contrary vote option in director elections; companies with a majority vote standard use Against. However, it will vary by
company and the proxy must be checked to determine the valid contrary vote option for the particular company.
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2
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A new nominee is any current nominee who has not already been elected by shareholders and who joined the board after the problematic action in question transpired. If ISS cannot determine whether the nominee
joined the board before or after the problematic action transpired, the nominee will be considered a new nominee if he or she joined the board within the 12 months prior to the upcoming shareholder meeting.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Problematic Takeover Defenses
Classified Board Structure:
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1.1.
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The board is classified, and a continuing director responsible for a problematic governance issue at the board/committee level that would warrant a withhold/against vote recommendation is not up for election. All
appropriate nominees (except new) may be held accountable.
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Director Performance Evaluation:
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1.2.
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The board lacks accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one- and three-year total shareholder returns in the bottom half of a
companys four-digit GICS industry group (Russell 3000 companies only). Take into consideration the companys five-year total shareholder return and operational metrics. Problematic provisions include but are not limited to:
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A classified board structure;
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A supermajority vote requirement;
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Either a plurality vote standard in uncontested director elections or a majority vote standard with no plurality carve-out for contested elections;
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The inability of shareholders to call special meetings;
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The inability of shareholders to act by written consent;
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A dual-class capital structure; and/or
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A nonshareholder-approved poison pill.
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Poison Pills:
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1.3.
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The companys poison pill has a dead-hand or modified dead-hand feature. Vote AGAINST or WITHHOLD from nominees every year until this feature is removed;
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1.4.
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The board adopts a poison pill with a term of more than 12 months (long-term pill), or renews any existing pill, including any short-term pill (12 months or less), without shareholder approval. A
commitment or policy that puts a newly adopted pill to a binding shareholder vote may potentially offset an adverse vote recommendation. Review such companies with classified boards every year, and such companies with annually elected boards at
least once every three years, and vote AGAINST or WITHHOLD votes from all nominees if the company still maintains a non-shareholder-approved poison pill; or
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1.5.
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The board makes a material adverse change to an existing poison pill without shareholder approval.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Vote CASE-BY-CASE on all nominees if:
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1.6.
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The board adopts a poison pill with a term of 12 months or less (short-term pill) without shareholder approval, taking into account the following factors:
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The date of the pills adoption relative to the date of the next meeting of shareholders
i.e.
whether the company had time to put the pill on ballot for shareholder ratification given the circumstances;
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The issuers rationale;
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The issuers governance structure and practices; and
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The issuers track record of accountability to shareholders.
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Problematic Audit-Related
Practices
Generally vote AGAINST or WITHHOLD from the members of the Audit Committee if:
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1.7.
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The non-audit fees paid to the auditor are excessive (see discussion under
Auditor Ratification
);
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1.8.
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The company receives an adverse opinion on the companys financial statements from its auditor; or
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1.9.
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There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal
recourse against the audit firm.
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Vote CASE-BY-CASE on members of the Audit Committee and potentially the full board if:
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1.10.
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Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity,
breadth, chronological sequence and duration, as well as the companys efforts at remediation or corrective actions, in determining whether WITHHOLD/AGAINST votes are warranted.
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Problematic Compensation Practices/Pay for Performance Misalignment
In the absence of an Advisory Vote on Executive Compensation ballot item or in egregious situations, vote AGAINST or WITHHOLD from the members of the Compensation
Committee and potentially the full board if:
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1.11.
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There is a significant misalignment between CEO pay and company performance (
pay for performance
);
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1.12.
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The company maintains significant
problematic pay practices
;
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1.13.
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The board exhibits a significant level of
poor communication and responsiveness
to shareholders;
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1.14.
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The company fails to submit one-time
transfers of stock options
to a shareholder vote; or
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1.15.
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The company fails to fulfill the terms of a
burn rate commitment
made to shareholders.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Vote CASE-BY-CASE on Compensation Committee members (or, in exceptional cases, the full board) and the Management
Say-on-Pay proposal if:
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1.16.
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The companys previous say-on-pay proposal received the support of less than 70 percent of votes cast, taking into account:
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The companys response, including:
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Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
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Specific actions taken to address the issues that contributed to the low level of support;
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Other recent compensation actions taken by the company;
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Whether the issues raised are recurring or isolated;
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The companys ownership structure; and
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Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
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Governance Failures
Under extraordinary circumstances, vote AGAINST or WITHHOLD from directors individually, committee
members, or the entire board, due to:
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1.17.
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Material failures of governance, stewardship, risk oversight
3
, or fiduciary responsibilities at the company;
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1.18.
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Failure to replace management as appropriate; or
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1.19.
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Egregious actions related to a directors service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company.
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2. Board Responsiveness
Vote
AGAINST or WITHHOLD from individual directors, committee members, or the entire board of directors as appropriate if:
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2.1.
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For 2013, the board failed to act
4
on a shareholder proposal that received the support of a majority of the shares outstanding the previous year;
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3 Examples of failure of risk oversight include, but are not limited to: bribery; large or serial fines or sanctions from regulatory bodies;
significant adverse legal judgments or settlements; hedging of company stock; or significant pledging of company stock.
4 Responding
to the shareholder proposal will generally mean either full implementation of the proposal or, if the matter requires a vote by shareholders, a management proposal on the next annual ballot to implement the proposal. Responses that involve less than
full implementation will be considered on a case-by-case basis, taking into account:
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The subject matter of the proposal;
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The level of support and opposition provided to the resolution in past meetings;
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Disclosed outreach efforts by the board to shareholders in the wake of the vote;
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Actions taken by the board in response to its engagement with shareholders;
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The continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals); and
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Other factors as appropriate.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
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2.2.
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For 2013, the board failed to act on a shareholder proposal that received the support of a majority of shares cast in the last year and one of the two previous years;
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2.3.
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For 2014, the board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous year;
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2.4.
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The board failed to act on takeover offers where the majority of shares are tendered;
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2.5.
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At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote; or
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2.6.
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The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on
the say-on-pay frequency.
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Vote CASE-BY-CASE on the entire board if:
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2.7.
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The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder meeting at
which shareholders voted on the say-on-pay frequency, taking into account:
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The boards rationale for selecting a frequency that is different from the frequency that received a plurality;
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The companys ownership structure and vote results;
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ISS analysis of whether there are compensation concerns or a history of problematic compensation practices; and
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The previous years support level on the companys say-on-pay proposal.
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3. Director
Independence
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors (per the
Categorization of Directors
) when:
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3.1.
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The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating;
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3.2.
