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– Release Delayed ·As Of Filer Filing For·On·As Docs:Size Issuer Agent 11/26/13 504 Fund N-2/A¶ 6:1.2M FilePoint/FA Pennant 504 Fund |
Document/Exhibit Description Pages Size 1: N-2/A Pre-Effective Amendment to Registration Statement HTML 676K by a Closed-End Investment Company 6: COVER ¶ Comment-Response or Cover Letter to the SEC HTML 7K 5: CORRESP ¶ Comment-Response or Other Letter to the SEC HTML 32K 2: EX-99.2.K.III Miscellaneous Exhibit HTML 15K 3: EX-99.2.L Miscellaneous Exhibit HTML 9K 4: EX-99.2.N Miscellaneous Exhibit HTML 7K
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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[X]
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Pre-Effective Amendment No. 4
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[X]
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Post-Effective Amendment No. __
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[ ]
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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[X]
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Amendment No. 4
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[X]
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[ ]
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This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement].
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[ ]
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This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration number of the earlier effective registration statement for the same offering is ____________.
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Title of
Securities Being Registered
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Amount Being
Registered
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Proposed
Maximum
Offering Price
per Unit
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration Fee(2)
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Common Shares of Beneficial Interest
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50 Million Shares
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$ 10.00
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$ 500 Million
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$68,200
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(1)
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Estimated solely for the purpose of calculating the registration fee, in accordance with Rule 457(o) of the Securities Act of 1933.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION NOVEMBER 27, 2013
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Price to Public
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Maximum Sales Load*
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Proceeds to Fund**
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Per Share
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$10.20
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$0.20
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$10.00
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Total Minimum
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$ 30,600,000
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$600,000
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$30,000,000
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Total Maximum
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$510,000,000
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$10,000,000
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$500,000,000
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*
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Investments may be subject to a sales load (a “Sales Charge”) of up to 2.00%, subject to waiver or adjustment for certain investors or under certain conditions, as further described herein. The Sales Charge will be in addition to the subscription price for shares and will not form a part of an investor’s investment in the Fund. **Before offering and distribution expenses, which include $68,200 in registration fees and $221,018 in estimated legal fees, or $0.10 per share (based on 3 million shares). After payment of such expenses and the sales charges, proceeds to the Fund will be $9.90 per share, or $29,700.000.
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PROSPECTUS SUMMARY
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1
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SUMMARY OF FUND FEES AND EXPENSES
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18
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FINANCIAL HIGHLIGHTS
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20
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THE FUND
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20
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USE OF PROCEEDS
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20
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INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
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20
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SBA 504 CERTIFIED DEVELOPMENT COMPANY LOAN PROGRAM
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21
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COMMUNITY REINVESTMENT ACT
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32
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OTHER FUND INVESTMENTS AND POLICIES
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34
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RISKS
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36
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MANAGEMENT OF THE FUND
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46
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SERVICE PROVIDERS
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48
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THE OFFERING AND PLAN OF DISTRIBUTION
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49
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PERIODIC REPURCHASE OFFERS
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51
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DETERMINATION OF NET ASSET VALUE
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54
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DISTRIBUTIONS AND DISTRIBUTION REINVESTMENT PLAN
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56
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TAX CONSIDERATIONS
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57
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DESCRIPTION OF CAPITAL STRUCTURE AND SHARES
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59
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
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61
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PRIVACY NOTICE
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62
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The Fund
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The Pennant 504 Fund (the “Fund”) is a Delaware statutory trust registered as an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is a non-diversified, closed-end management investment company that operates as an “interval fund.” (See “Periodic Repurchase Offers” below.)
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The Offering
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Shares of beneficial interest in the Fund are being offered during an initial offering period that is expected to terminate on or about December 31, 2013 or such earlier or later date as Pennant Management, Inc., the Fund’s investment adviser (the “Adviser”), may determine in its discretion. During the initial offering period, the shares will be offered at the offering price, which is $10.00 per share plus a sales charge (a “Sales Charge”) of up to 2.00%. The shares are expected to be offered on a continuous basis monthly thereafter (generally as of the last business day of each month) at net asset value (“NAV”) per share plus a Sales Charge. For more information regarding the offering and possible waivers of the Sales Charges, see “The Offering and Plan of Distribution” below.
For each investor, the Fund requires a minimum initial investment and minimum subsequent investments of $10,000. The Adviser may waive these minimum investment requirements for one or more investors in its sole discretion.
The shares are not listed on any securities exchange. There is no guarantee that a secondary market for Fund shares will develop. Shareholders will not have the right to redeem their shares. However, as described below, in order to provide some liquidity to shareholders, the Fund will conduct periodic repurchase offers for a portion of its outstanding shares.
An investment in the Fund is suitable only for long-term investors who can bear the risks associated with the limited liquidity of the shares.
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Interval Fund; Periodic Repurchase Offers
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As an interval fund, the Fund will make periodic offers to repurchase a portion of its outstanding shares at NAV per share. The Fund has adopted a fundamental policy, which cannot be changed without shareholder approval, to make repurchase offers once every twelve months. The Fund expects the first repurchase offer to be issued the later of December 1, 2014 or a date twelve months following the date upon which the initial offering of shares terminates. As a result, an investment in the Fund made during the initial offering period must be held by the investor for at least twelve months.
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For each repurchase offer, the Fund will offer to repurchase 5% of its outstanding shares, unless the Fund’s Board of Trustees (the “Board”) has approved a higher amount (but not more than 25% of outstanding shares) for a particular repurchase offer. There is no guarantee that the Fund will offer to repurchase more than 5% of its outstanding shares in any repurchase offer, and there is no guarantee that you will be able to sell shares in an amount or at the time that you desire.
The procedures that will apply to the Fund’s repurchase offers are described in “Periodic Repurchase Offers” below.
Proceeds from the repurchase of shares will be paid in cash (in U.S. dollars).
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Investment Objectives and Strategies
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The Fund’s investment objectives are to provide current income, consistent with the preservation of capital, and to enable institutional Fund investors that are subject to regulatory examination for CRA compliance to claim favorable regulatory consideration of their investment under the Community Reinvestment Act of 1977, as amended (the “CRA”). The Fund seeks to achieve its objectives by investing primarily in a portfolio of 504 First Lien Loans (“504 First Lien Loans”) secured by owner-occupied commercial real estate which represent the non-guaranteed portion of a U.S. Small Business Administration (“SBA”) Section 504 transaction. In general, 504 First Lien Loans have the community development qualities that are eligible for favorable consideration under the CRA, whether as co-called community development loans or as qualified investments. This is particularly true for 504 First Lien Loans exceeding $1
million.
Under normal market conditions, the Fund will invest at least 80% of its total assets in 504 First Lien Loans. 504 First Lien Loans are made by financial institutions and other lenders to small businesses for the purchase or improvement of land and buildings. 504 First Lien Loans are not guaranteed by the SBA, the U.S. government or by its agencies, instrumentalities or sponsored enterprises.
For additional information about the Fund’s investment strategies, see “Investment Objectives, Strategies and Policies” below.
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504 First Lien Loans
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The SBA developed the 504 Certified Development Company Loan Program (the “SBA 504 Program”) to promote economic development and create jobs. Under the SBA 504 Program, a bank, credit union, insurance company or other financial institution (“Financial Institution”) or non-bank lending institution (“Non-bank Lender”) partners with a certified development company (“CDC”), a specialized SBA-certified nonprofit corporation, to make a loan to a qualifying small business. The borrower makes two loan payments, one to the Financial Institution or Non-bank Lender (a “First Lien Lender”) and one to the CDC. The First Lien Lender’s loan (also referred to herein as a 504 First Lien Loan) is secured with a first lien, typically covering 50% to 60% of the project’s cost. The CDC’s loan (referred to herein as an SBA Second Lien Loan) is secured with a second lien, covering a maximum of 40% of the project’s
cost. Please see the table below for a sample loan and “SBA 504 Certified Development Company Loan Program – Financing Structure” for more information.
