Structure, History and Ownership ARGA Investment Management, LP (“ARGA” “we” or “the firm”) is an independent investment
management firm focused on global equities. Founded in 2010 by A. Rama Krishna, CFA, who
serves as Chief Investment Officer, ARGA invests in undervalued businesses using a disciplined
investment approach based on fundamental research and present value. ARGA’s global
organization is aligned around values, client service and results. ARGA is headquartered in
Stamford, CT and has a subsidiary in Chennai, India.
ARGA is organized as a Delaware limited partnership.
ARGA is principally owned by A. Rama Krishna, who also serves as the firm’s Chief Investment
Officer. The principal direct owners of ARGA are:
A. Rama Krishna
2009 Krishna Family Trust
Types of Advisory Services We offer discretionary investment advisory services to:
(1) A number of private investment funds or pooled investment vehicles (referred to in this
brochure as “the Funds”) comprised of high net worth individuals and institutional investors such
as trusts, foundations, corporations, endowments and corporate pensions. Interests in our Funds
are not registered under the Securities Act of 1933, as amended, and the Funds are not registered
under the Investment Company Act of 1940, as amended. Accordingly, interests in the Funds are
offered exclusively in private transactions within the United States by means of a private
placement memorandum to investors satisfying the applicable eligibility and suitability
requirements. The detailed terms applicable to investors in the Funds are described in the
Declaration of Trust of the ARGA Funds Trust and in each Fund’s offering memorandum.
(2) Separate managed accounts (referred to in this brochure as “the Separate Accounts”)
comprised of pension plans, state or municipal government entities, foreign registered
investment companies, family office and sovereign wealth.
(3) An investment company (referred to in this brochure as “Investment Company”) registered
with the SEC under the Investment Company Act of 1940 and located in the United States.
(4) Open-ended investment companies with variable capital that are qualified as UCITS
(Undertakings for Collective Investment in Transferable Securities) (referred to in this brochure
as “UCITS Funds or UCITS vehicles”). Our UCITS vehicles are established as sub-funds of
Skyline Umbrella Fund ICAV, an umbrella-type Irish collective asset management vehicle with
segregated liability between its sub-funds. Our UCITS Funds are governed by the laws of Ireland
and are open to non-U.S. investors. The detailed terms applicable to investors in our UCITS
Funds are described in the Skyline Umbrella Fund ICAV Prospectus and the applicable UCITS
Fund Supplement.
(5) Internal proprietary funds (referred to in this brochure as “Proprietary Funds”), generally
100% funded by the assets of our Chief Investment Officer, A. Rama Krishna. Interests in our
Proprietary Funds are not offered to outside investors and there is no private placement or
offering memorandum available for these funds. We expect to manage additional such funds in
the future.
The Funds, UCITS vehicles, Separate Accounts, Investment Company and Proprietary Funds to
which we provide investment advisory services are sometimes collectively referred to in this
brochure as “the Accounts.” Our Proprietary Funds are managed along with other accounts, and
trade orders for our Proprietary Funds may be aggregated with trade orders for other accounts for
purposes of trade execution. We have therefore implemented strict fairness policies with respect
to trading practices and allocation procedures to avoid any incentive to favor any one account
over another, consistent with our fiduciary obligation to allocate investment opportunities fairly.
ARGA is one of the sub-advisors to one mutual fund registered under the Investment Company
Act of 1940. The fund is the Vanguard International Value Fund.
Our investment objective is to generate long-term returns by investing primarily in equity and
equity-linked securities of issuers that are trading at a discount to their perceived intrinsic value.
We offer investment advisory services on equity and equity-linked securities, including
exchange-listed securities, over-the-counter traded securities, foreign securities and participatory
notes. Our investment advisory services are limited to these types of investments.
Some of the strategies we offer include:
1. Global Equity
This strategy invests primarily in equity and equity-linked securities of issuers located in any part
of the world, including the United States, that are trading at a discount to their perceived intrinsic
value. These securities may be traded on exchanges or recognized markets or over the counter, in
both developed and emerging markets.
2. International Equity
This strategy invests primarily in equity and equity-linked securities of issuers located in any part
of the world that are trading at a discount to their perceived intrinsic value and are either (i)
domiciled outside the United States, or (ii) domiciled in the United States, but a significant
portion of their revenues, earnings, assets, costs or employees are outside the United States.
These securities may be traded on exchanges or recognized markets or over the counter in both
developed and emerging markets.
3. Emerging Markets Equity
This strategy invests primarily in equity and equity-linked securities of issuers that are trading at
a discount to their perceived intrinsic value and that are either (i) located in emerging markets, or
(ii) located in developed markets but a significant portion of their revenues, earnings, assets,
costs or employees are from or in emerging markets. These securities may be traded on
exchanges or recognized markets or over the counter, in both developed and emerging markets
4. Global Diversified
This strategy invests primarily in a diversified portfolio of equity and equity-linked securities of
issuers located in any part of the world, including the United States, that are trading at a discount
to their perceived intrinsic value. These securities may be traded on exchanges or recognized
markets or over the counter, in both developed and emerging markets.
5. International Diversified
This strategy invests primarily in a diversified portfolio of equity and equity-linked securities of
issuers located in any part of the world that are trading at a discount to their perceived intrinsic
value and are either (i) domiciled outside the United States, or (ii) domiciled in the United States,
but a significant portion of their revenues, earnings, assets, costs or employees are outside the
United States. These securities may be traded on exchanges or recognized markets or over the
counter in both developed and emerging markets.
6. Global Concentrated
This strategy invests primarily in a highly concentrated portfolio of equity and equity-linked
securities of issuers located in any part of the world, including the United States, that are trading
at a discount to their perceived intrinsic value. These securities may be traded on exchanges or
recognized markets or over the counter, in both developed and emerging markets.
7. International Small-Cap
This strategy invests primarily in equity and equity-linked securities of smaller capitalization
issuers located in any part of the world that are trading at a discount to their perceived intrinsic
value and are either (i) domiciled outside the United States, or (ii) domiciled in the United States,
but a significant portion of their revenues, earnings, assets, costs or employees are outside the
United States. These securities may be traded on exchanges or recognized markets or over the
counter in developed markets.