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The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
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3.3.
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The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee; or
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3.4.
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Independent directors make up less than a majority of the directors.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
4. Director Competence
Attendance at Board and Committee Meetings:
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4.1.
|
Generally vote AGAINST or WITHHOLD from directors (except new nominees, who should be considered
CASE-BY-CASE
5
) who attend less than 75 percent of the aggregate of their board and committee meetings for the period for which they served, unless an acceptable reason for absences is disclosed in
the proxy or another SEC filing. Acceptable reasons for director absences are generally limited to the following:
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¡
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Medical issues/illness;
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¡
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Family emergencies; and
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¡
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Missing only one meeting (when the total of all meetings is three or fewer).
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4.2.
|
If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate of his/her board and
committee meetings during his/her period of service, vote AGAINST or WITHHOLD from the director(s) in question.
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Overboarded Directors:
Vote AGAINST or WITHHOLD from individual directors who:
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4.3.
|
Sit on more than six public company boards; or
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4.4.
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Are CEOs of public companies who sit on the boards of more than two public companies besides their ownwithhold only at their outside boards
6
.
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Proxy Access
ISS supports proxy access as an important shareholder right, one that is complementary to other best-practice corporate governance features. However, in
the absence of a uniform standard, proposals to enact proxy access may vary widely; as such, ISS is not setting forth specific parameters at this time and will take a case-by-case approach in evaluating these proposals.
Vote CASE-BY-CASE on proposals to enact proxy access, taking into account, among other factors:
5 For new nominees only, schedule conflicts due to commitments made prior to their appointment to the board are considered if disclosed in the proxy or
another SEC filing.
6 Although all of a CEOs subsidiary boards will be counted as separate boards, ISS will not recommend a withhold vote from
the CEO of a parent company board or any of the controlled (>50 percent ownership) subsidiaries of that parent, but will do so at subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships.
ISS 2013 U.S. Proxy Voting Concise Guidelines
Company-specific factors; and
Proposal-specific factors, including:
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¡
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The ownership thresholds proposed in the resolution (
i.e.
, percentage and duration);
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¡
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The maximum proportion of directors that shareholders may nominate each year; and
|
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¡
|
|
The method of determining which nominations should appear on the ballot if multiple shareholders submit nominations.
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Proxy ContestsVoting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested
elections, considering the following factors:
Long-term financial performance of the target company relative to its industry;
Managements track record;
Background to the
proxy contest;
Qualifications of director nominees (both slates);
Strategic plan of dissident slate and quality of critique against management;
Likelihood that the proposed goals and objectives can be achieved (both slates);
Stock ownership positions.
When the addition of shareholder
nominees to the management card (proxy access nominees) results in a number of nominees on the management card which exceeds the number of seats available for election, vote CASE-BY-CASE considering the same factors listed above.
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Shareholder Rights & Defenses
Poison Pills- Management Proposals to Ratify Poison Pill
Vote CASE-BY-CASE on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan. Rights plans should
contain the following attributes:
No lower than a 20% trigger, flip-in or flip-over;
A term of no more than three years;
No dead-hand,
slow-hand, no-hand or similar feature that limits the ability of a future board to redeem the pill;
Shareholder redemption feature (qualifying offer
clause); if the board refuses to redeem the pill 90 days after a qualifying offer is announced, 10 percent of the shares may call a special meeting or seek a written consent to vote on rescinding the pill.
In addition, the rationale for adopting the pill should be thoroughly explained by the company. In examining the request for the pill, take into consideration the
companys existing governance structure, including: board independence, existing takeover defenses, and any problematic governance concerns.
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Poison Pills- Management Proposals to Ratify a Pill to Preserve Net Operating Losses (NOLs)
Vote AGAINST proposals to adopt a poison
pill for the stated purpose of protecting a companys net operating losses (NOL) if the term of the pill would exceed the shorter of three years and the exhaustion of the NOL.
ISS 2013 U.S. Proxy Voting Concise Guidelines
Vote CASE-BY-CASE on management proposals for poison pill ratification, considering the following factors, if the term
of the pill would be the shorter of three years (or less) and the exhaustion of the NOL:
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The ownership threshold to transfer (NOL pills generally have a trigger slightly below 5 percent);
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Shareholder protection mechanisms (sunset provision, or commitment to cause expiration of the pill upon exhaustion or expiration of NOLs);
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The companys existing governance structure including: board independence, existing takeover defenses, track record of responsiveness to shareholders, and any other problematic governance concerns; and
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Any other factors that may be applicable.
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Shareholder Ability to Act by Written Consent
Generally vote AGAINST management and shareholder proposals to restrict or prohibit
shareholders ability to act by written consent.
Generally vote FOR management and shareholder proposals that provide shareholders with the ability to act by
written consent, taking into account the following factors:
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Shareholders current right to act by written consent;
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The inclusion of exclusionary or prohibitive language;
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Investor ownership structure; and
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Shareholder support of, and managements response to, previous shareholder proposals.
|
Vote CASE-BY-CASE on
shareholder proposals if, in addition to the considerations above, the company has the following governance and antitakeover provisions:
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An unfettered
7
right for shareholders to call special meetings at a 10 percent threshold;
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A majority vote standard in uncontested director elections;
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No non-shareholder-approved pill; and
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An annually elected board.
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Unfettered means no restrictions on agenda items, no restrictions on the number of shareholders who can group together to reach the 10 percent threshold, and only reasonable limits on when
a meeting can be called: no greater than 30 days after the last annual meeting and no greater than 90 prior to the next annual meeting.
ISS 2013 U.S. Proxy Voting Concise Guidelines
CAPITAL/RESTRUCTURING
Common Stock Authorization
Vote FOR proposals
to increase the number of authorized common shares where the primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants support.
Vote AGAINST proposals at companies with more than one class of common stock to increase the number of authorized shares of the class of common stock that has superior
voting rights.
Vote AGAINST proposals to increase the number of authorized common shares if a vote for a reverse stock split on the same ballot is warranted
despite the fact that the authorized shares would not be reduced proportionally.
Vote CASE-BY-CASE on all other proposals to increase the number of shares of
common stock authorized for issuance. Take into account company-specific factors that include, at a minimum, the following:
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Past Board Performance:
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|
|
The companys use of authorized shares during the last three years
|
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¡
|
|
Disclosure in the proxy statement of the specific purposes of the proposed increase;
|
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¡
|
|
Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and
|
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¡
|
|
The dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the companys need for shares and total shareholder
returns.