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Sample Building Acquisition Uses & Sources
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USE OF PROCEEDS
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Purchase Real Property
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$2,000,000
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SOURCE OF FUNDS
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% OF PROJECT COSTS
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504 First Lien Loan
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$1,200,000
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60%
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SBA Second Lien Loan*
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$600,000
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30%
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Borrower Down Payment
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$200,000
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10%
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*Federal regulations require that, in most cases, the SBA Second Lien Loan must create or maintain one job per $65,000 of federal funding. In this example, ($800,000/$65,000), 12.3 jobs.
The Fund may purchase 504 First Lien Loans through assignments, co-originations, originations or participations as described under “SBA 504 Certified Development Company Loan Program – Investments in 504 First Lien Loans” below. The Fund may purchase the whole loan or a fractional interest in a loan. 504 First Lien Loans may be fixed rate or variable rate loans. All 504 First Lien Loans will be current on the payment of interest and principal at the time that they are purchased by the Fund. Many, but not all, of the 504 First Lien Loans purchased by the Fund will have been originated in the last 12 months.
504 First Lien Loans are not guaranteed by the SBA or any other federal agency. Rather, 504 First Lien Loans benefit from a low loan-to-value ratio (averaging 55% to 60%). If the SBA chooses to protect its interest in the SBA Second Lien Loan, it can, but is not legally obligated to, pay off the 504 First Lien Loan or purchase the property at a foreclosure sale.
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The SBA considers a number of variables when determining whether or not to proactively protect its SBA Second Lien Loan position. Key variables include the amount of net equity present in the collateral based on an updated appraisal, liquidation costs, marketing time (also determined by the appraisal), and holding costs. The more equity in the property, the more likely it is that the SBA would either purchase the 504 First Lien Loan, or purchase the property at the foreclosure sale (thus retiring the 504 First Lien Loan). By way of example noted in the table above, if the property value at the time of liquidation was determined to be $1,600,000 (a 20% drop), the SBA would expect to realize a gross recovery of 75% of the original loan balance ($400,000/$600,000) less an estimate for liquidation and holding costs. The SBA’s incentive to protect its position would be higher than if the current market value at liquidation was only $1,200,000.
In the latter scenario, the amount of recoverable equity after liquidation and holding costs would be minimal and one would expect the SBA to not proactively protect its position. The SBA is not legally obligated to purchase the 504 First Lien Loan, or purchase the property at the foreclosure sale (thus retiring the 504 First Lien Loan) under any circumstances.
There are potentially two key benefits in having the SBA in the SBA Second Lien Loan position in the event of borrower default. The first potential benefit is that, as noted above, the SBA elects to proactively protect its position and retires the senior loan in full (either before or at the foreclosure sale). The second potential benefit is the substantial first loss position funded on any one real estate transaction. For the senior lender’s principal balance to be negatively affected, the liquidation proceeds would have to be less than the combined original down payment or equity position contributed by the borrower and the SBA Second Lien Loan. The combination of borrower equity and SBA investment provides a 25% to 45% buffer between the original purchase price and the liquidation proceeds prior to the Fund incurring a loss. The Fund expects to have an average loan-to-value ratio of 55%. However, the Fund will
consider loan to value ratios on multi-purpose properties of up to 65%, and up to 60% for hospitality and special purpose properties. The total investment in any one loan (outstanding investment plus liquidation costs) may be higher than proceeds recovered during liquidation which would result in a loss to the Fund. For additional information about companion SBA Second Lien Loans, see “SBA Second Lien Loans” below.
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Community Reinvestment Act
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The Fund expects that Fund investors that are subject to examination for CRA compliance may seek favorable regulatory consideration of their Fund investment under the CRA. At the time of an investment in the Fund, an investor that meets the minimum investment threshold (an investment in the Fund of $1 million or more) may request to have its investment amount invested in particular areas of the United States as its preferred geographic focus or designated target region. However, there is no guarantee that investments will be made in designated target regions or that shares will be eligible for CRA credit. Each shareholder’s returns will be based on the investment performance of the Fund’s blended overall portfolio of investments and not just on the performance of the assets, if any, in the designated target region(s) selected by that shareholder.
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Other Fund Investments
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The Fund may invest up to 20% of its assets in investments other than 504 First Lien Loans, consisting of the investments described below. The Fund may invest in bonds or other fixed income instruments issued by, or whose principal and interest payments are guaranteed by, the U.S. Government or one of its agencies or instrumentalities, including various U.S. Government sponsored enterprises (collectively, “U.S. Government securities”). The Fund may also invest in money market funds that invest exclusively in U.S. Government securities. The Fund may invest in repurchase and reverse repurchase agreements collateralized by U.S. Government securities or 504 First Lien Loans. The Fund may invest in mortgage-backed and asset-backed securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. The Fund may invest in certificates of deposit and other time deposits and savings accounts in a commercial
or savings bank or savings association whose accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”).
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Borrowings
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The Fund is authorized to borrow money for temporary liquidity purposes only, consistent with the requirements of the 1940 Act.
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Risks
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There can be no assurance that the Fund will achieve its investment objectives. An investment in the Fund is an appropriate investment only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Investors may lose some or all of their investment in the Fund. The Fund is not designed to be a complete investment program and may not be a suitable investment for all investors. A complete discussion of the risks of the Fund begins on page 36 of this Prospectus. Principal risks of investing in the Fund include:
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Investment and Market Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in the Fund represents an indirect investment in a portfolio of 504 First Lien Loans and other investments, and the value of these loans and other investments may fluctuate. At any point in time an investment in the Fund’s shares may be worth less than the original amount invested.
The Fund’s shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the FDIC, the Federal Reserve Board (the “FRB”) or any other government agency.
Except to the extent used to satisfy periodic repurchase offers, the Adviser expects to be able to fully invest net proceeds in accordance with the Fund’s investment objectives and policies within three to six months of receipt of the proceeds. Such investments may be delayed up to an additional three months if investment opportunities that are eligible for CRA treatment as community development loans or qualified investments are unavailable at the time or for other reasons. A delay in the anticipated use of proceeds could prevent the Fund from achieving its investment objectives.
Risk of Limited Operating History. The Fund has not yet commenced operations and thus has no operating history. The Fund does not have any historical financial statements or other meaningful operating or financial data on which potential investors may evaluate the Fund and its performance or the performance of 504 First Lien Loans. The Adviser currently serves as the investment adviser to two registered open-end mutual funds but has not served as an investment adviser to a registered closed-end interval fund before.
Non-Marketability of Shares. The Fund’s shares are not listed on any securities exchange. There is no guarantee that a secondary market for Fund shares will develop. The Fund’s shares, therefore, may not be readily marketable. Even if any such market were to develop, closed-end fund shares frequently trade at a discount from NAV, which creates a risk of loss for investors purchasing shares in the initial offering period.
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Repurchase Offers Risk. An investment in the Fund is subject to the risk that the Fund’s repurchases of shares may hurt investment performance by forcing the Fund to maintain a higher percentage of its assets in liquid investments or to liquidate certain investments when it is not desirable to do so. Repurchases may be oversubscribed, preventing shareholders from selling some or all of their tendered shares back to the Fund.
