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Glossary

Asset-Backed Securities (ABS)

Asset-backed securities are a type of financial investment that is collateralized by an underlying pool of assets—usually ones that generate a cash flow from debt, such as loans, leases, credit card balances or receivables.

Alternative Minimum Tax (AMT)

The baseline percentage of taxes that a filer must pay to the government, no matter how many deductions or credits the filer may claim. The AMT recalculates income tax after adding certain tax preference items back into adjusted gross income. It uses a separate set of rules to calculate taxable income after allowed deductions. Preferential deductions are added back into the taxpayer’s income to calculate their alternative minimum taxable income (AMTI), and then the AMT exemption is subtracted to determine the final taxable figure.

Active Share

Measures how much an equity portfolio’s holdings differ from the benchmark index constituents.

Alpha

Indicating when a strategy, trader or portfolio manager has managed to beat the market return over some period.

Average Effective Maturity

For a single bond, the average effective maturity (AEM) is a measure of maturity that takes into account the possibility that a bond might be called back by the issuer. For a portfolio of bonds, average effective maturity is the weighted average of the maturities of the underlying bonds.

Beta

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Bloomberg 3-Year (2-4) Muni Index

A rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. The Index has four main sectors: general obligation bonds, revenue bonds, insured bonds (including all insured bonds with a Aaa/AAA rating), and prefunded bonds. Most of the index has historical data to January 1980. In addition, subindices have been created based on maturity, state, sector, quality, and revenue source, with inception dates later than January 1980. The index used herein is the 3 Year (2-4) component of the Municipal Bond Index.

Bloomberg Global Aggregate Bond Index

An index of global investment grade debt from 28 local currency markets. It includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers.

Bloomberg High Yield Municipal Bond Index

Covers the high yield portion of the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

Bloomberg U.S. Aggregate Bond Index

A broad bond index covering most U.S. traded bonds and some foreign bonds traded in the U.S. The Index consists of approximately 17,000 bonds.

Call Premium to Earn

The weighted average potential cash flow to be earned from written call options measured as a percentage of stock assets.

Commercial mortgage-backed securities (CMBS)

Commercial mortgage-backed securities are fixed-income investment products that are backed by mortgages on commercial properties.

Collateralized Loan Obligations (CLO)

Collateralized loan obligations are securities that are backed by a pool of loans.

Collateralized Debt Obligation (CDO)

Collateralized debt obligations are a complex structured finance product that is backed by a pool of loans and other assets and sold to institutional investors. A CDO is a particular type of derivative because, as its name implies, its value is derived from another underlying asset.

Corporate bonds (CORP)

Corporate bonds are debt obligations issued by corporations to fund capital improvements, expansions, debt refinancing or acquisitions.

Correlation

Is a statistical measure of how two securities move in relation to each other. Correlations range from -1 to +1, where a +1 indicate two securities move in lockstep, while a correlation of -1 indicates completely random movements.

Credit Rating

A Nationally Recognized Statistical Ratings Organization (NRSRO) evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from “AAA,” which is the
highest grade, to “D”, which is the lowest grade. In limited situations when the rating agency has not issued a formal rating, the rating agency will classify the security as non- rated.

Downside Capture Ratio

A statistical measure of an investment manager’s overall performance in down-markets. It is used to evaluate how well an investment manager performed relative to an index during periods when that index has dropped.

Effective Duration

This measure of duration takes into account the fact that expected cash flows will fluctuate as interest rates change and is, therefore, a measure of risk. Effective duration can be estimated using modified duration if a bond with embedded options behaves like an option-free bond.

EPS Growth Estimate

Expected growth in earnings based on analyst consensus. Earnings per share (EPS): Net income divided by basic shares outstanding.

Equity Hedge

Hedged equity strategies which typically involve establishing both long and short positions in equity instruments.

Event-Driven

Mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments.

FTSE EPRA/Nareit Developed Global Real Estate Index

A free-float adjusted, market capitalization-weighted index designed to track the performance of listed real estate companies in developed countries worldwide.