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Dual Class Structure
Generally vote AGAINST proposals to create a new class of common stock unless:
The company discloses a compelling rationale for the dual-class capital structure, such as:
|
¡
|
|
The companys auditor has concluded that there is substantial doubt about the companys ability to continue as a going concern; or
|
|
¡
|
|
The new class of shares will be transitory;
|
The new class is intended for financing
purposes with minimal or no dilution to current shareholders in both the short term and long term; and
The new class is not designed
to preserve or increase the voting power of an insider or significant shareholder.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Preferred Stock Authorization
Vote FOR proposals to increase the number of authorized preferred shares where the primary purpose of the increase is to issue shares in connection with a transaction
on the same ballot that warrants support.
Vote AGAINST proposals at companies with more than one class or series of preferred stock to increase the number of
authorized shares of the class or series of preferred stock that has superior voting rights.
Vote CASE-BY-CASE on all other proposals to increase the number of
shares of preferred stock authorized for issuance. Take into account company-specific factors that include, at a minimum, the following:
|
|
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Past Board Performance:
|
|
¡
|
|
The companys use of authorized preferred shares during the last three years;
|
|
¡
|
|
Disclosure in the proxy statement of the specific purposes for the proposed increase;
|
|
¡
|
|
Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request;
|
|
¡
|
|
In cases where the company has existing authorized preferred stock, the dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that
reflects the companys need for shares and total shareholder returns; and
|
|
¡
|
|
Whether the shares requested are blank check preferred shares that can be used for antitakeover purposes.
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Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions. Review and evaluate the merits and drawbacks of the proposed
transaction, balancing various and sometimes countervailing factors including:
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Valuation
- Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness,
emphasis is placed on the offer premium, market reaction and strategic rationale.
|
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Market reaction
- How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal.
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Strategic rationale
- Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management
should also have a favorable track record of successful integration of historical acquisitions.
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Negotiations and process
- Were the terms of the transaction negotiated at arms-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant
negotiation wins can also signify the deal makers competency. The comprehensiveness of the sales process (
e.g.
, full auction, partial auction, no auction) can also affect shareholder value.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
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Conflicts of interest
- Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and
officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure
presented in the ISS Transaction Summary section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be
excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
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Governance
- Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the
worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
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COMPENSATION
Executive Pay Evaluation
Underlying all evaluations are five global principles that most investors expect corporations to adhere to in designing and administering executive and director
compensation programs:
|
1.
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Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately
motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and
equity-based plan costs;
|
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2.
|
Avoid arrangements that risk pay for failure: This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation;
|
|
3.
|
Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation
decision-making (
e.g.
, including access to independent expertise and advice when needed);
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4.
|
Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully
and fairly;
|
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5.
|
Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors does not compromise their independence and ability to make
appropriate judgments in overseeing managers pay and performance. At the market level, it may incorporate a variety of generally accepted best practices.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Advisory Votes on Executive CompensationManagement Proposals (Management Say-on-Pay)
Vote CASE-BY-CASE on ballot items related to executive pay and practices, as well as certain aspects of outside director compensation.
Vote AGAINST Advisory Votes on Executive Compensation (Management Say-on-PayMSOP) if:
There is a significant misalignment between CEO pay and company performance (
pay for
performance
);
The company maintains significant problematic pay practices;
The board exhibits a significant level of poor communication and responsiveness to shareholders.
Vote AGAINST or WITHHOLD from the members of the Compensation Committee and potentially the full board if:
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There is no MSOP on the ballot, and an AGAINST vote on an MSOP is warranted due to pay for performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised
previously, or a combination thereof;
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The board fails to respond adequately to a previous MSOP proposal that received less than 70 percent support of votes cast;
|
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The company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or
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The situation is egregious.
|
Vote AGAINST an equity plan on the ballot if:
A pay for performance misalignment is found, and a significant portion of the CEOs misaligned pay is attributed to non-performance-based equity
awards, taking into consideration:
|
¡
|
|
Magnitude of pay misalignment;
|
|
¡
|
|
Contribution of non-performance-based equity grants to overall pay; and
|
|
¡
|
|
The proportion of equity awards granted in the last three fiscal years concentrated at the named executive officer (NEO) level.
|
Primary Evaluation Factors for Executive Pay
Pay-for-Performance
Evaluation
ISS annually conducts a pay-for-performance analysis to identify strong or satisfactory alignment between pay and performance over a sustained
period. With respect to companies in the Russell 3000 index, this analysis considers the following:
|
1.
|
Peer Group
8
Alignment:
|
8 The revised peer group is
generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms), GICS industry group and companys selected peers GICS industry group with size constraints, via a process designed
to select peers that are closest to the subject company in terms of revenue/assets and industry and also within a market cap bucket that is reflective of the companys.
ISS 2013 U.S. Proxy Voting Concise
Guidelines
The degree of alignment between the companys TSR rank and the CEOs total pay rank within a
peer group, as measured over one-year and three-year periods (weighted 40/60);
The multiple of the CEOs total pay relative to the peer group
median.
|
2.
|
Absolute Alignment the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years i.e., the difference between the trend in annual pay changes and the trend in
annualized TSR during the period.
|
If the above analysis demonstrates significant unsatisfactory long-term pay-for-performance alignment or, in the
case of non-Russell 3000 index companies, misaligned pay and performance are otherwise suggested, our analysis may include any of the following qualitative factors, if they are relevant to the analysis to determine how various pay elements may work
to encourage or to undermine long-term value creation and alignment with shareholder interests:
The ratio of performance- to time-based equity
awards;
The overall ratio of performance-based compensation;
The completeness of disclosure and rigor of performance goals;
The companys peer group benchmarking practices;
Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers;
Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards);
Realizable pay compared to grant pay; and
Any other
factors deemed relevant.
Problematic Pay Practices
The focus is
on executive compensation practices that contravene the global pay principles, including:
Problematic practices related to non-performance-based
compensation elements;
Incentives that may motivate excessive risk-taking; and
Options Backdating.
Problematic Pay Practices related to
Non-Performance-Based Compensation Elements
Pay elements that are not directly based on performance are generally evaluated CASE-BY-CASE considering the
context of a companys overall pay program and demonstrated pay-for-performance philosophy. Please refer to ISS Compensation FAQ document for detail on specific pay practices that have been identified as potentially problematic and may
lead to negative recommendations if they are deemed to be inappropriate or unjustified relative to executive pay best practices. The list below highlights the problematic practices that carry significant weight in this overall consideration and may
result in adverse vote recommendations:
|
|
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Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options);
|
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Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting;
|
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New or extended agreements that provide for:
|
|
¡
|
|
CIC payments exceeding 3 times base salary and average/target/most recent bonus;
|
|
¡
|
|
CIC severance payments without involuntary job loss or substantial diminution of duties (single or modified single triggers);
|
|
¡
|
|
CIC payments with excise tax gross-ups (including modified gross-ups).