Fixed Income Instruments Risk. Fixed income instruments are particularly susceptible to the following risks:
Issuer Risk. The value of fixed income instruments may decline for a number of reasons that directly relate to the issuer, such as management performance and financial leverage.
Interest Rate Risk. The market price of the Fund’s investments will change in response to changes in interest rates and other factors. During periods of declining interest rates, the market price of fixed rate fixed income instruments generally rises. Conversely, during periods of rising interest rates, the market price of such instruments generally declines. The magnitude of these fluctuations in the market price of fixed income instruments is generally greater for instruments with longer durations because such instruments do not mature, reset interest rates or become callable for longer periods of time. Fluctuations in the market price of the Fund’s instruments will not affect interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s NAV.
Interest Rate Reset Risk. Market interest rates may dictate that 504 First Lien Loans include shorter duration adjustable rate terms based on Prime, LIBOR, LIBOR Swap, or some other index. If market rates are higher at the time of future rate resets, the borrower’s 504 First Lien Loan payment will rise accordingly. A significant rise in a 504 First Lien Loan’s interest rate and payment, especially if that increase is concentrated over a short period of time, could result in borrower distress or default.
Since the SBA Second Lien Loan has a fixed interest rate, only the borrower’s 504 First Lien Loan payment will be affected and this increased payment could result in the default of the 504 First Lien Loan, subsequent liquidation action and loss to the Fund.
Prepayment Risk. During periods of declining interest rates, the issuer of an instrument may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in potentially lower yielding instruments. This is known as prepayment or ‘‘call’’ risk.
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Risk of Loans That Are Not Fully Amortized. Certain First Lien Lenders may offer loans that are not fully amortizing, such as a 25 year amortization due in 10 years, to their small business commercial real estate borrowers. If a borrower is unable to pay off a loan at maturity with proceeds of a refinancing by a third party lender or sale of the property, the Fund would be faced with a matured loan with an outstanding principal balance which would result in substantial losses to the Fund.
504 First Lien Loans Risk. The Fund predominantly invests in fixed or variable rate 504 First Lien Loans arranged through private negotiations between a small business borrower (the “Borrower”) and one or more First Lien Lenders. 504 First Lien Loans are secured by collateral and have a claim on the assets of the Borrower that is senior to the second lien held by a CDC and any claims held by unsecured creditors. The 504 First Lien Loans the Fund will invest in are not rated. 504 First Lien Loans are subject to a number of risks described elsewhere in this Prospectus, including credit risk, liquidity risk, valuation risk and interest rate risk.
Although the 504 First Lien Loans in which the Fund will invest will be secured by collateral, there can be no assurance that such collateral can be readily liquidated or that the liquidation of such collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal, which could result in substantial loss to the Fund.
In the event of the bankruptcy or insolvency of a Borrower, the Fund could experience delays or limitations with respect to its ability to realize the benefits of the collateral securing a 504 First Lien Loan. In the event of a decline in the value of the already pledged collateral, the Fund will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the Borrower’s obligations under the 504 First Lien Loan.
In general, the secondary trading market for 504 First Lien Loans is not fully-developed. No active trading market may exist for certain 504 First Lien Loans, which may make it difficult to value them. Illiquidity and adverse market conditions may mean that the Fund may not be able to sell certain 504 First Lien Loans quickly or at a fair price. To the extent that a secondary market does exist for certain 504 First Lien Loans, the market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.
If legislation or state or federal regulations impose additional requirements or restrictions on the ability of Financial Institutions or Non-bank Lenders to make 504 First Lien Loans, the availability of 504 First Lien Loans for investment by the Fund may be adversely affected. In addition, such requirements or restrictions could reduce or eliminate sources of financing for certain Borrowers.
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There may be less readily available information about 504 First Lien Loans and the Borrowers than is the case for investments in many other types of securities. 504 First Lien Loans are issued to Borrowers that are not subject to SEC reporting requirements. As a result, the Adviser will rely primarily on its own evaluation of a Borrower’s credit quality rather than on any available independent sources. Therefore, the Fund will be particularly dependent on the analytical abilities of the Adviser.
The Fund may, but will not typically, invest in 504 First Lien Loans through participations with Financial Institutions. A participation typically results in a contractual relationship only with the Financial Institution selling the participation interest, not with the Borrower. In purchasing participations, the Fund generally will have no direct right to enforce compliance by the Borrower with the terms of the loan agreement, and depending on the terms of the participation agreement, the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the credit risk of both the Borrower and the Financial Institution selling the participation.
Real Estate Risk. The Fund will not invest in real estate directly, but, because the Fund will invest in 504 First Lien Loans secured by real estate, its portfolio will be significantly impacted by the performance of the real estate market and may experience more volatility and be exposed to greater risk than a more diversified portfolio. The value of real estate collateral is affected by changes in general economic and market conditions; local economic conditions, overbuilding and increased competition; increases in property taxes and operating expenses; changes in zoning laws; casualty and condemnation losses including environment remediation costs and changes in interest rates.
Credit Risk. Credit risk is the risk that one or more debt instruments in the Fund’s portfolio will decline in price or fail to pay interest or principal when due because the borrower experiences a decline in its financial status. Losses may occur because the market value of a debt security is affected by the creditworthiness of the issuer and by general economic and specific industry conditions.
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Alt-A and Sub-Prime Borrowers Risk. Some of the guarantors of the loans may have Fair Isaac Credit Organization (“FICO”) scores of Alt-A or sub-prime. Loans to Alt-A or sub-prime borrowers have a higher risk of default than loans to prime borrowers. Sub-prime borrowers typically have weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories. The purchase of loans with exposure to risks associated with Alt-A or sub-prime lending is not a principal investment strategy of the Fund; however, such investments could still result in substantial loss to the Fund.
Below Investment Grade or "Junk" Risk. 504 First Lien Loans typically are not rated by any rating agency. The Adviser believes that if such loans were rated, they would likely be rated as below investment grade or "junk." Exposure to below investment grade loans involves certain risks and those loans are viewed as having predominately speculative characteristics with respect to the borrower’s capacity to pay interest and repay principal. A below investment grade loan or an interest in a below investment grade loan may experience a default for a variety of reasons. Upon any loan becoming defaulted, such loan may become subject to either substantial workout negotiations or restructuring, which may entail a substantial reduction in the interest rate, a substantial write-down of principal, and a substantial change in the terms, conditions and covenants with respect to such loan. In addition,
such negotiations or restructuring may be extensive and protracted, and therefore may result in substantial uncertainty with respect to the ultimate recovery on such loan. The liquidity for defaulted loans may be limited, and to the extent that such loans are sold, the proceeds from such sale may be less than the amount of unpaid principal and interest on such loans.
Liquidity Risk. 504 First Lien Loans are not readily marketable. 504 First Lien Loans are not listed on any national securities exchanges or automated quotation systems and no active trading market exists for certain 504 First Lien Loans. To the extent that a secondary market does exist for certain 504 First Lien Loans, such market may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Illiquid 504 First Lien Loans may impair the Fund’s ability to realize the full value of its assets in the event of a voluntary or involuntary liquidation of such assets and thus may cause a decline in the Fund’s NAV. The Fund has no limitation on the amount of its assets which may be invested in securities or other financial instruments which are not readily marketable or are subject to restrictions on resale.
