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It
is proposed that this filing will become effective (check appropriate
box):
¨ immediately upon filing
pursuant to paragraph (b) of Rule 485; or
¨ on _______________,
pursuant to paragraph (b) of Rule 485; or
¨60 days after filing
pursuant to paragraph (a)(1) of Rule 485;
¨ on ______________ pursuant
to paragraph (a)(1) of Rule 485; or
x75 days after filing
pursuant to paragraph (a)(2) of Rule 485; or
¨ on _________ pursuant
to paragraph (a)(2) of Rule 485; or
¨
on __________ pursuant to paragraph (a)(3) of Rule 485.
If
appropriate, check the following box:
¨This post-effective
amendment designates a new effective date for a previously filed post-effective
amendment.
The
information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
[ LOGO
]
Jubak
Global Equity Fund
(NASDAQ
symbol)
PROSPECTUS
___________,
2010
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
Jubak
Global Equity Fund
A
series of the Investment Managers Series Trust (the “Trust”)
Table
of Contents
SUMMARY SECTION
1
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES
5
MANAGEMENT OF THE
FUND
7
DISTRIBUTION PLAN
8
YOUR ACCOUNT WITH THE FUND
8
DIVIDENDS AND DISTRIBUTIONS
16
FINANCIAL HIGHLIGHTS
16
FEDERAL INCOME TAX
CONSEQUENCES
16
This
Prospectus sets forth basic information about the Fund that you should know
before investing. It should be read and retained for future
reference.
The
date of this Prospectus is _________, 2010.
SUMMARY
SECTION
Investment
Objective
The Jubak
Global Equity Fund (the “Fund”) seeks long term capital
appreciation.
Fees
and Expenses
This
table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder
Fees
(fees paid directly from
your investment)
Maximum
sales charge (load) imposed on purchases
None
Maximum
deferred sales charge (load)
None
Redemption
fee if redeemed within 90 days of purchase
(as
a percentage of amount redeemed)
2.00%
Wire
fee or overnight check delivery fee
$15
Retirement
account fees (annual maintenance and redemption requests)
$15
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
Management
fees
1.20%
Distribution
(Rule 12b-1) Fee
0.25%
Other
expenses1
XXX%
Total
annual fund operating expenses
XXX%
Fee
waiver and/or expense reimbursements2
(XXX%)
Total
annual fund operating expenses after fee waiver and/or expense
reimbursements2
1.75%
1
“Other
expenses” have been estimated for the current fiscal year. Includes
estimated acquired fund fees and expenses of less than
0.01%.
2
The
Fund’s advisor has contractually agreed to waive its fees and/or absorb
expenses of the Fund to ensure that total annual fund operating expenses
(excluding taxes, leverage interest, brokerage commissions, dividend
expenses on short sales, acquired fund fees and expenses as determined in
accordance with Form N-1A, expenses incurred in connection with any merger
or reorganization, or extraordinary expenses such as litigation) do not
exceed 1.75% of average daily net assets of the Fund. This
agreement is in effect until ________, 2011, and it may be terminated
before that date only by the Trust’s Board of Trustees. The
Fund’s advisor is permitted to seek reimbursement from the Fund, subject
to limitations, for fees it waived and Fund expenses it paid for three
years from the date of any such waiver or
payment.
1
SUMMARY
SECTION
Example
This
example is intended to help you compare the costs of investing in the Fund with
the cost of investing in other mutual funds.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the
same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
One Year
Three Years
$XXX
$XXX
Portfolio
Turnover
The Fund
pays transaction costs, such as commissions, when it buys and sells securities
(or “turns over” its portfolio). A higher portfolio turnover may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the example, affect the Fund’s
performance. The Fund is newly-created and, as a result, does not
have a portfolio turnover rate.
Principal
Investment Strategies
The Fund
will invest primarily in equity securities of companies located throughout the
world, including the United States. Under normal market conditions, the
Fund will invest at least 40% of its assets in companies organized, located or
doing a substantial amount of business outside the United States. The
Fund considers a company that has, at the time of investment, at least 50% of
its assets or derives at least 50% of its revenue during the most recent fiscal
year from business outside the United States as doing a substantial amount of
business outside the United States. The Fund will invest primarily in equity
securities of companies located in developed countries and may invest up to 40%
of its assets in emerging markets.
The
Fund’s investments in equity securities may include common stocks, preferred
stocks and convertible securities. The Fund may invest in any size
company, including small and mid capitalization companies. The Fund will
focus its investment in a portfolio of stocks across all industry groups, market
capitalization ranges and geographic locations (but in no less than three
different countries). From time to time, the Fund may have a significant portion
of its assets invested in the securities of companies in one or a few countries
or regions.
The Fund
also may invest in American, European, and global depository receipts (“ADRs”,
“EDRs”, and “GDRs”, respectively) and exchange-traded funds (“ETFs”). ADRs
are receipts that represent interests in foreign securities held on deposit by
U.S. banks. EDRs and GDRs have the same qualities as ADRs, except that
they may be traded in several international trading markets. ETFs are investment
companies that invest in portfolios of securities designed to track particular
market segments or indices and that has shares which are bought and sold on
securities exchanges.
Principal
Risks of Investing
Before
you decide whether to invest in the Fund, carefully consider these risk factors
and special considerations associated with investing in the Fund, which may
cause investors to lose money.
·
Investment
Risks: An investment in the Fund is subject to investment risk,
including the possible loss of the entire principal amount that you
invest.