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ISS 2013 U.S. Proxy Voting Concise Guidelines
Incentives that may Motivate Excessive Risk-Taking
Multi-year guaranteed bonuses;
A single or common
performance metric used for short- and long-term plans;
Lucrative severance packages;
High pay opportunities relative to industry peers;
Disproportionate supplemental pensions; or
Mega
annual equity grants that provide unlimited upside with no downside risk.
Factors that potentially mitigate the impact of risky incentives include rigorous
claw-back provisions and robust stock ownership/holding guidelines.
Options Backdating
The following factors should be examined CASE-BY-CASE to allow for distinctions to be made between sloppy plan administration versus deliberate action or
fraud:
Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;
Duration of options backdating;
Size of restatement
due to options backdating;
Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated options, the
recouping of option gains on backdated grants; and
Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or
window period for equity grants in the future.
Board Communications and Responsiveness
Consider the following factors CASE-BY-CASE when evaluating ballot items related to executive pay on the boards responsiveness to investor input and engagement on
compensation issues:
Failure to respond to majority-supported shareholder proposals on executive pay topics; or
Failure to adequately respond to the companys previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking
into account:
|
¡
|
|
The companys response, including:
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Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
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Specific actions taken to address the issues that contributed to the low level of support;
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Other recent compensation actions taken by the company;
|
|
¡
|
|
Whether the issues raised are recurring or isolated;
|
|
¡
|
|
The companys ownership structure; and
|
|
¡
|
|
Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
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ISS 2013 U.S. Proxy Voting Concise Guidelines
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Frequency of Advisory Vote on Executive Compensation (Say When on Pay)
Vote FOR annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about companies
executive pay programs.
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Voting on Golden Parachutes in
an Acquisition, Merger, Consolidation, or Proposed Sale
Vote CASE-BY-CASE on say on Golden Parachute proposals, including consideration of existing
change-in-control arrangements maintained with named executive officers rather than focusing primarily on new or extended arrangements.
Features that may result in
an AGAINST recommendation include one or more of the following, depending on the number, magnitude, and/or timing of issue(s):
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Single- or modified-single-trigger cash severance;
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Single-trigger acceleration of unvested equity awards;
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Excessive cash severance (>3x base salary and bonus);
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Excise tax gross-ups triggered and payable (as opposed to a provision to provide excise tax gross-ups);
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Excessive golden parachute payments (on an absolute basis or as a percentage of transaction equity value); or
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Recent amendments that incorporate any problematic features (such as those above) or recent actions (such as extraordinary equity grants) that may make packages so attractive as to influence merger agreements that may
not be in the best interests of shareholders; or
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The companys assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory vote.
|
Recent amendment(s) that incorporate problematic features will tend to carry more weight on the overall analysis. However, the presence of multiple legacy problematic
features will also be closely scrutinized.
In cases where the golden parachute vote is incorporated into a companys advisory vote on compensation (management
say-on-pay), ISS will evaluate the say-on-pay proposal in accordance with these guidelines, which may give higher weight to that component of the overall evaluation.
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Equity-Based and Other Incentive Plans
Vote
CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity plan if any of the following factors apply:
ISS 2013 U.S. Proxy Voting Concise Guidelines
The total cost of the companys equity plans is unreasonable;
The plan expressly permits repricing;
A pay-for-performance misalignment is found;
The companys three year burn rate exceeds the burn rate cap of its industry group;
The plan has a liberal change-of-control definition; or
The plan is a vehicle for problematic pay practices.
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Social/Environmental Issues
Global Approach
Issues covered under the policy include a wide range of topics, including consumer and product safety, environment
and energy, labor standards and human rights, workplace and board diversity, and corporate political issues. While a variety of factors goes into each analysis, the overall principle guiding all vote recommendations focuses on how the proposal may
enhance or protect shareholder value in either the short term or long term.
Generally vote CASE-BY-CASE, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in addition the following will also be considered:
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If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation;
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If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal;
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Whether the proposals request is unduly burdensome (scope, timeframe, or cost) or overly prescriptive;
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The companys approach compared with any industry standard practices for addressing the issue(s) raised by the proposal;
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If the proposal requests increased disclosure or greater transparency, whether or not reasonable and sufficient information is currently available to shareholders from the company or from other publicly available
sources; and
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If the proposal requests increased disclosure or greater transparency, whether or not implementation would reveal proprietary or confidential information that could place the company at a competitive disadvantage.
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Political Spending &
Lobbying Activities
Generally vote AGAINST proposals asking the company to affirm political nonpartisanship in the workplace so long as:
There are no recent, significant controversies, fines or litigation regarding the companys political contributions or trade association spending;
and
ISS 2013 U.S. Proxy Voting Concise Guidelines
The company has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and prohibit coercion.
Vote AGAINST proposals to publish in newspapers and other media
the companys political contributions. Such publications could present significant cost to the company without providing commensurate value to shareholders.
Generally vote FOR proposals requesting greater disclosure of a companys political contributions and trade association spending policies and activities. However,
the following will be considered:
The companys current disclosure of policies and oversight mechanisms related to its direct political
contributions and payments to trade associations or other groups that may be used for political purposes, including information on the types of organizations supported and the business rationale for supporting these organizations; and
Recent significant controversies, fines, or litigation related to the companys political contributions or political activities.
Vote AGAINST proposals barring the company from making political contributions. Businesses are affected by legislation at the federal, state, and local level; barring
political contributions can put the company at a competitive disadvantage.
Vote AGAINST proposals asking for a list of company executives, directors, consultants,
legal counsels, lobbyists, or investment bankers that have prior government service and whether such service had a bearing on the business of the company. Such a list would be burdensome to prepare without providing any meaningful information to
shareholders.
Vote CASE-BY-CASE on proposals requesting information on a companys lobbying (including direct, indirect, and grassroots lobbying) activities,
policies, or procedures, considering:
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The companys current disclosure of relevant policies and oversight mechanisms;
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Recent significant controversies, fines, or litigation regarding the companys lobbying-related activities; and
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The impact that the public policy issues in question may have on the companys business operations, if specific public policy issues are addressed.