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Valuation Risk. Unlike publicly traded equity securities that trade on national exchanges, there is no central place or exchange for fixed income instruments or 504 First Lien Loans to trade. Fixed income instruments and 504 First Lien Loans generally trade on an ‘‘over-the-counter’’ market which may be anywhere in the world where the buyer and seller can settle on a price. Due to the lack of centralized information and trading, the Adviser’s judgment plays a greater role in the valuation process and the valuation of fixed income instruments and 504 First Lien Loans. Uncertainties in the conditions of the financial market, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. In addition, other market participants may value instruments differently than the Fund. As a result, the Fund may be subject
to the risk that when a fixed income instrument is sold in the market, the amount received by the Fund is less than the value that such fixed income instrument is carried at on the Fund’s books.
Lender Liability Risk. A number of U.S. judicial decisions have upheld judgments obtained by borrowers against lending institutions on the basis of various evolving legal theories, collectively termed ‘‘lender liability.’’ Generally, lender liability is founded on the premise that a lender has violated a duty of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Because of the nature of its investments, the Fund may be subject to allegations of lender liability.
In addition, under common law principles that in some cases form the basis for lender liability claims, if a lender or bondholder (a) intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (b) engages in other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (d) uses its influence as a stockholder to dominate or control a borrower to the detriment of other creditors of such borrower, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors, a remedy called ‘‘equitable subordination.’’
Income Risk. The income investors receive from the Fund is based primarily on the interest the Fund earns from its investments, which can vary widely over the short and long term. If during a loan’s adjustable rate period the prevailing market interest rates drop, investors’ income from the Fund could drop as well.
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State Lending Risk. The Fund may invest in 504 First Lien Loans originating in all 50 states and, potentially, territories of the U.S. if one or more investors are based in a territory. There is a relatively wide range of economic prosperity between the states. Loans in certain states or sub-regions may perform better or worse as compared to other states or sub-regions. Certain states are focused on energy production where other states may be based more on tourism or agriculture. If a state-focused industry suffers an economic downturn, the fund may sustain higher loan defaults and/or lower recovery values on foreclosed properties.
A further disparity among states is the process and timing of the foreclosure process. For instance, California, the highest 504 First Lien Loan producing state, is a non-judicial foreclosure state and enjoys reasonable average foreclosure time frames. Florida, on the other hand, is a judicial foreclosure state with an average foreclosure time frame of more than double that of California. The longer the foreclosure time period, the higher the liquidation cost. Please also see “Geographic Concentration Risk.”
Non-Diversification Risk. The Fund is classified as “non-diversified” under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single issuer than a ‘‘diversified’’ fund. The Fund may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. Further, if the Fund is not able to attract a sufficient level of assets, the Fund’s underlying investments may be less diversified than they would be if the Fund had greater assets.
Geographic Concentration Risk. The Fund’s 504 First Lien Loan investments are expected to be concentrated in California, Florida, Georgia, Illinois, New York, Texas and Wisconsin. As a result, the Fund may be more susceptible to being adversely affected by any single occurrence in those states. Mortgaged properties in California, for example, may be particularly susceptible to certain types of hazards, such as earthquakes, floods, mudslides, wildfires and other national disasters, for which there may or may not be insurance. Mortgaged properties in other states similarly may be adversely affected by natural disasters, for which there may not be insurance and which could result in substantial loss to the Fund. Please also see “State Lending Risks” above.
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Hospitality Industry Concentration Risk. The Fund expects to have a concentration of hospitality properties of between 30% and 40%. If the hospitality industry suffers an economic downturn as was seen in the periods from 2002–2003 and 2008–2010, it is possible that the default rate on 504 First Lien Loans held in the Fund’s portfolio could be affected. It is also possible that the recovery rate could be negatively affected due to a surplus of hospitality properties in the general economy in liquidation throughout the country. Hospitality properties are special purpose properties with a limited resale market.
Qualification for CRA Credit Risk. Although the Adviser believes that the Fund’s 504 First Lien Loan investments will have the community development qualities that are eligible for favorable consideration as community development loans and qualified investments under the CRA, there is no guarantee that an investor will receive CRA credit for an investment in the Fund.
CRA Strategy Risk. The Fund’s goal of holding 504 First Lien Loans so that Fund investors that are subject to regulatory examination for CRA compliance may claim their Fund investment as a community development loan or as a qualified investment under the CRA will cause the Adviser to take this factor into account in determining which loans the Fund will purchase and sell. Accordingly, portfolio decisions will not be exclusively based on the investment characteristics of the 504 First Lien Loans, which may have an adverse effect on the Fund’s investment performance. For example, CRA qualified loans in geographic areas sought by the Fund may not provide as favorable return as CRA qualified loans in other geographic areas. The Fund may sell loans for reasons relating to CRA qualification at times when such sales may not be desirable. Such sales could occur, for example, if an investor redeems its shares of
the Fund, or if investments that have been designated to specific investors for CRA qualifying purposes are ultimately determined not to be, or to have ceased to be, CRA qualifying. The Fund may hold short-term investments that produce relatively low yields pending the selection of long-term investments believed to be CRA-qualified.
|
Repurchase Agreements Risk. The Fund may enter into repurchase agreements under which the Fund acquires a U.S. Government security from a Financial Institution, broker, dealer or other creditworthy counterparty, and simultaneously agrees to resell such security to the seller at an agreed upon price and date (normally the next business day for U.S. Government securities). The Fund does not bear the risk of a decline in the value of the underlying security unless the seller defaults under its repurchase obligation. In the event of the bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (1) possible decline in the value of the underlying security during the period in which the Fund seeks to enforce its rights thereto; (2) possible lack of access to income on the underlying security during this
period; and (3) expenses of enforcing its rights. In addition, the value of the collateral underlying the repurchase agreement will be at least equal to the repurchase price, including any accrued interest earned on the repurchase agreement. In the event of a default or bankruptcy by a selling Financial Institution, the Fund generally will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss.
Collateral Specific Repurchase Agreements Risk. The Fund also may enter into repurchase agreements that are collateralized with 504 First Lien Loans. In addition to the risks discussed above, repurchase agreements involving obligations other than U.S. Government securities may be subject to special risks and may not have the benefit of certain protections in the event of the counterparty’s insolvency. Collateral with longer maturities such as 504 First Lien Loans may be subject to greater price fluctuations than U.S. Government securities. If the repurchase agreement counterparty were to default, 504 First Lien Loans would be more difficult to liquidate than U.S. Government securities. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, the Fund would retain the status of an unsecured creditor of the counterparty
in the amount of the shortfall. As an unsecured creditor, the Fund would be at risk of losing some or all of the principal and income involved in the transaction.
Reverse Repurchase Agreements Risk. The Fund may also enter into reverse repurchase agreements. There is a risk that the market value of securities acquired in a reverse repurchase agreement may decline below the price of the securities that the Fund has sold but remains obligated to repurchase. In addition, there is a risk that the market value of the securities retained by the Fund may decline. If the buyer of securities under a reverse repurchase agreement were to file for bankruptcy or experience insolvency, the Fund may be adversely affected. Also, in entering into reverse repurchase agreements, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the underlying securities. In addition, due to the interest costs associated with reverse repurchase transactions, the Fund’s NAV may decline and, in some
cases, the Fund may be worse off than if it had not used such instruments.
|
For additional information on these and other risks related to the Fund, see “Risks” below and the SAI.
|
|
Investment Adviser
|
Pennant Management, Inc., an SEC-registered investment adviser, provides investment management services to the Fund and is responsible for the management of the Fund’s portfolio of investments.
|
Distributor
|
Sandler O’Neill & Partners, L.P. (the “Distributor”) is the principal underwriter of shares of the Fund. Shares may be purchased through the Distributor or other broker-dealers who have entered into a dealer agreement with the Distributor. The Distributor acts as the distributor of shares for the Fund on a best efforts and agency basis (not as principal). The Distributor is not obligated to sell any specific number of shares of the Fund. The Distributor will also act as agent for the Fund in connection with repurchases of shares.
|
Fees and Expenses
|
The Fund will pay to the Adviser a monthly fee at the annual rate of 2.00%, which will be applied to the Fund’s average net assets for the month. The Adviser has agreed to waive or reduce its management fees and/or reimburse expenses of the Fund until at least December 31, 2015 to ensure that total annual expenses (excluding interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses and including organizational and offering costs) do not exceed 2.50% of the Fund’s average net assets. All fees and expenses of the Fund are indirectly borne by the Fund’s shareholders.
