In recent prospectus updates and supplements, we've noticed several funds mentioning the ability to "recapture" waived fees and warning investors of this "recoupment risk". SEC filings from HighMark, Huntington and Schwab are among those that mention the ability to recover fee waivers over the next three years in the fund's fee tables. Huntington even lists "Recoupment Risk among its "Principal Investment Risks," saying, "The Advisor entered into an agreement with the Fund effective June 15, 2009, whereby the Advisor agreed to waive all or a portion of its investment advisory fee and/or to reimburse certain operating expenses of the Fund to the extent necessary to ensure that the Fund maintains a positive yield of at least 0.01%. The Advisor shall be entitled to recoup from the Fund any waived and/or reimbursed amounts pursuant to the agreement for a period of up to three (3) years from the date of the waiver and/or reimbursement. This recoupment could negatively affect the Fund's future yield. The Advisor may terminate the agreement at any time upon thirty (30) days prior written notice to the Fund."
Schwab says in a footnote on its "Money Market Funds" page, "The investment advisor and/or its affiliates have voluntarily waived and/or reimbursed expenses in excess of their current contractual commitment in an effort to maintain a positive net yield for the fund or each share class of the fund, as applicable. These voluntary waivers and reimbursements may be modified or terminated at any time, and are subject to future recapture by the investment advisor and/or its affiliates. Fee waivers and/or expense reimbursements (whether contractual or voluntary) have the effect of increasing a fund's net yield; without such fee waivers and/or expense reimbursements, the fund's seven-day yield would have been lower. Please see the prospectus for more details."
Schwab Cash Reserves also writes in its prospectus, "Under an agreement with the fund, the investment adviser and/or its affiliates may recapture from the assets of the fund, any of these expenses or fees they have voluntarily waived and/or reimbursed until the third anniversary of the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. These reimbursement payments by the fund to the investment adviser and/or its affiliates are considered "non-routine expenses" and are not subject to any operating expense limitations in effect for the fund at the time of such payment. This recapture could negatively affect the fund's future yield."
HighMark Funds says in its prospectus, "HighMark Capital Management, Inc., investment adviser of the Fund, has contractually agreed to waive fees and reimburse expenses to the extent total operating expenses of Class A Shares of the Fund (excluding portfolio brokerage and transaction costs, taxes relating to transacting in foreign securities, if any, extraordinary expenses and any expenses indirectly incurred by the Fund through investments in certain pooled investment vehicles) exceed 0.80%, for the period from December 1, 2010 to November 30, 2011, at which time the Adviser will determine whether or not to renew or revise it. In addition to the current expense limitations described above, the Adviser may also waive fees and/or reimburse expenses in excess of its current fee waiver or reimbursement commitment to the extent necessary to maintain the net yield of the Fund and/or one or more classes of Shares of the Fund at a certain level as determined by the Adviser. The Adviser may recoup from the Fund any of the fees and expenses it has waived and/or reimbursed pursuant to any of the foregoing until the end of the third fiscal year after the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. This recoupment could reduce the Fund's future yield."
Finally, a supplement to HighMark's 100% U.S. Treasury Money Market Fund adds, "Due to the continued low interest rate environment and the current investment restrictions of HighMark 100% U.S. Treasury Money Market Fund, HighMark Funds is evaluating various alternatives with respect to the operation of the Fund. These alternatives may include: 1) Merging the Fund into another series of HighMark Funds, such as HighMark Treasury Plus Money Market Fund; 2) Changing the name of the Fund and its corresponding investment restrictions so that the Fund would no longer be restricted from purchasing securities other than short-term obligations issued or guaranteed as to payment of principal and interest by the full faith and credit of the U.S. Treasury; 3) Liquidating the Fund; 4) Continuing the current investment strategies of the Fund; and 5) Exploring other options for the Fund. HighMark Funds will carefully review these alternatives and expects to make a determination as to the appropriate course of action at some point before September 30, 2011. Each Prospectus will be supplemented or amended to reflect any changes to the Fund prior to the effective date of those changes."