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Foreign Private Issuers Listed on U.S. Exchanges
Vote AGAINST (or WITHHOLD from) non-independent director nominees at companies
which fail to meet the following criteria: a majority-independent board, and the presence of an audit, a compensation, and a nomination committee, each of which is entirely composed of independent directors.
Where the design and disclosure levels of equity compensation plans are comparable to those seen at U.S. companies, U.S. compensation policy will be used to evaluate
the compensation plan proposals. In all other cases, equity compensation plans will be evaluated according to ISS International Proxy Voting Guidelines.
All other
voting items will be evaluated using ISS International Proxy Voting Guidelines.
ISS 2013 U.S. Proxy Voting Concise Guidelines
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Disclosure/Disclaimer
This document and all of
the information contained in it, including without limitation all text, data, graphs, and charts (collectively, the Information) is the property of Institutional Shareholder Services Inc. (ISS), its subsidiaries, or, in some cases third
party suppliers.
The Information has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other
regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any trading strategy, and ISS does not
endorse, approve, or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies.
The user of the
Information assumes the entire risk of any use it may make or permit to be made of the Information.
ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS
WITH RESPECT TO THE INFORMATION AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR
PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any
liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits), or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any
liability that may not by applicable law be excluded or limited.
u
u
u
u
u
ISS 2013 U.S. Proxy Voting Concise Guidelines
PART C: OTHER INFORMATION
(a)(1)
|
Certificate of Trust dated June 8, 2009 of Transparent Value Trust (the Trust or the Registrant) is incorporated
herein by reference to Exhibit (a)(1) of the Registrants Initial Registration Statement on Form N-1A, filed with the SEC on June 15, 2009.
|
(a)(2)
|
Registrants Agreement and Declaration of Trust dated June 8, 2009 is incorporated herein by reference to Exhibit (a)(2) to Pre-Effective
Amendment No. 2 to this Registration Statement, filed with the SEC on March 25, 2010.
|
(b)
|
Registrants By-Laws dated June 8, 2009 are incorporated herein by reference to Exhibit (b) to Pre-Effective Amendment No. 2 to
this Registration Statement, filed with the SEC on March 25, 2010.
|
(d)(1)(a)
|
Investment Advisory Agreement dated March 15, 2010 between the Registrant and Guggenheim Partners Investment Management, LLC is incorporated
herein by reference to Exhibit (d)(1) to Pre-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on March 25, 2010.
|
(d)(1)(b)
|
Schedule A, as revised January 28, 2013, to the Investment Advisory Agreement dated March 15, 2010 between the Registrant and Guggenheim
Partners Investment Management, LLC is incorporated herein by reference to Exhibit (d)(1)(b) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(d)(1)(c)
|
Schedule A, as revised, to the Investment Advisory Agreement dated March 15, 2010 between the Registrant and Guggenheim Partners Investment
Management, LLC, to be filed by subsequent amendment.
|
(d)(2)(a)
|
Expense Limitation Agreement dated June 11, 2012 between the Registrant and Guggenheim Partners Investment Management, LLC, for the
Transparent Value Directional Allocation Fund is incorporated herein by reference to Exhibit (d)(2)(c) to Post-Effective Amendment No. 7 to this Registration Statement, filed with the SEC on June 11, 2012.
|
(d)(2)(b)
|
Amendment to the Expense Limitation Agreement dated January 28, 2013 between the Registrant and Guggenheim Partners Investment Management,
LLC, for the Transparent Value Large-Cap Aggressive Fund, Transparent Value Large-Cap Core Fund, Transparent Value Large-Cap Defensive Fund, Transparent Value Dividend Fund, Transparent Value Large-Cap Growth Fund, Transparent Value Large-Cap Market
Fund, Transparent Value Large-Cap Value and Transparent Value Directional Allocation Fund is incorporated herein by reference to Exhibit (d)(2)(b) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on
January 28, 2013.
|
(d)(2)(c)
|
Amendment to the Expense Limitation Agreement between the Registrant and Guggenheim Partners Investment Management, LLC, for the Transparent Value
Large-Cap Aggressive Fund, Transparent Value Large-Cap Core Fund, Transparent Value
|
|
Large-Cap Defensive Fund, Transparent Value Dividend Fund, Transparent Value Large-Cap Growth Fund, Transparent Value Large-Cap Market Fund, Transparent Value Large-Cap Value, Transparent Value
Directional Allocation Fund and Transparent Value Small-Cap Fund, to be filed by subsequent amendment.
|
(d)(3)(a)
|
Sub-Advisory Agreement dated March 15, 2010 between Guggenheim Partners Investment Management, LLC and Transparent Value Advisors, LLC is
incorporated herein by reference to Exhibit (d)(3) to Pre-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on March 25, 2010.
|
(d)(3)(b)
|
Schedule A, as amended January 28, 2013, to the Sub-Advisory Agreement dated March 15, 2010 between Guggenheim Partners Investment
Management, LLC and Transparent Value Advisors, LLC is incorporated herein by reference to Exhibit (d)(3)(b) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(d)(3)(c)
|
Schedule A, as last amended, to the Sub-Advisory Agreement between Guggenheim Partners Investment Management, LLC and Transparent Value Advisors,
LLC, to be filed by subsequent amendment.
|
(e)(1)
|
Distribution Agreement dated November 1, 2011 between the Registrant and ALPS Distributors, Inc. is incorporated herein by reference to
Exhibit (e)(1) to Post-Effective Amendment No. 4 to this Registration Statement, filed with the SEC on January 27, 2012.
|
(e)(2)
|
Amendment dated January 28, 2013 to the Distribution Agreement dated November 1, 2011 between the Registrant and ALPS Distributors, Inc.
is incorporated herein by reference to Exhibit (e)(2) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(e)(3)
|
Amendment to the Distribution Agreement dated November 1, 2011 between the Registrant and ALPS Distributors, Inc., to be filed by subsequent
amendment.
|
(e)(4)
|
Form of Broker Dealer Selling Agreement with ALPS Distributors, Inc. is incorporated herein by reference to Exhibit (e)(3) to Post-Effective
Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(g)
|
Mutual Fund Custody and Services Agreement dated March 3, 2010 between the Registrant and The Bank of New York Mellon is incorporated herein
by reference to Exhibit (g) to Pre-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on March 25, 2010.
|
(h)(1)(a)
|
Administration, Bookkeeping and Pricing Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services, Inc. is
incorporated herein by reference to Exhibit (h)(1)(a) to Post-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on January 28, 2011.
