PRINCIPAL INVESTMENT STRATEGIES
To achieve its investment objective, the International Fund invests primarily in, and allocates its investments primarily between, Fund Investments (defined below) that are intended to be generally representative of the performance of international developed and emerging markets and market sectors, and Cash Positions (defined below). Under normal market conditions, at least 40% of the Fund’s net assets will be invested in the securities of non-U.S. issuers (or Fund Investments that invest in such securities), and the International Fund will typically have exposure to not less than three different countries other than the U.S.
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“Fund Investments” include actively managed and index-based ETFs (exchange traded funds), mutual funds and other investment companies, groups of securities related by index or sector made available through certain brokers at a discount brokerage rate (such as stock baskets, baskets of bonds and other index-or sector-based groups of related securities) and options or futures positions (e.g., options or futures contracts on securities, securities indexes, currencies or other financial instruments) with respect to any of the foregoing intended to match or approximate their performance.
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“Cash Positions” include cash and short-term, highly liquid investments, such as money market instruments, U.S. government obligations, commercial paper, repurchase agreements, and other cash or cash equivalent positions.
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In allocating the International Fund’s assets, the Adviser uses a proprietary, technically driven asset allocation model to determine current risk in international equity markets (reflected in the Adviser’s model by a weighted average score) based on a number of technical indicators. The
technical indicators examined by the Adviser are primarily focused on trend analysis of international markets, such as analysis of price trends (e.g., determining risk based on movements of market prices up or down), breadth trends (e.g., analyzing whether international markets are trending positively or negatively) and relative strength (e.g., comparing risk profiles of investment alternatives such as emerging markets vs. developed international markets). The Adviser then seeks to participate in markets and market sectors with low risk scores, while divesting its portfolio of investments in markets and market sectors with high risk scores.
To participate in international developed and emerging markets and market sectors, the Adviser’s investment philosophy emphasizes purchasing Fund Investments, which the Adviser believes are a convenient way to invest in both broad market indexes (e.g., the MSCI World, MSCI ACW, Global Dow, MSCI EAFE, etc.), specific country or region indexes (e.g., MSCI Spain, WisdomTree Australia Dividend, the S&P Asia 50, etc.) and market sector indexes (e.g., country- or region-specific healthcare indexes, utilities indexes, real estate indexes, etc.). In this respect, the International Fund may invest in international developed and emerging markets and market sectors of all types, including Fund Investments with exposure to:
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developed and emerging equity markets and market sectors (including specific non-U.S. countries and regions);
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equity or fixed-income indexes that include exposure to both domestic and foreign markets or sectors;
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domestic or foreign corporate and/or government bonds issued by any size company, municipality or government body in any sector of any maturity or yield, provided that corporate debt obligations are “investment grade” securities rated in one of the four highest rating categories by one or more nationally recognized rating agencies or, if not so rated, are of equivalent quality in the opinion of the Adviser.
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The International Fund may invest in options or futures positions for speculative purposes, when the Adviser determines that they provide a more efficient way to increase or reduce the International Fund’s overall exposure to an industry or sector than buying or selling other Fund Investments, or to hedge against risks of investments in the International Fund’s portfolio or markets generally. In general, the International Fund will not purchase or sell futures contracts or related options unless either (i) the futures contracts or options thereon are purchased for “bona fide hedging” purposes (as defined under regulations promulgated by the U.S. Commodity Futures Trading Commission (“CFTC”)); or (ii) if purchased for other purposes, the sum of the amounts of initial margin deposits on the International Fund’s existing futures and premiums required to establish non-hedging positions, less the amount by which any such options positions are “in-the-money” (as defined under CFTC regulations) would not exceed 5% of the liquidation value of the International Fund’s total assets.
In general, the International Fund will purchase or increase its exposure to Fund Investments focused on equity markets or market sectors when the Adviser’s asset allocation model and risk analysis indicate that the applicable market or market sector is at low risk of losing value or presents opportunities for growth and appreciation. The International Fund will generally sell or reduce investment exposure to Fund Investments tracking equity markets or market sectors (typically in favor of fixed-income Fund Investments or Cash Positions) when the Adviser’s asset allocation model and risk analysis indicate that such markets have become or are becoming risky, or when the Adviser believes that the equity markets are overvalued or market risk is otherwise too high. As a result, the International Fund may at times be substantially invested in fixed-income focused Fund Investments, Cash Positions or similar securities. The International Fund also has the flexibility to enter into forward foreign currency contracts or to purchase other Fund Investments to hedge against the adverse impact of changes in foreign exchange rates on, or other risks associated with, the Fund’s portfolio.