Investments may be subject to a Sales Charge of up to 2.00%, subject to waiver or adjustment (i) for affiliates of the Adviser; (ii) for certain investors with an established business relationship with the Adviser; or (iii) where a prospective investor is purchasing shares through the Distributor and the Distributor has agreed to waive all or a portion of such Sales Charge for such investor. The Sales Charge will be in addition to the subscription price for shares and will not form a part of an investor’s investment in the Fund. There are no Sales Charges on reinvested distributions.
|
The Adviser or its affiliates also may pay from their own resources additional compensation to brokers or dealers, including the Distributor, in connection with the servicing of investors. In particular, the Adviser will pay the Distributor a fee out of its own resources that is based upon the percentage of assets invested in the Fund by certain shareholders who do not pay a Sales Charge, as described above.
For additional information on fees and expenses related to an investment in the Fund, see “Summary of Fund Fees and Expenses” below.
|
|
Distributions
|
The Fund expects to declare and pay dividends of net investment income quarterly and net realized capital gains annually. Unless shareholders specify otherwise, dividends will be reinvested in shares of the Fund.
|
Tax Considerations
|
The Fund’s distributions generally will be taxed to shareholders as ordinary income or long-term capital gains.
The Fund intends to elect and to qualify each year to be treated as a regulated investment company under the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended. In order to so qualify, the Fund must meet certain requirements with respect to the sources of its income, the diversification of its assets and the distribution of its income. If the Fund qualifies as a regulated investment company, it will not be subject to federal income or excise tax on income it distributes in a timely manner to its shareholders in the form of investment company taxable income or net capital gain distributions.
Prospective investors should consult their tax advisors as to the federal, state and local tax consequences to them of the purchase, ownership and disposition of shares.
|
Maximum Sales Load (as a percentage of offering price)(1)
|
2.00%
|
Offering and Distribution Expenses
|
0.74%
|
Management Fees
|
2.00%
|
Other Expenses(2)
|
2.46%
|
Total Annual Expenses
|
4.46%
|
Less: Fee Waiver and Expense Reimbursement(3)
|
1.96%
|
Total Annual Expenses (after fee waiver and expense reimbursement(3)
|
2.50%
|
(1)
|
Investments may be subject to a Sales Charge of up to 2.00%, subject to waiver or adjustment (i) for affiliates of the Adviser; (ii) for certain investors with an established business relationship with the Adviser; or (iii) where a prospective investor is purchasing shares through the Distributor and the Distributor has agreed to waive all or a portion of such Sales Charge for such investor. The Sales Charge will be in addition to the subscription price for shares and will not form a part of an investor’s investment in the Fund.
|
(2)
|
“Other Expenses” are based on estimated amounts for the Fund’s current fiscal year and assumes an average of $30 million of assets under management. The Fund’s expenses include brokerage, interest, taxes, investment-related expenses, extraordinary expenses and acquired fund fees and expenses.
|
(3)
|
The Adviser has agreed to waive or reduce its management fees and/or reimburse expenses of the Fund until at least December 31, 2015 to ensure that total annual expenses (excluding interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses and including organizational and offering costs) do not exceed 2.50% of the Fund’s average net assets. The Adviser is permitted to be reimbursed for management fee waivers and/or expense reimbursements made for a period of three fiscal years following the end of the fiscal year in which such waiver or reimbursement was accrued, except for initial organizational expenses which are subject to reimbursement by the Fund to the Adviser for a period of three years from the date on which such expenses were incurred, subject to the limitation on the Fund’s expenses in effect at the
time such reimbursement is paid to the Adviser and at the time such fees were waived and/or expenses were reimbursed. This agreement may be terminated only by, or with the consent of, the Board.
|
Example
|
1 year
|
3 years
|
5 years
|
10 years
|
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (without a repurchase at end of the period)
|
$45
|
$117
|
$210
|
$448
|
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (with a repurchase at end of the period)
|
$45
|
$117
|
$210
|
$448
|
USE OF PROCEEDS
|
||
Purchase Real Property
|
$2,000,000
|
|
SOURCE OF FUNDS
|
% OF
PROJECT
COSTS
|
|
504 First Lien Loan
|
$1,200,000
|
60%
|
SBA Second Lien Loan*
|
$600,000
|
30%
|
Borrower Down Payment
|
$200,000
|
10%
|
|
·
|
The Borrower must have at least two years ownership experience in the same industry (i.e., no start-ups).
|
|
·
|
Loan-to-value ratio of the 504 First Lien Loan (65% maximum multi-purpose, 60% maximum special purpose). For purposes of the Fund’s analysis, the loan-to-value ratio is calculated by dividing the 504 First Lien Loan by the lower of the appraised value, or the purchase price if the property was purchased within the last 24 months.
|
|
·
|
Minimum credit score from a nationally-recognized credit reporting entity (620 minimum on major principal, or average among multiple, key principals).
|
·
|
The percentage of outstanding shares that the Fund is offering to repurchase (the “repurchase offer amount”) and how the Fund will purchase shares on a pro rata basis if the offer is oversubscribed.
|
·
|
The date that will be used to determine the Fund’s NAV applicable to the repurchase offer (the “repurchase pricing date”).
|
·
|
The date by which the Fund will pay to shareholders the proceeds from their shares accepted for repurchase (the “repurchase payment deadline”).
|
·
|
The risk of fluctuation in NAV between the repurchase request deadline and the repurchase pricing date.
|
·
|
The procedures by which shareholders may tender their shares and the right of shareholders to withdraw or modify their tenders before the repurchase request deadline.
|
·
|
The NAV of the shares as of a date no more than seven days before the date of the written notice and the means by which shareholders may ascertain the NAV.
|
THE FUND
|
DESCRIPTION OF PERMITTED INVESTMENTS
|
INVESTMENT LIMITATIONS
|
THE ADVISER
|
THE PORTFOLIO MANAGERS
|
THE ADMINISTRATOR
|
THE DISTRIBUTOR
|
PAYMENTS TO FINANCIAL INTERMEDIARIES
|
THE TRANSFER AGENT
|
THE CUSTODIAN AND ESCROW AGENT
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
LEGAL COUNSEL
|
TRUSTEES AND OFFICERS OF THE FUND
|
PURCHASING SHARES
|
DETERMINATION OF NET ASSET VALUE
|
TAXES
|
FUND TRANSACTIONS
|
PORTFOLIO HOLDINGS
|
ANTI-MONEY LAUNDERING COMPLIANCE PROGRAM
|
DESCRIPTION OF SHARES
|
SHAREHOLDER LIABILITY
|
LIMITATION OF TRUSTEES’ LIABILITY
|
PROXY VOTING
|
CODES OF ETHICS
|
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
|
FINANCIAL STATEMENTS
|
·
|
To companies that perform necessary services for the Fund, such as shareholder servicing centers that the Fund uses to process your transactions or maintain your account.