|
(h)(1)(b)
|
Amendment to Appendices A and B dated June 11, 2012 to the Administration, Bookkeeping and Pricing Services Agreement dated April 1, 2010
between the Registrant
|
|
and ALPS Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(1)(b) to Post-Effective Amendment No. 7 to this Registration Statement, filed with the SEC on June 11,
2012.
|
(h)(1)(c)
|
Amendment to Appendix A dated January 28, 2013 to the Administration, Bookkeeping and Pricing Services Agreement dated April 1, 2010
between the Registrant and ALPS Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(1)(c) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(1)(d)
|
Amendment to to the Administration, Bookkeeping and Pricing Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund
Services, Inc., to be filed by subsequent amendment.
|
(h)(2)(a)
|
Transfer Agency and Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services, Inc. is incorporated herein by
reference to Exhibit (h)(2)(a) to Post-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on January 28, 2011.
|
(h)(2)(b)
|
Amendment dated January 28, 2013 to the Transfer Agency and Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund
Services, Inc. is incorporated herein by reference to Exhibit (h)(2)(b) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(2)(c)
|
Amendment to the Transfer Agency and Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services, Inc., to be filed
by subsequent amendment.
|
(h)(3)(a)
|
Transfer Agency Interactive Client Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services, Inc. is incorporated
herein by reference to Exhibit (h)(3)(a) to Post-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on January 28, 2011.
|
(h)(3)(b)
|
Amendment dated January 28, 2013 to the Transfer Agency Interactive Client Services Agreement dated April 1, 2010 between the Registrant
and ALPS Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(3)(b) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(3)(c)
|
Amendment to the Transfer Agency Interactive Client Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services,
Inc., to be filed by subsequent amendment.
|
(h)(4)(a)
|
Chief Compliance Officer Services Agreement dated April 1, 2010 by and between the Registrant and ALPS Fund Services, Inc. is incorporated
herein by reference to Exhibit (h)(4)(a) to Post-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on January 28, 2011.
|
(h)(4)(b)
|
Amendment dated June 11, 2012 to the Chief Compliance Officer Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund
Services, Inc. is incorporated herein by reference to Exhibit (h)(4)(b) to Post-Effective Amendment No. 7 to this Registration Statement, filed with the SEC on June 11, 2012.
|
(h)(4)(c)
|
Amendment to Exhibit A dated January 28, 2013 to the Chief Compliance Officer Services Agreement dated April 1, 2010 between the
Registrant and ALPS Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(4)(c) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(4)(d)
|
Amendment to the Chief Compliance Officer Services Agreement dated April 1, 2010 between the Registrant and ALPS Fund Services, Inc., to be
filed by subsequent amendment.
|
(h)(5)
|
Form of Shareholder Servicing Agreement with ALPS Distributors, Inc. is incorporated herein by reference to Exhibit (h)(5) to Post-Effective
Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(6)
|
Shareholder Servicing Plan dated December 21, 2009, as amended November 10, 2011, February 29, 2012 and January 28, 2013,
relating to Class A Shares, is incorporated herein by reference to Exhibit (h)(6) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(h)(7)
|
Shareholder Servicing Plan dated December 21, 2009, as most recently revised, to be filed by subsequent amendment.
|
(i)
|
Opinion and Consent of Counsel, Morgan, Lewis & Bockius LLP, to be filed by subsequent amendment.
|
(m)(1)
|
Distribution and Shareholder Services Plan dated December 21, 2009, as amended February 29, 2012 and January 28, 2013, is
incorporated herein by reference to Exhibit (m) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(m)(2)
|
Distribution and Shareholder Services Plan dated December 21, 2009, as most recently revised, to be filed by subsequent amendment.
|
(n)(1)
|
Rule 18f-3 Multiple Class Plan dated December 21, 2009, as amended February 29, 2012 and January 28, 2013, is incorporated herein by
reference to Exhibit (n) to Post-Effective Amendment No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(n)(2)
|
Rule 18f-3 Multiple Class Plan dated December 21, 2009, as most recently revised, to be filed by subsequent amendment.
|
(p)(1)
|
Registrants Code of Ethics is incorporated herein by reference to Exhibit (p)(1) to Post-Effective Amendment No. 4 to this Registration
Statement, filed with the SEC on January 27, 2012.
|
(p)(2)
|
Code of Ethics of Guggenheim Partners Investment Management, LLC is incorporated herein by reference to Exhibit (p)(2) to Post-Effective Amendment
No. 9 to this Registration Statement, filed with the SEC on January 28, 2013.
|
(p)(3)
|
Code of Ethics of Transparent Value Advisors, LLC is incorporated herein by reference to Exhibit (p)(3) to Post-Effective Amendment No. 9 to
this Registration Statement, filed with the SEC on January 28, 2013.
|
(p)(4)
|
Code of Ethics of ALPS Distributors, Inc. is incorporated herein by reference to Exhibit (p)(4) to Post-Effective Amendment No. 9 to this
Registration Statement, filed with the SEC on January 28, 2013.
|
(q)
|
Powers of Attorney for Farhan Sharaff, John Masterson, Robert Casale, and Dennis Cullen are incorporated herein by reference to Exhibit (q) to
Pre-Effective Amendment No. 2 to this Registration Statement, filed with the SEC on March 25, 2010.
|
Item 29
.
|
Persons Controlled by or under Common Control with the Fund
|
Not Applicable.
Item 30
.
|
Indemnification
|
A Trustee, when acting in such capacity, shall not be personally liable to any Person, other than the Trust or a Shareholder to the extent
provided in Article VII of the Trusts Agreement and Declaration of Trust, for any act, omission or obligation of the Trust, of such Trustee, or of any other Trustee. A Trustee shall be liable to the Trust and to any Shareholder solely for his
or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees shall not be
responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, investment adviser or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee. The Trust
shall indemnify each Person who is, or has been, a Trustee, officer, employee or agent of the Trust, any Person who is serving or has served at the Trusts request as a Trustee, officer, trustee, employee or agent of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise to the extent and in the manner provided in the Trusts By-Laws.
All persons extending credit to, contracting with or having any claim against the Trust or the Trustees shall look only to the assets of the
appropriate Series, or, if the Trustees have yet to establish Series, of the Trust for payment under such credit, contract or claim; and neither the Trustees nor the Shareholders, nor any of the Trusts officers, employees or agents, whether
past, present or future, shall be personally liable therefor.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the Trust or Trustees by any of them in connection with the Trust shall conclusively be deemed to have been executed or done only in or with respect to his or their capacity as
Trustee or Trustees, and such Trustee or Trustees shall not be personally liable thereon. At the Trustees discretion, any note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers
may give notice that the Certificate of Trust is on file in the
Office of the Secretary of State of the State of Delaware and that a limitation on the liability of each Series exists and such note, bond, contract, instrument, certificate or undertaking may,
if the Trustees so determine, recite that the same was executed or made on behalf of the Trust or by a Trustee or Trustees in such capacity and not individually or by an officer or officers in such capacity and not individually and that the
obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only on the assets and property of the Trust or a Series thereof, and may contain such further recital as such Person or Persons may
deem appropriate. The omission of any such notice or recital shall in no way operate to bind any Trustees, officers or Shareholders individually.