Although the International Fund will focus on international markets and market sectors, the International Fund will have exposure to U.S. markets and market sectors to the extent that the portfolios of the Fund Investments in which the Fund invests contain U.S. securities. The International Fund may invest in Fund Investments tracking equity markets or market sectors with portfolios comprised of domestic or foreign companies in any sector of any size.
PRINCIPAL RISKS
An investment in the International Fund is subject to investment risks; therefore you may lose money by investing in the Fund. There can be no assurance that the International Fund will be successful in meeting its investment objective. The International Fund is best suited for long-term investors. Generally, the International Fund will be subject to the following risks:
Market Risk:
Market risk refers to the risk that the value of securities in the International Fund’s portfolio may decline due to daily fluctuations in the securities markets that are generally beyond the Adviser’s control, including fluctuation in interest rates, the quality of the International Fund’s investments, general economic and market conditions, and investor sentiment. In a declining stock market, stock prices for all companies (including those in the International Fund’s portfolio) may decline, regardless of their long-term prospects.
Management Style Risk:
The share price of the International Fund changes daily based on the performance of the securities in which it invests. The ability of the International Fund to meet its investment objective is directly related to the ability of the Adviser’s allocation model to accurately measure market risk and appropriately react to current and developing market trends. There is no guarantee that the Adviser’s judgments about the attractiveness, value and potential appreciation of particular investments in which the International Fund invests will be correct or produce the desired results. If the Adviser fails to accurately evaluate market risk or appropriately react to current and developing market conditions, the International Fund’s share price may be adversely affected.
Equity Securities Risk:
The value of equity securities may decline due to general market conditions which are not specifically related to a particular company and are generally beyond the Adviser’s control, including fluctuations in interest rates, the quality of the International Fund’s investments, economic conditions, corporate earnings, adverse investor sentiment and general equity market conditions. In a declining stock market, stock prices for all companies (including those in the International Fund’s portfolio) may decline, regardless of their long-term prospects.
Foreign Securities Risk:
Investing in securities issued by companies whose principal business activities are outside the United States, or investing in American Depositary Receipts (“ADRs”) or Fund Investments focusing on such companies, may involve significant risks not present in domestic investments. There is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations or currency exchange rates, expropriation or confiscatory taxation, limitation on the removal of cash or other assets of the International Fund from foreign markets, political or financial instability, or diplomatic and other developments which could affect such investments. Further, economies of particular countries or areas of the world may differ favorably or unfavorably from the economy of the United States. Foreign securities often trade with less frequency and volume than domestic securities and therefore may exhibit greater price volatility.
Currency Risk:
Investments in foreign markets involve currency risk, which is the risk that the values of the Fund Investments and other assets denominated in foreign currencies will decrease due to adverse changes in the value of the U.S. dollar relative to the value of foreign currencies. The International Fund may, but is not required to, hedge against currency risk through the use of forward foreign currency contracts, which are obligations to purchase or sell a specified currency at a future date at a price established at the time of the contract. Forward foreign currency contracts involve the risk of loss due to the imposition of exchange controls by a foreign government, the delivery failure or default by the other party to the transaction or the inability of the International Fund to close out a position if the trading market becomes illiquid. There can be no assurance that any currency hedging transactions will be successful, and the International Fund may suffer losses from these transactions.
Emerging Markets Risk:
Investments in emerging markets, which include Africa, Asia, the Middle East and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of developing countries, in most cases, do not compare favorably with the U.S. and other developed countries in terms of wealth and stability, and financial markets in developing countries are not as liquid as markets in developed countries. The economies in emerging market countries are less developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist measures. Certain countries may have legacies or periodic episodes of hyperinflation and currency devaluations or instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Significant risks of war and terrorism currently affect some emerging market countries.
Small and Medium Capitalization Companies Risk:
The International Fund may, at any given time, invest a significant portion of its assets in securities of small capitalization companies (i.e. companies with less than $1 billion in capitalization) and/or medium capitalization companies
(i.e., companies with between $1 billion and $5 billion in capitalization). Investing in the securities of small and medium capitalization companies
generally involves greater risk than investing in larger, more established companies. The securities of small and medium companies usually have more limited marketability and therefore may be more volatile and less liquid than securities of larger, more established companies or the market averages in general. Because small and medium capitalization companies normally have fewer shares outstanding than larger companies, it may be more difficult to buy or sell significant amounts of such shares without an unfavorable impact on prevailing prices. Small and medium capitalization companies often have limited product lines, markets, or financial resources and lack management depth, making them more susceptible to market pressures. Small and medium capitalization companies are typically subject to greater changes in earnings and business prospects than larger, more established companies. The foregoing risks are generally increased for small capitalization companies as compared to companies with larger capitalizations.
Large Capitalization Companies Risk:
Large capitalization companies (i.e., companies with more than $5 billion in capitalization) may be unable to respond quickly to new competitive challenges, such as changes in technology and consumer tastes, and may not be able to attain the high growth rate of successful smaller companies, especially during extended periods of economic expansion.