8. EAFE
This strategy invests primarily in a portfolio of equity and equity-linked securities of issuers
located in developed market countries around the world that are trading at a discount to their
perceived intrinsic value and are either (i) domiciled outside the United States and Canada, or (ii)
domiciled in the United States and Canada, but a significant portion of their revenues, earnings,
assets, or employees are outside the United States and Canada. These securities may be traded on
exchanges or recognized markets or over the counter in both developed markets.
9. EAFE Diversified
This strategy invests primarily in a diversified portfolio of equity and equity-linked securities of
issuers located in any part of the world that are trading at a discount to their perceived intrinsic
value and are either (i) domiciled outside the US and Canada, or (ii) domiciled in the United
States and Canada, but a significant portion of their revenues, earnings, assets, costs or
employees are outside the United States and Canada. These securities may be traded on
exchanges or recognized markets or over the counter in developed markets.
10. World Diversified
This strategy invests primarily in a diversified portfolio of equity and equity-linked securities of
issuers located in developed markets in any part of world, including issuers domiciled in the
United States, that are trading at a discount to their perceived intrinsic value. These securities
may be traded on exchanges or recognized markets or over the counter in both developed and
emerging markets.
Investment Restrictions Our investment strategies are further described below in Item 8 and in greater detail in the
offering documents of the relevant Fund, where available. In general, we do not tailor a strategy
to the needs of individual Fund investors or Separate Account or Investment Company clients.
However, in certain circumstances, for Separate Account or Investment Company clients, we
may agree on reasonable client-imposed guidelines and restrictions. These guidelines and
restrictions are reviewed prior to investing a portfolio to ensure there are no issues with
managing the portfolio according to our investment approach.
Assets under Management As of December 31, 2018, we managed approximately $ 3,636,004,023 of client assets on a
discretionary basis.
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We generally receive two types of fees for our investment advisory services:
Asset-based management fee
Performance-based fee (incentive allocation based on the performance of the
accounts)
Asset-based Management Fee. In some cases, we reduce the management fee percentage based
on the average balance in the capital account of the client while in others the management fee
remains at a fixed rate irrespective of the balance in the client’s capital account. The
management fee is calculated monthly and payable quarterly. The standard fee schedule for
asset-based management fees per year ranges from 0.5% to 1.2% of the account’s net assets.
Performance-based Fee. ARGA may enter into performance-based compensation arrangements
with certain accounts. Clients who are subject to performance fees will be qualified clients
within the meaning of Rule 205-3 under the Investment Advisers Act of 1940. The performance-
based fee ranges from 10% to 15% (as per each Fund’s terms) of net returns over the hurdle rate
of a specified benchmark relevant to the applicable period. The performance-based fee is subject
to a loss carry forward or high water mark provision that generally requires that any losses
suffered by an account (adjusted to reflect withdrawals/redemptions) be offset by subsequent net
returns before we are entitled to subsequent performance-based fees from the account. These
performance-based compensation arrangements may result in a total annual fee that is higher
than our standard annual asset-based management fee.
The fees described above are our typical fee rates. However, ARGA has the right to negotiate
fees and enter into agreements with one or more of its clients at these negotiated fees. Fees may
vary depending on the size, nature or other circumstances of the mandate/relationship. Fees for
the Separate Accounts and Investment Company clients are negotiated with each such client.
The details of how the fees are calculated for the Funds can be found in the offering documents
of the Funds, which are provided to potential investors. The details of how the fees are calculated
for Separate Account and Investment Company clients are included in the investment advisory
agreement for each such client. The fees incurred are either deducted from the assets of the
accounts of such clients or billed to and paid by the clients, per clients’ options. With respect to
our Funds, in the case of performance-based fees, fees are reallocated from the capital accounts
of clients and into our capital account. Our fees from the Separate Account and Investment
Company clients are either paid directly from the client account or from outside the assets of the
client account, per client instructions.
ARGA is one of the sub-advisors to one mutual fund registered under the Investment Company
Act of 1940. The fund is Vanguard International Value Fund. ARGA manages a portion of the
fund (“ARGA Portfolio”). Under the investment advisory agreement approved by the Vanguard
Trustees’ Equity Fund Board of Trustees, ARGA manages the investment and reinvestment of
the assets of the ARGA Portfolio; continuously reviews, supervises, and administers an
investment program for the ARGA Portfolio; and determines in its discretion the securities to be
purchased or sold and the portion of such assets to be held uninvested. In exchange for these
services, ARGA receives an investment advisory fee consisting of a base fee plus a performance
adjustment. The fees are paid on a quarterly basis.
Expenses Each Fund pays, or reimburses us, or the Fund’s administrators for all operating expenses and
other costs of the Fund that we are not required to bear, including but not limited to:
Accounting and auditing fees, including
○ Audit fees
○ Tax return preparation costs, relating to the Fund’s accountants,
○ Administration fees
Legal fees and expenses;
Trustee fees;
The cost of preparation and distribution of reports and statements to investors;
All trading expenses and transaction costs, including brokerage commissions and
expenses clearing and settlement charges, interest on loans and debit balances, margin
interest, broker service fees and other clearing and custodial expenses; and
The management fee and performance-based fee, if applicable.
We may choose to bear some or all of the operating expenses as well as the organizational
expenses of the Funds.
Separate Account and Investment Company clients will generally be responsible for all custodial
fees, brokerage commissions, clearing fees, interest and withholding or transfer taxes incurred in
connection with trading for the accounts, and our management fee and, if applicable,
performance-based fee.
As we consider appropriate, we may invest a portion of an Account’s assets in one or more
money market funds, mutual funds or exchange-traded funds. When any such investments are
made, the Accounts will be paying, in addition to the compensation payable to us, their
proportionate share of any management fees charged by the manager of such money market
funds, mutual funds or exchange-traded funds.
ARGA does not require clients to prepay fees in advance. Clients may, however, choose to do so.
When a client closes their account, management fees are prorated as of the termination date. The
client receives a refund of the portion of any prepaid management fee that is not earned.
Brokerage and other transaction costs that are borne by the Accounts are described further in
Item 12 (Brokerage Practices) of this brochure.
Neither ARGA nor its officers or employees receive compensation for the sale of securities or
other investment products to its clients. The only form of compensation received from advisory
services is the fees charged for providing investment advisory services, as described above.
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As described in Item 5 above, we receive part of our compensation from certain Accounts in the
form of performance-based allocations and fee adjustments.