|
THE FUND
|
1
|
DESCRIPTION OF PERMITTED INVESTMENTS
|
1
|
INVESTMENT LIMITATIONS
|
11
|
THE ADVISER
|
14
|
THE PORTFOLIO MANAGERS
|
15
|
THE ADMINISTRATOR
|
15
|
THE DISTRIBUTOR
|
16
|
PAYMENTS TO FINANCIAL INTERMEDIARIES
|
16
|
THE TRANSFER AGENT
|
17
|
THE CUSTODIAN AND ESCROW AGENT
|
17
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
17
|
LEGAL COUNSEL
|
17
|
TRUSTEES AND OFFICERS OF THE FUND
|
18
|
PURCHASING SHARES
|
25
|
DETERMINATION OF NET ASSET VALUE
|
25
|
TAXES
|
28
|
FUND TRANSACTIONS
|
31
|
PORTFOLIO HOLDINGS
|
33
|
ANTI-MONEY LAUNDERING COMPLIANCE PROGRAM
|
34
|
DESCRIPTION OF SHARES
|
35
|
SHAREHOLDER LIABILITY
|
35
|
LIMITATION OF TRUSTEES’ LIABILITY
|
35
|
PROXY VOTING
|
35
|
CODES OF ETHICS
|
36
|
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
|
36
|
FINANCIAL STATEMENTS
|
36
|
APPENDIX A - PROXY VOTING POLICIES AND PROCEDURES
|
A-1
|
|
1.
|
Borrow money or issue senior securities (as defined under the 1940 Act), except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
|
|
2.
|
Make loans, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
|
|
3.
|
Purchase or sell commodities or real estate, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
|
|
4.
|
Underwrite securities issued by other persons, except to the extent permitted under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
|
|
5.
|
With the exception of the hospitality industry, concentrate investments in any one industry, as concentration is defined under the 1940 Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
|
|
1.
|
The Fund will make repurchase offers at periodic intervals pursuant to Rule 23c-3 under the 1940 Act, as such rule may be amended or interpreted from time to time. Currently, Rule 23c-3 requires repurchase offer amounts to be not less than 5% and not more than 25% of the common stock outstanding on the repurchase request deadline.
|
|
3.
|
Each repurchase request deadline will be determined in accordance with Rule 23c-3. Currently, Rule 23c-3 requires the repurchase request deadline to be no less than 21 and no more than 42 days after the Fund sends a notification to shareholders of the repurchase offer.
|
|
4.
|
Each repurchase pricing date will be determined in accordance with Rule 23c-3. Currently, Rule 23c-3 requires the repurchase pricing date to be no later than the 14th day after a repurchase request deadline, or the next business day if the 14th day is not a business day.
|
|
1.
|
Under normal circumstances, the Fund will invest at least 80% of its total assets in SBA 504 First Lien Loans, including repurchase agreements collateralized by such securities.
|
Name
|
Registered
Investment Companies
|
Other Pooled
Investment Vehicles
|
Other Accounts
|
|||
Number of Accounts
|
Total Assets
($ millions)
|
Number of Accounts
|
Total Assets
($ millions)
|
Number of Accounts
|
Total Assets
($ millions)
|
|
2
|
$16
|
1
|
$61.6
|
16
|
$9.4
|
|
Jordan Blanchard
|
0
|
$0
|
0
|
$0
|
0
|
$0
|
Robert Judge
|
0
|
$0
|
0
|
$0
|
0
|
$0
|
Name and
Year of Birth
|
Position with Trust
and Length of Term
|
Principal Occupations
in the Past 5 Years
|
Number of Portfolios in Fund Complex2 Overseen By Trustee
|
Other Directorships
Held in the Past 5 Years
|
Interested Trustee1
|
||||
Mark A. Elste, CFA
Born: 1954
|
Chairman of the Board of Trustees, Interested Trustee, President and Principal Executive Officer
(since 2013)
|
Chief Executive Officer, Pennant Management, Inc. (since 1992); Senior Vice President and Chief Operating Officer, U.S. Fiduciary Services, Inc. (financial services holding company) (since 2004)
|
3
|
CIB Marine Bancshares, Inc. (bank holding company) (since 2011)
|
Independent Trustees
|
||||
J. Clay Singleton, Ph.D., CFA
Born: 1947
|
Trustee (since 2013)
|
Professor of Finance, Crummer Graduate School of Business, Rollins College (since 2002); Consultant, Director of Indexes, PCE Investment Bankers (2005 to 2011)
|
3
|
None
|
Cornelius J. Lavelle
Born: 1944
|
Trustee (since 2013)
|
Retired; Director-Institutional Equities, Citigroup Global Markets Inc. (multinational financial services firm) (1997 to 2009)
|
3
|
None
|
George Stelljes, III
Born: 1961
|
Trustee (since 2013)
|
Retired; President, Chief Investment Officer and Director of the Gladstone Companies (family of public and private investment funds) (2002 to 2013)
|
1
|
Director, Gladstone Capital Corporation (business development company) (resigned 2013); Director, Gladstone Commercial Corporation (real estate investment trust) (resigned 2013); Director, Gladstone Investment Corporation (business development company (resigned 2013); Director, Gladstone Land Corporation (real estate investment company) (resigned 2012)
|
Name and
Year of Birth
|
Position with Trust
and Length of Term
|
Principal Occupations
in the Past 5 Years
|
Number of Portfolios in Fund Complex2 Overseen By Trustee
|
Other Directorships
Held in the Past 5 Years
|
Other Officers
|
||||
Scott M. Conger
Born: 1968
|
Secretary, Chief Compliance Officer and AML Compliance Officer
|
Senior Vice President and Chief Compliance Officer, Pennant Management, Inc. (since 2011); Director, Treasury Analysis, Stone Pillar Advisors, Ltd. (financial services) (2010 to 2011); Vice President, Amcore Bank, N.A. (2006 to 2010)
|
N/A
|
N/A
|
Born: 1965
|
Treasurer and Principal Financial Officer
|
Senior Vice President and General Counsel, U.S. Fiduciary Services, Inc. (since 2012); General Counsel and Compliance Officer, Breakwater Trading, LLC (financial services) (2006 to 2012).
|
N/A
|
N/A
|
1
|
Mr. Elste is deemed to be an “interested person” of the Fund as that term is defined in the 1940 Act by virtue of his positions with the Adviser.
|
2
|
The Fund Complex includes the USFS Funds Trust, which is advised by Pennant Management, Inc. and has two funds: the USFS Funds Limited Duration Government Fund and the USFS Funds Tactical Asset Allocation Fund.
|
|
·
|
Audit Committee. The Board has a standing Audit Committee that is composed of each of the Independent Trustees of the Fund. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Fund’s independent registered public accounting firm and whether to terminate this relationship; reviewing the independent registered public accounting firm’s compensation, the proposed scope and terms of its engagement, and the firm’s independence; pre-approving audit and non-audit services provided by the Fund’s independent registered public accounting firm to the Fund and certain other affiliated entities; serving as a channel of communication between the independent registered public accounting firm and the Trustees; reviewing the results of each external audit, including any qualifications in the independent registered
public accounting firm’s opinion, any related management letter, management’s responses to recommendations made by the independent registered public accounting firm in connection with the audit, reports submitted to the Committee by the internal auditing department of the Fund’s Administrator that are material to the Fund as a whole, if any, and management’s responses to any such reports; reviewing the Fund’s audited financial statements and considering any significant disputes between the Fund’s management and the independent registered public accounting firm that arose in connection with the preparation of those financial statements; considering, in consultation with the independent registered public accounting firm and the Fund’s senior internal accounting executive, if any, the independent registered public accounting firms’ reports on the adequacy of the Fund’s internal financial controls; reviewing, in consultation with the Fund’s independent registered public
accounting firm, major changes regarding auditing and accounting principles and practices to be followed when preparing the Fund’s financial statements; and other audit related matters.