Sector/Focused Investment Risk:
Sector risk is the possibility that securities within the same group of industries will decline in price due to sector-specific market or economic developments. If the International Fund invests more heavily in a particular sector or focuses its investments in securities issued by entities having similar characteristics, the value of its shares may be more sensitive to any single economic, business, political or regulatory occurrence than a mutual fund that is more widely diversified. The sectors in which the International Fund may invest in more heavily will vary.
Fixed Income Risk:
Risks of investments in fixed income securities include, without limitation, credit risk, interest rate risk, maturity risk and liquidity risk. These risks could affect the value of investments of the International Fund, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments.
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Credit Risk.
The value of the International Fund’s fixed income investments is dependent on the creditworthiness of the issuer. A deterioration in the financial condition of an issuer or a deterioration in general economic conditions could cause an issuer to fail to pay principal and interest when due.
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Interest Rate Risk.
The value of the International Fund’s fixed income investments will generally vary inversely with the direction of prevailing interest rates. Generally when interest rates rise, the value of the International Fund’s fixed income investments can be expected to decline.
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Maturity Risk.
The value of the International Fund’s fixed income investments is also dependent on their maturity. Generally, the longer the maturity of a fixed income security, the greater its sensitivity to changes in interest rates.
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Liquidity Risk.
Liquidity risk is the risk that a fixed income security may be difficult to sell at an advantageous time or price due to limited market demand (resulting from a downgrade, a decline in price, or adverse conditions within the fixed income market).
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Risks Related to “Fund of Funds” Structure:
The International Fund may invest in ETFs or other investment companies. Through its positions in ETFs and other investment companies, the Fund will be subject to the risks associated with such vehicles’ investments, including the possibility that the value of the securities or instruments held by an ETF or other investment company could decrease (or increase). In addition, certain of the ETFs or other investment companies in which the International Fund may invest may hold common portfolio positions, thereby reducing any diversification benefits.
Under the Investment Company Act of 1940 (the “1940 Act”), the International Fund may not acquire shares of an ETF or other investment company if, immediately after such acquisition, the Fund and its affiliated persons would hold more than 3% of the ETF’s or investment company’s total outstanding shares unless (i) the ETF or the International Fund has received an order for exemptive relief from the 3% limitation from the Securities and Exchange Commission (the “SEC”) that is applicable to the International Fund; and (ii) the ETF and the International Fund take appropriate steps to comply with any conditions in such order. Accordingly, the 3% limitation may prevent the International Fund from allocating its investments in the manner the Adviser considers optimal, or cause the Adviser to select an investment other than that which the Adviser considers optimal.
Since the International Fund is a “fund of funds,” your cost of investing in the Fund will generally be higher than the cost of investing directly in ETFs or other investment companies, because you will indirectly bear fees and expenses charged by the underlying ETFs and investment companies in which the Fund invests in addition to the Fund’s direct fees and expenses. Furthermore, the use of a fund of funds structure could affect the timing, amount, and character of a fund’s distributions and therefore may increase the amount of your tax liability.
Risks Related to ETF NAV and Market Price:
The market value of an ETF’s shares may differ from its net asset value (“NAV”). This difference in price may be due to the fact that the supply and demand in the market for ETF shares at any point in time is not always identical to the supply and demand in the market for the ETF’s underlying basket of securities. Accordingly, there may be times when an ETF trades at a premium (creating the risk that the International Fund pays more than NAV for an ETF when making a purchase) or discount (creating the risks that the International Fund’s NAV is reduced for undervalued ETFs it holds, and that the Fund receives less than NAV when selling an ETF).
Tracking Risk:
Investment in the International Fund should be made with the understanding that the Fund Investments in which the Fund invests may not be able to replicate exactly the performance of the indices they track because the total return generated by the securities will be reduced by transaction costs incurred in adjusting the actual balance of the securities. In addition, the Fund Investments in which the International Fund invests may incur expenses not incurred by their applicable indices. Certain securities comprising the indices tracked by the Fund Investments may, from time to time, temporarily be unavailable, which may further impede the Fund Investments’ ability to track their applicable indices or match their performance.
Risks Related to Portfolio Turnover:
As a result of its trading strategies, the International Fund may sell portfolio securities without regard to the length of time they have been held and will likely have a higher portfolio turnover rate than other mutual funds. Since portfolio turnover may involve paying brokerage commissions and other transaction costs, higher turnover generally results in additional Fund expenses. High rates of portfolio turnover may lower the performance of the International Fund due to these increased costs and may also result in the realization of short-term capital gains. If the International Fund realizes capital gains when Fund Investments are sold, the Fund must generally distribute those gains to shareholders, increasing the Fund’s taxable distributions. High rates of portfolio turnover in a given year would likely result in short-term capital gains that are taxed to shareholders at ordinary income tax rates.