We also serve as the investment adviser to certain Accounts that pay us an asset-based fee and
not a performance-based fee. As a result, we may have a conflict of interest, because we can
potentially receive greater fees from accounts having a performance fee structure, than from
those Accounts we charge asset-based fees only. We may be perceived to have an incentive to:
Direct the best investment ideas to, or allocate or sequence trades in favor of, the
Accounts that pay performance-based fees;
Benefit an Account that pays performance-based fees over an Account that does not
pay performance-based fees and which has a different and potentially conflicting
investment strategy.
We have a fiduciary duty to our clients not to favor the account of one client over that of another,
without regard to the types and amounts of fees paid by those accounts. In light of the conflicts
of interest described above, we have allocation policies and procedures in place to ensure that all
Accounts are treated fairly. Generally, allocations are made among Accounts with a similar
strategy on a pro rata basis, based on the size of the Account. Explanations for variations from
this approach are required to be documented and are subject to periodic review by our Chief
Compliance Officer to ensure that all Accounts are being treated fairly.
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We generally provide investment advice to private investment funds or pooled investment
vehicles (“Funds”), UCITS Funds, institutional Separate Accounts (“Separate Accounts”) and an
Investment Company registered with the SEC under the Investment Company Act of 1940. We
also provide investment advice to internal Proprietary Funds which are not open to outside
investors.
The types of investors in the Funds we advise include high net worth individuals and institutional
investors such as trusts, foundations, corporations, endowments, pension plans and family
offices.
We offer separate account services typically to investment companies, pension plans, state or
municipal government entities, foreign registered investment companies, family offices and
sovereign wealth.
The Funds each have a minimum initial investment amount of $1,000,000. Additional
investments to any of the Funds are in increments of $1,000,000. The minimum investment for a
Separate Account is $10,000,000.
These minimums may be reduced or waived by the firm at its sole discretion.
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Methods of Analysis and Investment Strategies ARGA invests in businesses that it believes are undervalued based on long-term earnings power
and dividend-paying capability. ARGA’s investment philosophy is based on the belief that
investors overreact to short-term developments, leading to opportunities to generate gains from
investing in good businesses at great prices. Our value-oriented process uses a dividend discount
model (DDM) to select stocks that trade at a discount to their perceived intrinsic value based
upon our assessment of a company’s long-term earnings power and dividend-paying capability.
The process begins with a quantitative screen that sorts the universe into valuation quintiles.
Comprehensive fundamental company research then focuses on operational expertise, financial
stability, and corporate governance, with stress tests performed to determine potential and risk.
The end result seeks a portfolio of businesses with a substantial discount to intrinsic value, with
expected holding periods of generally 3-5 years. Holdings are continually evaluated based on
their discount to intrinsic value; position sizes are influenced by the discount and perceived risk,
and sales generally tend to occur when holdings fall into the bottom half of the valuation
universe (or, in the case of our diversified strategies, into the bottom half of each sector on
valuation) or when changing fundamentals alter the investment thesis.
Risks Associated with our Investment Strategies Overall Investment Risk. All securities investments risk the loss of capital. The nature of the
securities purchased and traded by the accounts and of the investment techniques and strategies
we employ may increase this risk. There can be no assurance that the accounts will not incur
losses. Many unforeseeable events, including, but not limited to, actions by various government
agencies, such as the Federal Reserve Board, and domestic and international economic and
political developments, may cause sharp market fluctuations which could adversely affect the
accounts. Each strategy’s investments generally consist of securities we identify using our
methodology. Since the strategy involves identifying securities which are generally undervalued
by the marketplace, success of the strategy necessarily depends upon the market eventually
recognizing such value in the price of the security. This may not necessarily occur. Portfolio
positions may undergo significant short-term declines and experience considerable price
volatility. An investment in a Fund or in an account using one of our strategies should not be
regarded as a complete investment program and should be considered only by investors who are
prepared to experience possible short-term volatility and fluctuations in value in the interest of
seeking potentially superior long-term capital appreciation.
Equity Risks. ARGA’s strategies expect to invest primarily in equity and equity-linked securities
(including participatory notes). The value of these securities generally will vary with the
performance of the issuer and movements in the equity markets.
Risks of “Value” or Valuation-based Investing. ARGA invests in businesses it believes are
undervalued based on long-term earnings power and dividend-paying capability. These types of
investments may present risks in addition to the general risk of investing in equity and equity-
linked securities. These stocks are subject to the risk of forecast errors in fundamental factors
affecting their valuation. Also, strict adherence to “value” or valuation-based investing may
result in significant underperformance relative to market indices or other investment styles that
are “growth” or “momentum” oriented or those that adopt a flexible approach. This generally
happens when the market favors “growth” or “momentum” investing over valuation-based
investing.
General Economic and Market Conditions. The success of ARGA’s investment activities will be
affected by general economic and market conditions, such as interest rates, availability of credit,
inflation rates, economic uncertainty, changes in laws (including laws relating to taxation of the
investments), and national and international political circumstances (including wars, terrorist acts
or security operations). These factors may affect the level and volatility of securities prices and
the liquidity of ARGA’s investments. Volatility or illiquidity could adversely impact portfolios
returns. The investment strategies may maintain substantial trading positions that can be
adversely affected by the level of volatility in the financial markets.
Non-U.S. Investments. ARGA expects to invest in financial instruments of non-U.S.
corporations and governments. Investing in the financial instruments of companies (and, from
time to time, governments) outside of the United States involves certain considerations not
usually associated with investing in financial instruments of U.S. companies or the U.S.
government. These include political and economic considerations, such as greater risks of
expropriation, nationalization, confiscatory taxation, limitations on the removal of assets and
general social, political and economic instability; the relatively small size of the securities
markets in such countries and the low volume of trading, resulting in potential lack of liquidity
and in price volatility; the evolving and unsophisticated laws and regulations applicable to the
securities and financial services industries of certain countries; fluctuations in the rate of
exchange between currencies and costs associated with currency conversion; and certain
government policies that may restrict investment opportunities. In addition, accounting and
financial reporting standards that prevail outside of the U.S. often are not as high as U.S.
standards and, consequently, less information is typically available concerning companies
located outside the U.S. than for those located in the U.S. As a result, ARGA may be unable to
structure its investments to achieve the intended results to mitigate all risks associated with such
markets. It may also be difficult to enforce ARGA’s rights in such markets. For example,
financial instruments traded on non-U.S. exchanges and the non-U.S. persons that trade these
instruments are not subject to the jurisdiction of the SEC or the securities laws and regulations of
the United States. Accordingly, the protections accorded to ARGA’s investments under such
laws and regulations are unavailable for transactions on foreign exchanges and with foreign
counterparties.