|
|
·
|
Nominating Committee. The Board has a standing Nominating Committee that is composed of each of the Independent Trustees of the Fund. The Nominating Committee operates under a written charter approved by the Board. The principal responsibility of the Nominating Committee is to consider, recommend and nominate candidates to fill vacancies on the Board, if any. The Nominating Committee generally will not consider nominees recommended by shareholders. The Nominating Committee meets periodically, as necessary.
|
|
·
|
Valuation Committee. The Board has a standing Valuation Committee that is composed of members of the Adviser, as appointed by the Board. The Valuation Committee operates under procedures approved by the Board. The principal responsibility of the Valuation Committee is to determine the fair value of securities for which current market quotations are not readily available. The Valuation Committee meets at least weekly to consider the fair value to be assigned to each SBA 504 First Lien Loan within the Fund’s portfolio. The Valuation Committee reports the fair value of each SBA 504 First Lien Loan to the Fund’s Administrator, the Independent Trustees and their counsel and the Fund’s valuation consultant. The Adviser has engaged an independent registered public accounting firm to act as a valuation consultant to review the Valuation Committee’s fair value determinations and the Fund’s valuation
methodology. The valuation consultant is compensated by the Adviser, not the Fund, for providing these services. The Valuation Committee’s determinations are reviewed by the Board quarterly. In addition, the valuation consultant may meet with the Independent Trustees, their counsel and/or the Fund’s independent auditor in order to independently provide guidance to the Board. These meetings may occur in executive session of the Board in which only the valuation consultant and the Independent Trustees and their counsel will participate or as part of a meeting of the entire Board.
|
Name
|
Dollar Range of Fund Shares
Owned in The Pennant 504 Fund1
|
Aggregate Dollar Range of Shares Owned in Fund Complex2
|
Interested Trustee
|
||
None
|
over $100,000
|
|
Independent Trustees
|
||
J. Clay Singleton
|
None
|
None
|
Cornelius J. Lavelle
|
None
|
None
|
George Stelljes, III
|
None
|
None
|
2
|
The Fund Complex includes the USFS Funds Trust, which is advised by Pennant Management, Inc. and has two funds: the USFS Funds Limited Duration Government Fund and the USFS Funds Tactical Asset Allocation Fund.
|
Name
|
Estimated Aggregate
Compensation from the Fund
|
Estimated Total Compensation
from the Fund and Fund Complex1
|
Interested Trustee
|
||
$0
|
$0
|
|
Independent Trustees
|
||
J. Clay Singleton
|
$20,000
|
$40,000
|
Cornelius J. Lavelle
|
$16,000
|
$32,000
|
George Stelljes, III2
|
$16,000
|
$16,000
|
2
|
Mr. Stelljes serves as an Independent Trustee of The Pennant 504 Fund. He does not serve as an Independent Trustee of USFS Funds Trust.
|
Assets
|
||||
Cash
|
$ | 100,000 | ||
Deferred offering costs
|
312,999 | |||
Deferred insurance expense
|
32,460 | |||
Receivable from Adviser for reimbursement
|
||||
of organizational costs
|
187,332 | |||
Total Assets
|
632,791 | |||
Liabilities
|
||||
Accrued offering costs
|
176,822 | |||
Accrued organizational costs
|
98,486 | |||
Payable to Adviser
|
257,483 | |||
Total Liabilities
|
532,791 | |||
Net Assets applicable to 10,000 shares outstanding
|
$ | 100,000 | ||
|
||||
Net Asset Value, and redemption price per
|
$ | 10.00 | ||
shares outstanding
|
Expenses
|
||||
Organizational expenses (Note 2)
|
$ | 187,332 | ||
Total Expenses before Reimbursements
|
187,332 | |||
Less: Reimbursement by Adviser (Note 2 & 3)
|
(187,332 | ) | ||
Net Expenses
|
- | |||
Net increase resulting from operations
|
$ | - |
|
1.
|
The Investment Committee, which is the committee consisting of all the Portfolio Managers, is designated as the Company’s policy-making body with respect to proxy voting. In this capacity, the Investment Committee will be aided by the Heads of the Administration Group, the Operations Group and the General Counsel, with whom the Investment Committee may consult as and when needed.
|
|
2.
|
The Investment Committee may delegate decisions with respect to specific proxy issues to one of the Portfolio Managers who is most familiar with the issuer and its business.
|
|
3.
|
The Investment Committee may designate staff to receive proxies, reconcile them with security ownership positions as of the specified record dates and to separate proxies with respect to issues designated by the Investment Committee for further review.
|
|
4.
|
The Investment Committee will designate the staff responsible for monitoring corporate actions, making voting decisions in accordance with this policy, and for ensuring that proxies are submitted timely.
|
|
5.
|
The Investment Committee shall determine, on a case-by-case basis, the need to contact an issuer or other security holders to gather additional information with respect to a proposal.
|
|
3.
|
Compile a list of accounts that hold the security, together with the number of votes each account controls (reconciling any duplications), and the date by which the Company must vote the proxy in order to allow enough time for the completed proxy to be returned to the issuer prior to the vote taking place.
|
|
4.
|
Identify Routine Items, Non-Routine Items and Conflict of Interest Items on the proxy and determine whether a specific policy of the Company applies to the Non-Routine Items and Conflict of Interest Items.
|
|
a.
|
If the Company has a direct or indirect interest in any issue that is the subject of a proxy to be voted for a client’s account, the Company shall disclose to the client in writing the substance of the Company’s interest in the issue and shall seek from the client written direction on how such issue is to be voted.
|
|
b.
|
If the Company does not receive written direction from a client on how to vote on an issue on which the Company has a direct or indirect interest, the Company may resolve the conflict by voting client securities based upon the recommendations of the issuer’s management.
|
|
c.
|
This existence of an issue on which the Company has a direct or indirect issue shall not prevent the Company from voting on other issues on the same proxy on which the Company does not have a conflict of interest.
|
|
5.
|
Vote a Routine Item (with no corporate governance implications) according to the Company’s specific policy and, if applicable, vote the Non-Routine Item or Conflict of Interest Item according to the Company’s specific policy. The Investment Committee should vote these proxies by completing them and submitting them in a timely and appropriate manner.
|
|
6.
|
If no specific policy applies to a Non-Routine Item or Conflict of Interest Item, follow the general policy for voting of Non-Routine Items and Conflict of Interest Items.
|
|
7.
|
The Company may retain a third party to assist it in coordinating and voting proxies with respect to client securities. If so, the Investment Committee shall monitor the third party to assure that all proxies are being properly voted and appropriate records are being retained.
|
|
·
|
The Company will generally vote FOR the election of directors (where no corporate governance issues are implicated).
|
|
·
|
The Company will generally vote FOR management recommendations adding or amending indemnification provisions in charter or by-laws.
|
|
·
|
The Company will generally vote FOR management proposals for merger or reorganization if the transaction appears to offer fair value.
|
|
·
|
The Company will generally vote FOR measures intended to increase long-term stock ownership by executives.
|
|
·
|
The Company will generally vote AGAINST shareholder resolutions that consider non-financial impacts of mergers.