U.S. Government Securities Risk:
Securities issued by the U.S. government or its agencies are subject to risks related to the creditworthiness of the U.S. government. In addition, such securities may not be backed by the “full faith and credit” of the U.S. government, but rather by a right to borrow from the U.S. government or the creditworthiness of the issuer itself. The value of any such securities may fluctuate with changes in credit ratings and market perceptions of the U.S. government and the issuers of the securities, as well as interest rates and other risks applicable to fixed income securities generally.
Risks Related to Investments in Money Market Mutual Funds:
Although a money market fund seeks to maintain the value of an investment at $1.00 per share, there is no assurance that it will be able to do so, and it is possible to lose money by investing in a money market fund. The International Fund will incur additional indirect expenses due to acquired fund fees and other costs to the extent it invests in shares of money market mutual funds.
Derivative Risk:
Put and call options and futures contracts are referred to as “derivative” instruments since their values are based on (“derived from”) the values of other securities. Derivative instruments can be volatile and the potential loss to the International Fund may exceed the International Fund’s initial investment. Derivative instruments may be difficult to value and may be subject to wide swings in valuations caused by changes in the value of the underlying instrument. The use of these instruments requires special skills and knowledge of investment techniques that are different than those normally required for purchasing and selling securities. If the Adviser uses a derivative instrument at the wrong time or judges market conditions incorrectly, or if the derivative instrument does not perform as expected, these strategies may significantly reduce the International Fund’s return. The International Fund could also experience losses if it is unable to close out a position because the market for an instrument or position is or becomes illiquid.
Derivative instruments involve risks different from direct investments in the underlying securities, including: imperfect correlation between the value of the derivative instrument and the underlying assets; risks of default by the other party to the derivative instrument; risks that the transactions
may result in losses of all or in excess of any gain in the portfolio positions; and risks that the transactions may not be liquid. Derivative instruments may create economic leverage in the International Fund, which magnifies the International Fund’s exposure to the underlying instrument.
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Options.
If the International Fund sells a put option whose exercise is settled in cash, the International Fund cannot provide in advance for its potential settlement obligations by selling short the underlying securities, and the International Fund will be responsible, during the option’s life, for any decreases in the value of the underlying security below the strike price of the put option. If the International Fund sells a call option whose exercise is settled in cash, the International Fund cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities, and the International Fund will be responsible, during the option’s life, for any increases in the value of the underlying security above the strike price of the call option.
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Futures Contracts.
A futures contract is a bilateral agreement to buy or sell a security (or deliver a cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contracts) for a set price in the future. The International Fund will be required to deposit with its custodian in a segregated account cash, U.S. Government securities, suitable money market instruments, or liquid, high-grade fixed income securities, known as “initial margin” in an amount required for the particular futures contract as set by the exchange on which the contract is traded. This margin amount may be significantly modified from time to time by the exchange during the term of the contract. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. The International Fund will incur brokerage fees when it purchases and sell futures contracts. Positions taken in the futures markets are not normally held until delivery or cash settlement is required, but are instead liquidated through offsetting transactions, which may result in a gain or a loss. While futures positions taken by the Fund will usually be liquidated in this manner, the International Fund may instead make or take delivery of underlying securities whenever it appears economically advantageous for the International Fund to do so.
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Securities Index Futures Contracts.
A securities index futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective accounts of the parties to the contract. On the contract’s expiration date, a final cash settlement occurs and the futures positions are simply closed out. Changes in the market value of a particular index futures contract reflect changes in the specified index of securities on which the future is based.
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MANAGEMENT OF THE FUND
Stadion Money Management, LLC is the International Fund’s investment adviser.
The Adviser employs a team of investment professionals responsible for the day-to-day management of the International Fund’s investments. Its members are:
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Name
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Title with the Adviser
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Length of Service
to the Fund
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Brad A. Thompson, CFA
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Chief Investment Officer
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Since April 2012
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John M. Wiens, CFA
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Vice President
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Since April 2013
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William McGough, CFA
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Portfolio Manager –
Vice President
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Since April 2013
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PURCHASE AND SALE OF FUND SHARES
Minimum Initial Investment
$1,000 for Class A and Class C shares; $500,000 for Class I shares.
Minimum Additional Investment
$250 for Class A and Class C shares; $5,000 for Class I shares.
General Information
You may purchase or redeem (sell) shares of the Fund on each day that the New York Stock Exchange is open for business. Transactions may be initiated by written request, by telephone or through your financial intermediary.
TAX INFORMATION
The Fund’s distributions are generally taxed as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an IRA. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
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 intermediary’s website for more information.
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