Emerging Markets. Investment in emerging market securities carry greater risks than investment
in securities of issuers based in developed countries. These include the risks of less publicly
available information, more volatile markets, less strict securities market regulation, less
favorable tax provisions, and a greater likelihood of severe inflation, unstable currency, war
and/or expropriation of personal property. In addition, investment opportunities in certain
emerging markets may be restricted by legal limits on foreign investment in local securities.
Emerging markets generally are not as efficient as those in developed countries. In some cases, a
market for a security may not exist locally, and transactions will need to be made on a
neighboring exchange. Volume and liquidity levels in emerging markets are lower than in
developed countries. When seeking to sell emerging market securities, little or no market may
exist for such securities. In addition, issuers based in emerging markets are not generally subject
to uniform accounting and financial reporting standards, practices and requirements comparable
to those applicable to issuers based in developed countries, thereby potentially increasing the risk
of fraud or other deceptive practices. Furthermore, the quality and reliability of official data
published by the governments or securities exchanges in emerging markets may not accurately
reflect the actual circumstances being reported.
The issuers of some emerging market securities, such as banks and other financial institutions,
may be subject to less stringent regulations than would be the case for issuers in developed
countries and, therefore, potentially carry greater risks. Custodial expenses for a portfolio of
emerging markets securities generally are higher than for a portfolio of securities of issuers based
in developed countries.
Depository Receipts. ARGA may invest in non-U.S. companies through the purchase of
depository receipts, which are negotiable certificates that represent a security, usually in the form
of equity that is issued by a foreign publicly listed company. Depository receipts are used to
reduce administration and duty costs that would otherwise be levied on each transaction.
However, depository receipts do not eliminate foreign exchange risk for ARGA’s investment in
the non-U.S. company, and ARGA’s portfolios will not be the direct owner of the security or
securities represented by the depository receipts.
Participatory Notes. ARGA may invest in non-U.S. companies through the use of participatory
notes. Investing in participatory notes involves the same risks as a direct investment in the shares
of the companies the notes seek to replicate. However, due to transaction costs and other
expenses, the performance results of participatory notes will not replicate exactly the
performance of the issuer or markets the notes seek to replicate. Additionally, participatory notes
are subject to counterparty risk meaning the risk that the issuer of the participatory notes may
default on its obligation under the note. Participatory notes may be considered illiquid
investments.
Currency Exchange Exposure. ARGA may invest a portion of its assets in the securities of non-
U.S. issuers and other instruments denominated in non-U.S. currencies, the prices of which are
determined with reference to currencies other than the U.S. dollar. ARGA, however, values its
securities and other assets in U.S. dollars. ARGA may or may not seek to hedge its non-U.S.
currency exposure by entering into currency hedging transactions, such as treasury locks,
forward contracts and cross-currency swaps. There can be no guarantee that instruments suitable
for hedging currency or market shifts will be available at the time when ARGA wishes to use
them, or that hedging techniques employed by ARGA will be effective. Furthermore, certain
currency market risks may not be fully hedged or hedged at all.
To the extent unhedged, the value of ARGA’s positions in non-U.S. investments will fluctuate
with U.S. dollar exchange rates as well as the price changes of the investments in the various
local markets and currencies. In such cases, an increase in the value of the U.S. dollar compared
to the other currencies in which ARGA makes its investments will reduce the effect of any
increases and magnify the effect of any decreases in the prices of ARGA’s investments in their
local markets and may result in a loss to the portfolios. Conversely, a decrease in the value of the
U.S. dollar will have the opposite effect on ARGA’s non-U.S. dollar investments.
Furthermore, ARGA may incur costs in connection with conversions between various currencies.
Non-U.S. currency exchange dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer normally will offer to sell
currency to ARGA’s portfolios at one rate, while offering a lesser rate of exchange should
ARGA desire immediately to resell that currency to the dealer. ARGA conducts its currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the currency
exchange market. Most of the ARGA’s currency exchange transactions occur at the time
securities are purchased and are executed through the custodian acting for portfolios.
Concentration of Investments. ARGA expects that at times certain portfolios may be somewhat
concentrated. Although concentration may increase the possibility of achieving significant
investment returns, concentration of investments in a limited number of issuers, industries or
sectors is generally regarded as increasing both relative investment risk and potential portfolio
volatility. In addition to issuer, industry or market risk by reason of concentration, ARGA’s
investments may be exposed to potentially significant losses by reason of adverse developments
affecting one or more of such limited number of portfolio companies. A loss in any such position
could materially reduce ARGA’s performance or asset base, to the extent not offset by other
gains.
Limited Capitalization Companies. ARGA may invest a significant portion of a portfolio’s assets
in company securities with limited market capitalizations, where applicable. While these
companies may often provide significant potential for appreciation, these securities may also
involve higher risks than investments in securities of large companies. The prices of small
capitalization and even medium capitalization securities are often more volatile than prices of
large-capitalization securities. The risk of bankruptcy or insolvency of many smaller capitalized
companies (with the attendant losses to investors) is higher than for larger, “blue-chip”
companies. In addition, due to thin trading in some small capitalization securities, an investment
in those securities may be illiquid.
Execution of Orders and Portfolio Turnover. ARGA’s trading strategy depends on its ability to
establish and maintain an overall market position in a combination of securities and other
investments selected by the firm. ARGA’s trading orders may not be executed in a timely and
efficient manner due to various circumstances, including, without limitation, systems failures or
human error attributable to the portfolios, its brokers, agents or other service providers. In such
events, ARGA might only be able to acquire some, but not all, of the components of such
position, or if the overall position were to need adjustment. ARGA might not be able to make
such adjustment. As a result, ARGA would not be able to achieve the market position selected by
the firm, and might incur a loss in liquidating its position. ARGA does not have any limits on
portfolio turnover, and portfolio securities may be sold without regard to the time they have been
held when, in ARGA’s opinion, investment considerations warrant such action. A high rate of
portfolio turnover involves correspondingly greater expenses than a lower rate and may result in
taxable costs for investors depending on the tax provisions applicable to such investors.