Forward P/E Est

A version of the ratio of price-to-earnings that uses forecasted earnings for the next 12 months for the P/E calculation.

Government bonds (GOVT)

Government bonds are a debt security issued by a government to support government spending and obligations.

Gross Exposure

Gross exposure refers to the absolute level of a fund’s investments. It takes into account the value of both a fund’s long positions and short positions and can be expressed either in dollar or percentage terms. Gross exposure is a measure that indicates total exposure to financial markets, thus providing an insight into the amount at risk that investors are taking on. The higher the gross exposure, the bigger the potential loss (or gain).

HFRI Equity Hedge (Total) Index

Investment managers which trade a variety of equity strategies, such as, among others, equity market neutral, fundamental growth, fundamental value, quantitative directional strategies, short bias and sectors such as energy, materials, technology and healthcare.

HFRI Fund Weighted Composite Index

A global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database.

HFRI Macro (Total) Index

Investment managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.

ICE BofAML 3-Month T-Bill Index

Is an unmanaged index that measures the returns of 3-month Treasury Bills.

Information Ratio

A measurement of portfolio returns beyond the returns of a benchmark, usually an index, compared to the volatility of those returns. The benchmark used is typically an index that represents the market or a particular
sector or industry.

LT Debt Capital

Ratio of long-term Debt to Total Capital. Long-term debt (LTD): Debt that is due in more than one operating cycle or one year.

Macro

Strategies that typically include CTA/Managed Futures, equities, fixed income, commodity, currency, etc.

Maturity

The date on which the life of a transaction or financial instrument ends, after which it must either be renewed or it will cease to exist. The term is commonly used for deposits, foreign exchange spot trades, forward transactions, interest rate and commodity swaps, options, loans, and fixed income instruments such as bonds.

Max Drawdown

The maximum loss from a peak to a trough of a portfolio before a new peak is obtained. Maximum drawdown is an indicator of downside risk over a specified time period. It can be used both as a standalone measure or as an input into other metrics such as “Return over maximum drawdown” and Calmar Ratio.

Morningstar Global Real Estate Category

Global real estate portfolios invest primarily in non-U.S. real estate securities but may also invest in U.S. real estate securities. Securities that these portfolios purchase include: debt & equity securities, convertible securities and securities issued by Real Estate Investment Trusts (REITs) and REIT like entities. Portfolios in this category also invest in real-estate operating companies.

Morningstar High-Yield Muni Category

High-Yield Muni portfolios typically invest a substantial portion of assets in high-income municipal securities that are not rated or that are rated at the level of or below BBB (considered high-yield within the municipal-bond industry) by a major ratings agency such as Standard & Poor’s or Moody’s.

Morningstar Multisector Bond Category

Multisector bond portfolios seek income by diversifying their assets among several fixed income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds and high yield U.S. debt securities. These portfolios typically hold 35% to 65% of bond assets in securities that are not rated or are rated by a major agency such as Standard & Poor’s or Moody’s at the level of BB (considered speculative for taxable bonds) and below.

Morningstar Muni National Short Category

Muni national short portfolios invest in bonds issued by state and local governments to fund public projects. The income from these bonds is generally free from federal taxes and/or from state taxes in the issuing state. To lower risk, some of these portfolios spread their assets across many states and sectors. Other portfolios buy bonds from only one state in order to get the state-tax benefit. These portfolios have durations of less than 4.5 years (or, if duration is unavailable, average maturities of less than five years).

Morningstar Options Trading Category

Options trading strategies use a variety of options trades, including put writing, options spreads, options-based hedged equity and collar strategies, among others. In addition, strategies in this group that engage in option writing may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies. Funds in the category will typically have beta values to relevant benchmarks of less than 0.6.

Municipal Bond

A type of debt security issued by local, county, and state governments that are typically offered to pay for capital expenditures, including the construction of highways, bridges, or schools. Municipal bonds act like loans, with bondholders becoming creditors. In exchange for borrowed capital, bondholders/investors are promised interest on their principal balance—the latter being repaid by the maturity date. Municipal bonds are often exempt from most taxes, which makes them attractive to people in higher income tax brackets.