Insofar as indemnification for liability arising under the Securities Act of 1933 (the Act) may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 31.
|
Business and other Connections of the Investment Adviser
|
Guggenheim Partners
Investment Management, LLC, (the Adviser) serves as the investment adviser for each series of the Trust. The principal address of the Adviser is 330 Madison Avenue, 10th Floor New York, NY 10017. The Adviser is an investment adviser
registered with the SEC under the Investment Advisers Act of 1940.
Any other business, profession, vocation or employment of a
substantial nature in which each director or principal officer of the Adviser is or has been, at any time during the last two fiscal years, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee are
as follows:
|
|
|
|
|
Name and
Position
with Investment Adviser
|
|
Name of Other Company
|
|
Connection with Other Company
|
Julian Koski
Managing Director
|
|
Transparent Value Advisors, LLC
|
|
Co-Chief Executive Officer
|
|
Guggenheim Transparent Value, LLC
|
|
Member and Co-Chief Executive Officer
|
|
Transparent Value, LLC
|
|
Member
|
|
Leo & Tess LLC
|
|
Managing Member
|
|
Plantum Investments, Limited
|
|
Managing Member
|
Armen Arus
Managing Director
|
|
Transparent Value Advisors, LLC
|
|
Co-Chief Executive Officer
|
|
Guggenheim Transparent Value, LLC
|
|
Member and Co-Chief Executive Officer
|
|
Transparent Value, LLC
|
|
Member
|
|
LEKA Investments, LLC
|
|
Managing Member
|
|
Plantum Investments, Limited
|
|
Managing Member
|
Farhan Sharaff
Senior Managing Director
|
|
Transparent Value Advisors, LLC
|
|
Chief Investment Officer
|
|
Guggenheim Partners Asset Management, LLC
|
|
Equities Chief Investment Officer
|
|
Guggenheim Global Investments PLC
|
|
Director
|
|
Guggenheim Funds Investment Advisors, LLC
|
|
Chief Investment Officer
|
John F. Klein
|
|
GI Holdco II LLC
|
|
Director/President
|
|
|
GI Holdco LLC
|
|
Director/President
|
|
Guggenheim Partners Investment Management Holdings, LLC
|
|
Director/President
|
|
Guggenheim Partners Investment Management, LLC
|
|
President
|
William Hagner
General Counsel
|
|
E5 Global Media (UK)
|
|
Director
|
|
Prometheus Global Media Holdings, LLC
|
|
Director
|
|
|
|
|
|
Name and
Position
with Investment Adviser
|
|
Name of Other Company
|
|
Connection with Other Company
|
|
|
Prometheus Global Media, LLC
|
|
Director
|
|
|
Lionel Holdings LLC
|
|
Director
|
|
|
Guggenheim Investment Advisors (Europe) Limited
|
|
Director
|
Stephen Sautel
Chief Operating Officer
|
|
Guggenheim Global Investments PLC
|
|
Director
|
|
Guggenheim-meZocliq Holdings, LLC
|
|
Manager
|
|
IF Technologies, Inc.
|
|
Director
|
Transparent Value Advisors, LLC (the Sub-Adviser) serves as investment sub-adviser for each series
of the Trust. The principal address of the Sub-Adviser is 330 Madison Avenue, 10th Floor New York, NY 10017. The Sub-Adviser is an investment adviser registered with the SEC under the Investment Advisers Act of 1940.
Any other business, profession, vocation or employment of a substantial nature in which each director or principal officer of the Sub-Adviser
is or has been, at any time during the last two fiscal years, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee as follows:
|
|
|
|
|
Name and
Position
with Sub-Adviser
|
|
Name of Other Company
|
|
Connection with Other Company
|
Julian Koski
Co-Chief Executive Officer
|
|
Guggenheim Partners Investment Management, LLC
|
|
Managing Director
|
|
Guggenheim Transparent Value, LLC
|
|
Member and Co-Chief Executive Officer
|
|
Transparent Value, LLC
|
|
Member
|
|
|
Leo & Tess LLC
|
|
Managing Member
|
|
|
Plantum Investments, Limited
|
|
Managing Member
|
Armen Arus
Co-Chief Executive Officer
|
|
Guggenheim Partners Investment Management, LLC
|
|
Managing Director
|
|
Guggenheim Transparent Value, LLC
|
|
Member and Co-Chief Executive Officer
|
|
Transparent Value, LLC
|
|
Member
|
|
|
LEKA Investments, LLC
|
|
Managing Member
|
|
|
Plantum Investments, Limited
|
|
Managing Member
|
Farhan Sharaff
Chief Investment Officer
|
|
Guggenheim Partners Investment Management, LLC
|
|
Senior Managing Director
|
|
Guggenheim Partners Asset Management, LLC
|
|
Equities Chief Investment Officer
|
|
Guggenheim Global Investments PLC
|
|
Director
|
|
|
Guggenheim Funds Investment Advisors, LLC
|
|
Chief Investment Officer
|
Gennadiy Khayutin
Managing Director
|
|
Guggenheim Transparent Value, LLC
|
|
Managing Director
|
Additional information as to any other business, profession, vocation or employment of a
substantial nature engaged in by each such officer and director is included in the Trusts Statement of Additional Information.