Liquidity Risk. Illiquidity in certain markets and securities could make it difficult for ARGA to
liquidate positions on favorable terms, thereby resulting in losses.
Competition; Availability of Investments. Certain markets in which ARGA may invest are
extremely competitive for attractive investment opportunities and, as a result, there may be
reduced expected investment returns. There can be no assurance that ARGA will be able to
identify or successfully pursue attractive investment opportunities in such environments. Among
other factors, competition for suitable investments from other pooled investment vehicles and
other investors may reduce the availability of investment opportunities. There has been
significant growth in the number of firms organized to make such investments, which may result
in increased competition to ARGA in obtaining suitable investments.
Reliance on Information Provided. ARGA may elect to invest in securities on the basis of
information and data filed by the issuers of such securities with the SEC or made directly
available to the firm by the issuers of the securities and other instruments or through sources
other than the issuers. Although ARGA evaluates all such information and data and seeks
independent corroboration when it considers it appropriate and when it is reasonably available,
ARGA is not in a position to confirm the completeness, genuineness or accuracy of such
information and data.
Foreign Taxation Risk. With respect to investments in the securities of non-U.S. companies,
different tax regimes in foreign jurisdictions may subject investors to withholding or other
taxation that would not be imposed in other markets. The amount and nature of taxes may be
highly uncertain.
Any past successes with our investment methodology cannot assure future results. There can be
no assurance that the investments or investment techniques we employ for the accounts will
achieve the accounts’ investment objectives or that the accounts will be profitable. The foregoing
risk factors are not a complete enumeration or explanation of the risks involved in investing with
ARGA. The risks inherent to the strategies employed by ARGA, including but not limited to
those listed above, are described in further detail in each Fund’s offering documents.
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Material Financial Industry Affiliations of the Firm ARGA Investment Management (India) Private Limited is our subsidiary office located in
Chennai, India. That office provides ARGA with global research, client reporting, marketing and
operational services. The analysts at our subsidiary office conduct research into companies and
industries globally and provide inputs to our Dividend Discount Model. They do not provide
investment advisory services.
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Personal Trading We have established a “Code of Ethics” (the “Code”) which provides an ethical and legal
framework within which ARGA and its officers and employees are required to operate and
highlights some of the guiding principles and mechanisms for upholding ARGA’s high standards
of business conduct. The Code sets forth our policies and procedures regarding business ethics
and the management of conflicts of interest (actual or potential) that may arise in areas such as
the personal trading of securities, campaign contributions, gifts and entertainment, and insider
trading, among other things. Additionally, we have established a Code of Conduct setting forth
appropriate standards of behavior and business conduct to which all personnel are expected to
adhere during the course of their employment with, and when conducting business on behalf of,
ARGA.
As a fiduciary, we owe our clients the highest duty of loyalty and we rely on each of our
personnel to avoid conduct that is or may be inconsistent with this duty.
Our Code of Ethics is based on the following principles: (i) the interests of our clients come
before our interests and those of our personnel; (ii) the professional activities and personal
investment activities of our personnel must be consistent with the Code and must avoid any
actual or potential conflict between the interests of clients and those of our personnel and our
firm; (iii) the activities of our personnel must be conducted in a way that avoids any abuse of any
such person’s position of trust with, and responsibility to, our firm and to our clients; and (iv) our
personnel may not engage in any act, practice or course of conduct that would violate the code of
ethics standards prescribed for investment advisers by the SEC.
Conflicts of Interest. ARGA’s Code of Ethics, Code of Conduct and compliance procedures
aim to identify and prevent actual and potential conflicts of interest related to client, employee,
and proprietary activities. While ARGA follows these procedures to eliminate potential conflicts
of interest, there is no guarantee they will detect and prevent every situation where potential
conflicts could arise.
Potential conflicts of interest include instances when ARGA desires to purchase or sell the same
securities for one or some Accounts, which could result, if such conflict is not managed properly,
in unfair treatment of one Account over another. Another potential conflict could occur if an
employee had knowledge of future ARGA trades and, on the basis of such information, made
their own personal trades, which could harm ARGA Accounts.
Specific procedures addressing conflicts of interest are described in the following paragraphs.
ARGA manages several accounts on a discretionary basis, which include investments belonging
to several ARGA employees directly and beneficially, as well as internal proprietary accounts,
that use the valuation-based investment strategy utilized for all ARGA Accounts. ARGA expects
to manage additional such accounts in the future. To avoid any incentive to favor one account
over another in the allocation of investment opportunities (particularly where there are differing
performance-based fee arrangements), ARGA has implemented strict fairness policies with
respect to trading practices and allocation procedures. ARGA periodically examines trade
allocations among Accounts and confirms their consistency with its fiduciary obligation to
allocate investment opportunities fairly. As expected, in instances such as clients directing trades
through particular brokers, ARGA may place non-simultaneous trade orders for the other
accounts, which may affect the execution price of the security to the detriment of one or the
other.
Insider Trading. ARGA’s insider trading policy forbids employees from (i) trading, either
personally or on behalf of others, on the basis of material non-public information; or (ii)
communicating material non-public information to another person in violation of the law. This
policy extends to the activities of our personnel both within and outside their duties at the firm.
We have also implemented controls designed to detect and prevent insider trading.
Personal Securities Transactions. To ensure personnel do not use knowledge of client
transactions for personal gain, all personnel identified as Access Persons, their spouses and their
immediate family members living in the same household are subject to reporting and
certification requirements. Specifically, Access Persons must (i) identify any and all personal
investment accounts in which they may have a direct or indirect beneficial interest initially upon
hire or upon becoming an Access Person and annually thereafter; and (ii) disclose, on a quarterly
basis, all reportable transactions and investment activity in such investment accounts. Access
Persons, their spouses or immediate household family members contemplating the purchase or
sale of any security, including an interest in a private placement vehicle or initial public offering,
must obtain pre-clearance from ARGA prior to such purchase or sale, whether or not such
securities are purchased or sold on behalf of our clients. Pre-clearance is not required for
transactions in certain categories of securities such as money market funds, U.S. government
securities and mutual funds. However in the case of a mutual fund for which ARGA serves as
sub-advisor, as per our Code of Ethics, pre-clearance is required prior to any purchase or sale of
securities in such mutual fund.