|
|
1.
|
The Company will disclose in its Form ADV Part 2A that clients may contact the Chief Compliance Officer in order to obtain information on how the Company voted such client’s proxies, and to request a copy of these procedures and policies. If a client requests this information, the Investment Committee will prepare a written response that lists with respect to each voted proxy relating to the inquiry, (1) the name of the issuer; (2) the proposal voted upon; and (3) how the Company voted that client’s proxy.
|
|
2.
|
A concise summary of these Proxy Voting Procedures and Policies will be included in the Company’s Form ADV Part 2A, and will be updated whenever these procedures and policies are updated.
|
|
2.
|
A copy of each proxy statement that the Company receives, provided however that the Company may rely on obtaining a copy of proxy statements from the SEC’s EDGAR system for those proxy statements that are so available.
|
|
4.
|
A copy of any document Company created that was material to making a decision how to vote proxies, or that memorializes that decision.
|
|
5.
|
A copy of each written client request for information on how the Company voted such client’s proxies, and a copy of any written response to any (written or oral) client request for information on how the Company voted its proxies.
|
|
(d)
|
Instruments Defining Rights of Shareholders – none other than the Declaration of Trust and By-laws.
|
|
(1)
|
Incorporated by reference to Registrant's Registration Statement on Form N-2 (1933 Act File No. 333-190432) as filed with the Commission on August 7, 2013.
|
|
(2)
|
Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (1933 Act File No. 333-190432) as filed with the Commission on October 4, 2013.
|
|
(3)
|
Incorporated by reference to Registrant's Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (1933 Act File No. 333-190432) as filed with the Commission on November 21, 2013.
|
SEC registration fee
|
$68,200
|
FINRA filing fee
|
$0
|
Printing and mailing expenses
|
$ 5,000
|
Blue sky filing fees and expenses
|
$23,500
|
Legal fees and expenses
|
$392,500
|
Accounting fees and expenses
|
$2,500
|
Transfer agent fees
|
$0
|
Advertising and sales literature
|
$0
|
Miscellaneous
|
$5,000
|
Total
|
$496,700
|
Title of Class
|
Number of Record Holders
|
Common Shares of Beneficial Interest
|
1
|
Name and Position with Adviser
|
Name of Other Company
|
Position with Other Company
|
Chief Executive Officer and Director
|
U.S. Fiduciary Services, Inc.
GreatBanc Trust Company
Salem Trust Company
USF Affiliate Services, Inc.
Waretech, Inc.
CIB Marine Bancshares, Inc.
CIBM Bank
|
Senior Vice President, Chief Operating Officer and Director
Director
Director
Director
Director
Director
Director
|
Scott M. Conger
Senior Vice President and Chief
Compliance Officer
|
Stone Pillar Advisors, Ltd.
Amcore Bank, N.A.
|
Director, Treasury Analysis
Vice President and Assistant Treasurer
|
Michael Welgat
Director
|
U.S. Fiduciary Services, Inc.
GreatBanc Trust Company
Salem Trust Company
USF Affiliate Services, Inc.
Waretech, Inc.
|
Chief Executive Officer, President and Director
Director
Director
Director
Director
|
Todd C. Johnson
Chairman of the Board
|
U.S. Fiduciary Services, Inc.
|
Vice Chairman of the Board
|
Scott R. Harding
President, Chief Operating Officer, Treasurer
and Director
|
N/A
|
N/A
|
Records Relating to:
|
Are Located At:
|
Registrant’s Investment Adviser
|
Pennant Management, Inc.
11270 West Park Place
|
Registrant’s Fund Administrator, Fund Accountant and Transfer Agent
|
UMB Fund Services, Inc.
803 West Michigan Street
|
Registrant’s Custodian and Escrow Agent
|
UMB Bank, n.a.
928 Grand Boulevard
|
(1)
|
The Registrant hereby undertakes to suspend the offering of the shares of common stock covered hereby until it amends its prospectus contained herein if:
|
|
(a)
|
subsequent to the effective date of this registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of this registration statement, or
|
|
(b)
|
the net asset value increases to an amount greater than its net proceeds as stated in the prospectus contained herein.
|
|
(a)
|
to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
(ii)
|
to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
|
|
(iii)
|
to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
|
|
(b)
|
that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and
|
|
(c)
|
to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
(d)
|
that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule 430C under the Securities Act of 1933; each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the Securities Act of 1933 as part of a registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the Securities Act of 1933, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
|
(e)
|
that for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities, the Registrant undertakes that in a primary offering of securities of the Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
|
|
(i)
|
any preliminary prospectus or prospectus of the Registrant relating to the offering required to be filed pursuant to Rule 497 under the Securities Act of 1933;
|
|
(ii)
|
the portion of any advertisement pursuant to Rule 482 under the Securities Act of 1933 relating to the offering containing material information about the Registrant or its securities provided by or on behalf of the Registrant; and
|
|
(iii)
|
any other communication that is an offer in the offering made by the Registrant to the purchaser.
|
(6)
|
The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, its Statement of Additional Information.
|
THE PENNANT 504 FUND
|
|||
(Registrant)
|
|||
By:
|
/s/ Mark A. Elste
|
||
President, Principal Executive Officer and Trustee
|
Signature
|
Title
|
|
/s/ Mark A. Elste
|
President, Principal Executive Officer and Trustee
|
|
*
|
Trustee
|
|
Cornelius J. Lavelle
|
||
*
|
Trustee
|
|
J. Clay Singleton
|
||
*
|
Trustee
|
|
George Stelljes III
|
||
|
Treasurer, Principal Financial Officer
|
|
and Principal Accounting Officer
|
* By:
|
/s/ Mark A. Elste
|
|
Attorney in fact pursuant to Power of Attorney filed with Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2.
|
Exhibit Number
|
Description
|
(2) (k) (iii) | Operating Expenses Limitation Agreement |
(2) (l)
|
Opinion and Consent of Godfrey & Kahn, S.C.
|
(2) (n) | Consent of Independent Registered Public Accounting Firm |
This ‘N-2/A’ Filing | Date | Other Filings | ||
---|---|---|---|---|
12/31/16 | N-CSRS, NSAR-A | |||
12/31/15 | N-CSRS, NSAR-A | |||
12/1/14 | ||||
6/30/14 | N-CSR, N-PX, NSAR-B | |||
12/31/13 | N-CSRS, NSAR-A | |||
11/27/13 | 3, EFFECT | |||
Filed on: | 11/26/13 | 3, CORRESP | ||
11/21/13 | N-2/A | |||
11/4/13 | 3 | |||
11/1/13 | ||||
10/4/13 | N-2/A | |||
8/13/13 | ||||
8/7/13 | N-2, N-8A | |||
7/29/13 | ||||
7/24/13 | ||||
12/31/12 | ||||
8/17/12 | ||||
12/24/09 | ||||
9/7/08 | ||||
List all Filings |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 10/27/23 Equalize Community Dev Fund 486BPOS 10/28/23 14:2.3M FilePoint/FA 10/27/22 Equalize Community Dev Fund 486BPOS 10/28/22 8:1.2M FilePoint/FA 2/15/22 Equalize Community Dev Fund 486BPOS 2/18/22 8:1.2M FilePoint/FA 12/17/21 Equalize Community Dev Fund 486APOS 3:1M FilePoint/FA 10/26/21 Equalize Community Dev Fund 486BPOS 10/28/21 6:904K FilePoint/FA 10/22/20 Equalize Community Dev Fund 486BPOS 10/23/20 7:956K FilePoint/FA |