Item 32
.
|
Principal Underwriters
|
(a) ALPS Distributors, Inc. acts as the distributor for
the Registrant and the following investment companies: ALPS Series Trust, Arbitrage Funds, AQR Funds, Babson Capital Funds Trust, BBH Trust, BLDRS Index Funds Trust, BPV Family of Funds, Brown Management Funds, Caldwell & Orkin Funds, Inc.,
Campbell Multi-Strategy Trust, Century Capital Management Trust, Columbia ETF Trust, CornerCap Group of Funds, Cortina Funds, Inc., CRM Mutual Fund Trust, Cullen Funds, DBX ETF TRUST, db-X Exchange-Traded Funds Inc., Drexel Hamilton Investment
Partners LLC, EGA Emerging Global Shares Trust, Financial Investors Trust, Firsthand Funds, Heartland Group, Inc., Henssler Funds, Inc., Holland Balanced Fund, IndexIQ Trust, Index IQ ETF Trust, James Advantage Funds, Laudus Trust, Laudus
Institutional Trust, Mairs and Power Funds Trust, Oak Associates Funds, Pax World Series Trust I, Pax World Funds Trust II, PowerShares QQQ 100 Trust Series 1, RiverNorth Funds, Russell Exchange Traded Funds Trust, SPDR Dow Jones Industrial Average
ETF Trust, SPDR S&P 500 ETF Trust, SPDR S&P MidCap 400 ETF Trust, Select Sector SPDR Trust, Stadion Investment Trust, Stone Harbor Investment Funds, Tilson Investment Trust, Trust for Professional Managers, Wakefield Alternative Series
Trust, Wasatch Funds, WesMark Funds, Westcore Trust, Whitebox Mutual Funds, Williams Capital Liquid Assets Fund, Wilmington Funds and WisdomTree Trust.
(b)
|
The following information is furnished with respect to the directors and officers of ALPS Distributors, Inc.
|
|
|
|
|
|
Name and
Address*
|
|
Positions and Offices with
Underwriter
|
|
Positions and Offices
with Registrant
|
Edmund J. Burke
|
|
Director
|
|
None
|
Thomas A. Carter
|
|
President, Director
|
|
None
|
Jeremy O. May
|
|
Executive Vice President, Director
|
|
None
|
Kevin J. Ireland
|
|
Senior Vice President, Director of Institutional Sales
|
|
None
|
Mark R. Kiniry
|
|
Senior Vice President, National Sales Director - Investments
|
|
None
|
Bradley J. Swenson
|
|
Senior Vice President, Chief Compliance Officer
|
|
None
|
Robert J. Szydlowski
|
|
Senior Vice President, Chief Technology Officer
|
|
None
|
Tané T. Tyler
|
|
Senior Vice President, Assistant Secretary, General Counsel
|
|
None
|
Kenneth V. Hager
|
|
Vice President, Treasurer and Assistant Secretary
|
|
None
|
Eric Parsons
|
|
Vice President, Controller and Assistant Treasurer
|
|
None
|
Erin E. Douglas
|
|
Vice President, Assistant General Counsel
|
|
None
|
JoEllen Legg
|
|
Vice President, Assistant General Counsel
|
|
None
|
Paul F. Leone
|
|
Vice President, Assistant General Counsel
|
|
None
|
David T. Buhler
|
|
Vice President, Senior Associate Counsel
|
|
None
|
Rhonda Mills
|
|
Vice President, Associate Counsel
|
|
Secretary
|
Jennifer T. Welsh
|
|
Vice President, Associate Counsel
|
|
None
|
Steven Price
|
|
Vice President, Deputy Chief Compliance Officer
|
|
None
|
Jeff Brainard
|
|
Vice President, Divisional Sales Manager Internal Sales
|
|
None
|
James Stegall
|
|
Vice President, Institutional Sales Manager
|
|
None
|
|
|
|
|
|
Name and
Address*
|
|
Positions and Offices with
Underwriter
|
|
Positions and Offices
with Registrant
|
Randall D. Young
|
|
Secretary
|
|
None
|
Gregg Wm. Givens
|
|
Assistant Treasurer
|
|
None
|
Gary Ross
|
|
Vice President, Director of Sales
|
|
None
|
*
|
c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.
|
Item 33.
|
Location of Accounts and Records:
|
State the name and address of each person
maintaining principal possession of each account, book or other document required to be maintained by section 31(a) of the 1940 Act Section 15 U.S.C. 80a-30(a) and the rules under that section.
All accounts, books, and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended,
and the rules promulgated thereunder are maintained at the following offices:
|
|
|
(a)
|
|
Registrant:
|
|
|
c/o Guggenheim Partners Investment Management, LLC
|
|
|
330 Madison Avenue, 10th Floor
|
|
|
New York, NY 10017
|
|
|
|
|
c/o Transparent Value Advisors, LLC
|
|
|
330 Madison Avenue, 10th Floor
|
|
|
New York, NY 10017
|
|
|
|
(b)
|
|
Adviser:
|
|
|
Guggenheim Partners Investment Management, LLC
|
|
|
330 Madison Avenue, 10th Floor
|
|
|
New York, NY 10017
|
|
|
(c)
|
|
Sub-Adviser:
|
|
|
Transparent Value Advisors, LLC
|
|
|
330 Madison Avenue, 10th Floor
|
|
|
New York, NY 10017
|
|
|
(d)
|
|
Principal Underwriter:
|
|
|
ALPS Distributors, Inc.
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|
|
1290 Broadway, Suite 1100
|
|
|
Denver, Colorado 80203
|
|
|
(e)
|
|
Custodian:
|
|
|
The Bank of New York Mellon
|
|
|
One Wall Street
|
|
|
New York, New York 10286
|
Item 34
.
|
Management Services
|
Not Applicable.
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and the State of New York, on this 8th day of November, 2013.
|
|
|
Transparent Value Trust
|
|
|
/s/ Armen Arus
|
|
|
Armen Arus
|
|
|
President
|
|
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed
below by the following persons in the capacity and on the date indicated.
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
Date
|
|
|
|
|
*
|
|
|
|
Member of the Board of Trustees
|
|
November 8, 2013
|
Farhan Sharaff
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
Member of the Board of Trustees
|
|
November 8, 2013
|
John Masterson
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
Member of the Board of Trustees
|
|
November 8, 2013
|
Robert J. Casale
|
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
Member of the Board of Trustees
|
|
November 8, 2013
|
Dennis A. Cullen
|
|
|
|
|
|
|
|
|
|
|
/s/ Keith D. Kemp
|
|
|
|
Treasurer
|
|
November 8, 2013
|
Keith D. Kemp
|
|
|
|
|
|
|
|
|
|
|
/s/ Armen Arus
|
|
|
|
President
|
|
November 8, 2013
|
Armen Arus
|
|
|
|
|
|
|
|
|
|
*
/s/ Armen Arus
|
|
|
|
|
Armen Arus
|
|
|
|
|
|
|
*
|
Attorney-in-Fact pursuant to powers of attorney filed as Exhibit (q) to Pre-Effective Amendment No. 2 to this Registration Statement
filed with the SEC on March 25, 2010.
|
EXHIBIT INDEX
|
|
|
Exhibit Number
|
|
Exhibit
|
|
|
None
|
|
|
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