Outside Business Activities. Outside business activities may lead to conflicts of interest or give
the appearance of a conflict, if adverse to the interest of any of our clients. For this reason, none
of our personnel may engage in outside business activities without the prior written approval of
the Chief Compliance Officer. Serving in any position as a director, board member, trustee,
advisor, or consultant or similar positions of a publicly-held company or business entity is
particularly scrutinized. ARGA may not trade in any securities issued by any company or
business entity of which any of our personnel serves in the aforementioned capacities. ARGA
personnel are required to disclose all outside business activities initially upon hire and annually
thereafter.
Gifts and Entertainment. Our Code contains prohibitions, limitations and reporting
requirements regarding the provision and receipt of gifts and entertainment by ARGA personnel.
Campaign Contributions. Our Code contains prohibitions and strict limitations on campaign
contributions by ARGA personnel. Additionally, all personnel are subject to quarterly reporting
requirements concerning their campaign contributions.
Reporting of Violations. Our personnel are required to report any apparent or potential violation
of the Code to the Chief Compliance Officer.
Review and Enforcement. The Chief Compliance Officer is responsible for ensuring adequate
supervision over the activities of all personnel who act on our behalf in order to prevent or detect
violations of the Code by such persons.
Interested Transactions We may, from time to time, invest in a security in which our firm or one of our related persons,
directly or indirectly, has an interest. For instance, it should be expected that the assets of the
firm or our related persons will be invested in securities of issuers in which one or more of the
Accounts hold positions. In addition, the assets of one Account may be invested in securities of
issuers in which other Account or Accounts hold positions. Given the likely frequency of such an
occurrence, clients will not be provided with notification of such occurrences. This may
represent a conflict of interest for us, and this conflict, and our procedures for addressing such
conflict, are described in Item 6 of this brochure.
As described above, all personal securities transactions by the firm’s Access Persons are subject
to pre-approval by the Chief Compliance Officer before the Access Person may proceed with the
transaction, except for transactions in certain categories of securities such as mutual funds
(unless ARGA serves as sub-advisor to such mutual funds, in which case pre-clearance is
required), money market funds and U.S. government securities.
We may permit an Access Person to buy or sell securities or related securities that an Account is
also buying or selling, but subject to the requirement that such a transaction will not
disadvantage any client Account. We may permit an Access Person to invest in the Investment
Company account that ARGA manages, but subject to the requirement that such a transaction
will not disadvantage any client account and does not violate restrictions related to insider-
trading. In addition, as described earlier, all Access Persons are required to submit personal
trading information to the firm for review by the Chief Compliance Officer. Our pre-approval
procedure and the submission of Access Persons’ personal trading information assist us towards
our goal of ensuring that no personal trading of any Access Person will disadvantage any client
Account.
The foregoing is a summary of our Code. Clients and prospective clients may obtain a complete
copy of the Code by addressing a request to Neda Clark, Chief Compliance Officer, 1010
Washington Blvd., 6th Floor, Stamford, CT 06901 or
[email protected].
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Selection of Brokers We generally have the authority to select brokers to execute investment transactions for our
Accounts, subject to the principles of best execution. Separate Account and Investment Company
clients, pursuant to their respective investment advisory agreements, may impose restrictions on
our broker selection ability.
ARGA maintains a Best Execution Committee (the “Committee”) responsible for selecting
brokers-dealers, evaluating their services and measuring the effectiveness of our trading strategy
consistent with our goal to obtain best execution for our clients. In addition to broker oversight,
the Committee also evaluates our soft dollar arrangements, discussed in more detail below under
“Soft Dollars.”
We do not adhere to any rigid formulas in making the selection of our executing broker-dealers
but rather allocate a portion of each Account’s brokerage business to the brokers weighing a
combination of criteria including the broker’s execution capability, accessibility and
responsiveness, back office processing capabilities, timeliness of trade execution, reputation and
financial soundness, trade accuracy and ability to maintain anonymity in addition to the value of
the research provided by the broker.
The commissions an Account will pay to brokers may not necessarily represent the lowest
commission rates available, but will also reflect our qualitative evaluation of the research or
other brokerage related services supplied by such brokers and which benefit the Account, either
alone or together with other Accounts. In each case, we will make a determination that the
amount of any increased commission costs on account of such research or other services is
reasonable relative to the value of services so provided. Actual brokerage commissions received
by a broker-dealer may be more or less than the suggested allocations.
From time to time, clients may ask ARGA for feedback or suggestions with regard to the use of
certain broker-dealers and/or custodians. While ARGA is never involved in the decision-making
process with the client, we may offer some information based on our experiences with certain
firms and we may make introductions if requested. ARGA receives no economic benefit for any
introduction it may make.
Soft Dollars The research obtained through an Account’s brokerage allocations, whether or not directly useful
to that Account, may be useful to us in connection with services we render to another Account or
Accounts we manage. Similarly, research we obtain for commissions paid to brokers in the
course of managing such other Accounts may be useful to such Accounts that generate the
commissions as well as other client Accounts. Since any particular research we obtain may be
useful to the Account generating the commissions as well as other client Accounts, in
considering the reasonableness of brokerage commissions paid by an Account, we will not
attempt to allocate the relative costs or benefits of research between the Account and the other
Accounts we manage.
Section 28(e) of the Securities Exchange Act of 1934, as amended, provides a "safe harbor" to
investment managers who use commission dollars of their advisory accounts to obtain
investment research, brokerage and other services that provide lawful and appropriate assistance
to the managers in performing their investment decision making responsibilities, provided that
the amount of any increased commission costs on account of such research or other services is
reasonable relative to the value of the services so provided. Any such arrangement we may enter
into will be confined to the products or services that qualify as eligible “research and brokerage
services” within the meaning of Section 28(e) and that meet the other requirements of that
Section. The research we receive under such an arrangement may be both proprietary (prepared
by the relevant broker/dealer) or created or developed by third parties. ARGA has soft dollar
arrangements with certain brokerage firms that execute transactions on behalf of ARGA’s clients
(the “Soft Dollar Broker”). Per the soft dollar policy and arrangement, the Soft Dollar Broker
pays for certain research and brokerage services (including valuation services and data,
databases, analysis, and reports concerning issuers, industries, securities, markets, economic
factors and trends).