Net Exposure

Net exposure equals the value of long positions minus the value of short positions. Expressed as a percentage, this number is a measure of the extent to which a Fund is exposed to market fluctuations.

Price/Earnings-to-Growth (PEG) Ratio

P/E divided by the company’s expected 12-month earnings growth rate. In general, a PEG ratio of less than 1 is considered to be indicative of an undervalued stock.

Price-to-Book

A valuation ratio of a company’s current share price compared to its book value.

Put Premium Cost

The weighted average price of put options owned measured as a percentage of stock assets.

Relative Value

Managers that take a long or short position across asset-backed, master limited partnership (MLP), real estate, convertible arbitrage, corporate and sovereign fixed income strategies, as well as volatility investment strategies.

RMBS

Residential mortgage-backed securities are a debt-based security, backed by the interest paid on loans for residences.

R-Squared

The percentage of a fund or security’s movements that can be explained by movements in a benchmark index.

Russell 2000 Value Index

The Russell 2000 Index measures the performance of the 2,000 smallest value companies in the Russell 3000 Index which measures the performance of the 3,000 largest U.S. companies based on total market capitalization.

Russell 3000 Value Index

A market-capitalization weighted equity index maintained by the RussellA market-capitalization weighted equity index maintained by the Russell Investment Group and based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform by including only value stocks.

S&P 500 Index

An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

SEC Yield

A formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund’s hypothetical annualized income, as a percentage of its assets. A security’s income, for the purposes of this calculation, is based on the current market yield to maturity (in the case of bonds) or projected dividend yield (for stocks) of the fund’s holdings over a trailing 30 day period. Subsidized yield reflects fee waivers and/or expense reimbursements during the period. Without waivers and/or reimbursements, yields would be reduced. Unsubsidized yield does not adjust for any fee waivers and/or expense reimbursements in effect.

Sharpe Ratio

A measure for calculating risk-adjusted return, it is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

Sortino Ratio

A variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns, called downside deviation, instead of the total standard deviation of portfolio returns.

Spread Duration

The sensitivity of the price of a security to changes in its credit spread. The credit spread is the difference between the yield of a security and the yield of a benchmark rate, such as a cash interest rate or government bond yield.

Standard Deviation

Measures historic volatility and is the measure of the dispersion of a set of data from its mean. The more volatile the data, the higher the deviation.

Tracking Error

The variation between the performance of a portfolio and performance of the benchmark over a specified time period.

Treynor Ratio

A performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio.

Upside Capture Ratio

A statistical measure of an investment manager’s overall performance in up-markets. It is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen.

Weighted Average Days to Expiration

The weighted average time until the expiration date of the options.

Weighted Average Moneyness

How much an option contract’s strike price is in-the-money (ITM) or out-of-the-money (OTM) expressed as a percentage of the price of the option contract’s underlying asset.

12 Month Distribution Rate

12-Month Distribution Rate is calculated by adding each fund’s trailing 12-month income distributions, and dividing the sum by the fund’s most recent month ended NAV. A fund may pay distributions in excess of its net investment company taxable income and, to the extent this occurs, the distribution yield quoted will include a return of capital. However, please note that distributions are subject to recharacterization for tax purposes and the final tax treatment of these distributions will be reported to shareholders after the close of each calendar year on form 1099-DIV.

The 12-Month Distribution Rate will fluctuate from month to month and is not equivalent to the subsidized or unsubsidized 30-day SEC yield of the fund. You should consult each fund’s prospectus for additional information about the Fund’s dividends and distributions policy.

The 12-Month Distribution Rate for the Fund may vary significantly year-over-year due to tax adjustments and are subject to change from the yields quoted. No distribution is guaranteed by the Fund.

The Fund’s distribution rate may be affected by numerous factors, including changes in realized and projected market returns, Fund performance and other factors. There can be no assurance that an unanticipated change in market conditions or other unforeseen factors will not result in a change in the Fund’s distribution rate at a future time. The distribution rate does not reflect other non-income items.

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