When we use an Account’s brokerage commissions to obtain research or other products or
services, we receive a benefit because we do not have to produce or pay for the research,
products or services. We may, therefore, have an incentive to select or recommend a broker-
dealer based on our interest in receiving the research or other products or services, rather than on
the Account’s interest in receiving most favorable execution. We may cause an Account’s
brokerage commissions to be higher than those charged by other broker-dealers in return for soft
dollar benefits.
In addition, certain brokerage or research services obtained with soft dollars may be used for
investment decision-making purposes as well as purposes unrelated to investment decision-
making. With respect to any such services, ARGA will make a reasonable allocation of the cost
of the service between “soft” and “hard” dollars based on the extent to which the services are
used for investment decision-making purposes (which may be paid for with soft dollars) versus
non-investment decision-making (which are paid for with hard dollars out of ARGA’s own
funds). The allocation of costs between soft and hard dollars presents an additional conflict of
interest between ARGA and certain of its Accounts (i.e. those from which ARGA receives soft
dollar benefits).
As mentioned earlier in this section, ARGA allocates its trade budget based on a variety of
criteria. Once the trade allocation is determined, ARGA directs client transactions to the
executing brokers, which may be a Soft Dollar Broker, to execute transactions on a client’s
behalf. The transactions executed with the Soft Dollar Broker may result in soft dollar benefits.
In general, any and all brokerage allocations will be subject to principles of best execution and
the other allocation policies described above, as well as any restrictions imposed by applicable
law.
Clients may direct ARGA to use a particular broker-dealer under certain circumstances,
including where a client has a pre-existing relationship with the broker or participates in a
commission recapture program, among other situations. ARGA still maintains a fiduciary
responsibility to disclose to the client that due to the directed brokerage arrangement, the client
may not benefit from ARGA’s ability to obtain lower transaction costs through bunching orders.
ARGA may limit the amount of directed brokerage that a client can use. We may be unable to
achieve most favorable execution of client transactions and directing brokerage may not be cost-
effective to clients.
Aggregation of Orders When we deem the purchase or sale of securities to be in the best interest of more than one
Account, we may aggregate the securities to be purchased or sold by all such accounts in order to
obtain superior execution or lower brokerage expenses. In particular, execution prices for
identical securities purchased or sold on behalf of multiple Accounts in any one business day
may be averaged.
In cases where it is not economical to pro-rate trades, for instance, when the total number of
executed shares does not make it economical to allocate the shares to all Accounts due to
transaction costs per allocation, we allocate shares to the Accounts utilizing the computer-
generated random by account allocator function of our order management system. In these
circumstances we may be unable to achieve most favorable execution of client transactions.
All trade orders are allocated among Accounts of the same or similar mandate at the time of
trade creation / initial order preparation. Factors affecting order creation include availability of
cash, existence of client-imposed trading restrictions or prohibitions, trading holds or halts
imposed by our investment team or a recognized exchange, among other things. We may bunch
or aggregate like orders, but allocation is determined before any order is given to a broker.
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Account reviews and decision-making are performed by ARGA’s Portfolio Construction Teams
on an on-going basis. The Portfolio Construction Teams for each investment strategy generally
consist of three members, usually the Chief Investment Officer and two Global Business
Analysts. Portfolio Construction Team members vary depending on the investment strategy. The
Portfolio Construction Teams meet regularly to discuss the current investment strategy and
current holdings in each strategy/portfolio. Change of models and buy/sell priorities are set
during these meetings. There is also ongoing dialogue within the teams on any changes in
perspective and any news on relevant companies.
Funds. We provide the investors in our Funds with written monthly statements, which include
their account asset values and performance figures, monthly commentary and detailed quarterly
reports. We also provide audited financial statements of the Funds on an annual basis.
Other Accounts. We provide our Separate Account and Investment Company clients with
written monthly reports and more detailed quarterly reports, as requested by the clients. The
reports may include such details as account asset value, performance and top contributors and
detractors.
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ARGA does not, directly or indirectly, compensate third parties for client referrals nor does
ARGA receive compensation by any third party, who is not a client, for investment advice or
other advisory services to clients. Certain investors may require ARGA to register with a third
party consultant or adviser in order to be considered by such investors for the potential award of
investment advisory mandates. While not on-going and continuing arrangements, on an investor
by investor basis, ARGA may pay a fee to such third party consultant or adviser in connection
with such potential investments.
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Custody, as it applies to investment advisors, is defined by regulators as having access or control
over client funds and/or securities. In other words, custody is not limited to physically holding
client funds and securities. If an investment advisor has the ability to access or control client
funds or securities, the investment advisor is deemed to have custody and must ensure proper
control procedures are implemented. Accordingly, even though ARGA does not physically hold
client assets, ARGA has constructive custody and we have therefore implemented controls to
ensure client assets are confirmed and protected. Client assets will always be deposited with a
qualified custodian selected by ARGA or the client. The qualified custodian will provide clients
with performance reports and/or account statements, at least quarterly. ARGA sends monthly
commentaries to clients, which include performance data. Clients should always carefully review
the account statements they receive from the qualified custodian and compare them with the
monthly commentaries received from ARGA. The clients’ custodians maintain the official
accounting records of clients’ accounts.
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Item 4 includes a description of the investment discretion that we exercise with respect to client
Accounts. The Accounts are managed on a discretionary basis pursuant to a grant of authority in
the advisory agreements of our Separate Accounts and Investment Company clients or in the
applicable Offering Memorandum of our Funds. Pursuant to this grant, ARGA has the authority
to make investments on behalf of its clients, such as the discretionary authority to determine the
securities to be bought or sold for a client’s account, the amount of securities to be bought or
sold for a client’s account, the broker-dealer to be used for a purchase or sale of securities for a
client’s account and the commission rates to be paid to a broker-dealer for a client’s securities
transactions. Investors in the Funds do not have any ability to restrict the investment of their
account other than guidelines agreed to within the applicable Fund’s Offering Memorandum.
Separate Account and Investment Company clients may negotiate reasonable restrictions,
relevant to their particular circumstances, as agreed to within the applicable advisory agreement.
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We vote proxies in a manner that is consistent with the best interests of our clients. In doing so,
we consider any voting guidelines issued by clients, so long as these guidelines are consistent
with ARGA’s duties under applicable law, including ERISA. We do not vote proxies for clients
who have not delegated proxy voting authority to ARGA. Our proxy voting process is the same
for all the accounts we manage where the client has given us proxy voting authority.
We have retained the proxy advisory firm of Glass Lewis & Co. (“Glass Lewis”) to assist with
our proxy voting process. We have determined that Glass Lewis has (i) the capacity and
competency to adequately analyze proxy issues based on current and accurate information; (ii)
robust policies and procedures which enable it to offer research in an impartial manner and in the
best interest of our clients.
ARGA analysts will still apply ARGA’s proxy voting guidelines described above, when voting
proxies on behalf of clients through Glass Lewis. This includes rejecting the advice of Glass
Lewis in circumstances where ARGA determines doing so is in the best interest of our clients.
Routine Matters Generally, we vote proxies in favor of routine proposals, unless there is specific information
indicating that approval of the proposal would adversely affect the value of the investment or
would not be in the best interest of clients. Such routine matters generally include, among others:
routine election of directors, appointment of independent auditors, date and place of the annual
meeting, ratification of directors’ actions on routine matters, and indemnification of directors
and/or officers.
Generally, we vote “for” proposals that are determined to improve the management of a
company, increase the rights or preferences of the voted securities, and/or increase the chance
that a premium offer would be made for the company or for the voted securities. Our decision to
vote in support or opposition of a proposal will be based on the specific circumstances described
in the proxy statement and other available information.
Social Conscience/Moral Issues We generally vote on a moral or social issue based on the economic impact of the proposal. In
cases where the economic impact is not clear, a vote to “abstain” may be appropriate.
Financial or Corporate Governance Questions Financial and corporate governance issues take more time to consider and may be complicated
by activities such as hostile takeovers and mergers. We generally vote in favor of the following
types of proposals:
Reasonable incentive compensation plans for certain key employees and directors
Mandatory retirement age for directors
Confidential voting, cumulative voting, proposals to lower barriers to shareholder action
Proposals to restore shareholder ability to remove directors with or without cause
We generally vote against the following types of financial and corporate governance proposals:
Board entrenchment proposals and anti-takeover measures, such as “poison pill” and
“golden parachute” provisions
Limitations on shareholder ability to act, blank check preferred stock authorizations,
eliminating cumulative voting rights, and proposals to adopt classified boards
Client Guidelines Some clients may have their own set of proxy voting guidelines. These may conflict with the
proxy guidelines discussed above or the voting guidelines of another client. If such a situation
arises, we comply with client guidelines by voting the proxies based on the number of shares
held by the client.
Conflicts of Interest To the extent there is a perceived conflict of interest between the best interests of a client and
those of the analyst or of ARGA as the investment adviser, the matter is referred to the Chief
Investment Officer and the Chief Compliance Officer. These individuals will determine that a
material conflicts exists or may be perceived to exist, and will decide whether it is appropriate to
disclose the conflict to the affected client to give the client an opportunity to vote the proxy or to
address the voting issue through other objective means, such as voting in a manner consistent
with a pre-determined voting policy or receiving an independent third-party voting
recommendation.
In the unlikely event the proxy issue is not addressed by the guidelines above and materially
conflicts with the interests of ARGA or any person involved in the proxy voting process, we will
nevertheless vote such proxy in the best financial interest of the client and will document the
basis for such vote.
Proxy advisory firms such as Glass Lewis may have significant business relationships with
subjects of their research and voting recommendations. For example, a Glass Lewis board
member may also sit on the board of a public company for which Glass Lewis may have
published a research report or a Glass Lewis client may be a public company with an upcoming
shareholder’s meeting and Glass Lewis may have published a report with voting
recommendations. These and similar situations give rise to an actual or potential conflict of
interest.
Glass Lewis has implemented Conflict Management Procedures to avoid and manage (if
unavoidable) conflicts of interest arising between an issuer and Glass Lewis. For example, Glass
Lewis requires any employee who serves as an executive or director of a public company to
disclose the conflicts and abstain from any involvement in the research, analysis or making of
any vote recommendations for such company.
Limitations on ARGA’s Proxy Voting Obligations ARGA may not to vote client proxies or may abstain from voting in certain situations:
We will not vote proxies on behalf of a client where the client has reserved the right vote
proxies itself or has delegated the right to vote to a third party.
We will not vote proxies on behalf of a client after the effective termination date of the
investment advisory agreement with such client.
We may abstain from voting proxies in circumstances if we determine doing so would
have no identifiable economic benefit to the client, such as when the security is no longer
held in the client’s portfolio or when the value of the portfolio holdings is insignificant.
We may abstain from voting a client’s proxy when the cost or disadvantage resulting
from voting, in our judgment, outweighs the economic benefits of voting. For example, in
some non-U.S. jurisdictions, the sale of securities voted may be prohibited for some
period of time, usually between the record date and meeting date (“share blocking”). In
general, ARGA believes that the loss of investment flexibility resulting from share
blocking generally outweighs the benefit to be gained by voting.
We do not offer a securities lending service. Proxies for securities on loan through
securities lending programs will generally not be voted, as ARGA’s clients (not ARGA)
control these securities lending decisions.
We may not be able to vote proxies due to circumstances beyond our control such as a
regional disaster, business continuity or cyber event involving our proxy advisory firm or
client custodians, which may prevent proxies from being voted on time, or errors not attributable
to, and beyond, ARGA’s control.
Disclosures Clients may obtain a copy of ARGA’s current Proxy Voting Policy and/or the method for
obtaining information concerning the voting of any proxy by contacting Neda Clark at (203)
614-0819 or
[email protected]. Clients may also request such information by writing to
Neda Clark at ARGA Investment Management, LP, 1010 Washington Blvd., 6th Floor, Stamford,
CT 06901.
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We do not require or solicit prepayment of more than $1,200 in fees from the Funds, six months
or more in advance, and therefore are not required to include a balance sheet for our most recent
fiscal year. ARGA is not aware of any financial condition that is likely to impair its ability to
meet its contractual and fiduciary commitments to clients, nor has ARGA been the subject of a
bankruptcy petition at any time since being founded.
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