2
·
Equity
Risks: A principal risk of investing in the Fund is equity risk,
which is the risk that the value of the securities held by the Fund will
fall due to general market and economic conditions, perceptions regarding
the industries in which the issuers of securities held by the Fund
participate, or factors relating to specific companies in which the Fund
invests.
·
Foreign
Investment Risks: The Fund's investments in non-U.S. issuers may
involve unique risks compared to investing in securities of U.S. issuers.
Adverse political, economic or social developments could undermine the
value of the Fund's investments or prevent the Fund from realizing the
full value of its investments.
·
Currency
Risks: Foreign securities
that trade in, and receive revenues in, foreign currencies are subject to
the risk that those currencies will decline in value relative to the U.S.
dollar or, in the case of hedging positions, that the U.S. dollar will
decline in value relative to the currency being
hedged.
·
Emerging
Markets Risks: The Fund’s investments in foreign issuers
in developing or emerging market countries involve exposure to changes in
economic and political factors. The economies of most emerging
market countries are in the infancy stage of capital market
development. As a result, their economic systems are still
evolving and their political systems are typically less stable than those
in developed economies. Emerging market countries often suffer from
currency devaluation and higher rates of
inflation.
·
Management
Risks: The Fund is subject to management risk because it is an
actively managed portfolio. The Fund’s advisor applies investment
techniques and risk analyses in making investment decisions for the Fund,
but there can be no guarantee that these will produce the desired results.
The Fund and its advisor are new and, as of the date of this Prospectus,
have no operating history.
·
Non-Diversification
Risks: The Fund is non-diversified, which means the Fund may focus
its investments in the securities of a comparatively small number of
issuers. Investment in securities of a limited number of issuers exposes
the Fund to greater market risk and potential losses than if its assets
were diversified among the securities of a greater number of
issuers.
·
Small- and
Mid-Cap Company Risks: The securities of small- or
mid-cap companies may be subject to more abrupt or erratic market
movements and may have lower trading volumes or more erratic trading than
securities of larger companies or the market averages in
general.
·
ETF Risks:
The risk of ETFs generally reflects the risk of owning shares of
the underlying securities held by the ETFs, although the lack of liquidity
in an ETF could result in its value being more volatile than the
underlying portfolio of securities. The Fund limits its
investment in shares of other investment companies including ETFs to the
extent allowed by the Investment Company Act of 1940, as amended (the
“1940 Act”).
Performance
Because
the Fund is new, it does not have a full calendar year performance record to
compare against other mutual funds or broad measures of securities market
performance such as indices. Performance information will be available after the
Fund has been in operation for one calendar year.
Investment
Advisor
Jubak
Asset Management, LLC. (the “Advisor”)
Portfolio
Manager
James
Jubak has served as the portfolio manager of the Fund since its inception on
_____, 2010.
3
Purchase
and Sale of Fund Shares
To
purchase shares of the Fund, you must invest at least the minimum
amount.
Minimum Investments
To
Open
Your Account
To
Add to
Your Account
Direct
Regular Accounts
$500
$250
Traditional
and Roth IRA Accounts
$500
$250
Automatic
Investment Plan
$500
$250
Gift
Account For Minors
$500
$250
Fund
shares are redeemable on any business day by written request or by
telephone.
Tax
Information
The
Fund’s distributions are taxable, and will be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred arrangement, such
as a 401(k) plan or an individual retirement account. Such
tax-deferred arrangements may be taxed later upon withdrawal of monies from
those arrangements.
Payments
to Broker-Dealers and Other Financial Intermediaries
If you
purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary to recommend the Fund over another investment. Ask
your salesperson or visit your financial intermediary’s website for more
information.
4
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES
Investment
Objective
The
Fund’s investment objective is long term capital appreciation. The
Fund’s investment objective is not fundamental, and may be changed by the Board
of Trustees without shareholder approval. There is no guarantee that
the Fund will achieve its objective.
Principal
Investment Strategies
The Fund
will invest primarily in equity securities of companies located throughout the
world, including the United States. Under normal market conditions, the
Fund will invest at least 40% of its assets in companies organized, located or
doing a substantial amount of business outside the United States. The
Fund considers a company that has, at the time of purchase, at least 50% of its
assets or derives at least 50% of its revenue during the most recent fiscal year
from business outside the United States as doing a substantial amount of
business outside the United States. The Fund will invest primarily in equity
securities of companies located in developed countries and may invest up to 40%
of its assets in emerging markets.
The
Fund’s investments in equity securities may include common stocks, preferred
stocks and convertible securities. The Fund may invest in any size
company, including small and mid capitalization companies. The Fund will
focus its investment in a portfolio of stocks across all industry groups, market
capitalization ranges and geographic locations (but in no less than three
different countries). From time to time, the Fund may have a significant portion
of its assets invested in the securities of companies in one or a few countries
or regions.
The Fund
also may invest in ADRs, EDRs, GDRs and ETFs. ADRs are receipts that
represent interests in foreign securities held on deposit by U.S. banks.
EDRs and GDRs have the same qualities as ADRs, except that they may be traded in
several international trading markets. ETFs are investment companies that invest
in portfolios of securities designed to track particular market segments or
indices and whose shares are bought and sold on securities
exchanges.
The
Advisor’s investment process is based on a large number of factors, including
macro-economic trends and geopolitical issues, as well as more fundamental
analysis of specific company performance, competitors and
markets. The Advisor also considers other factors including political
risk, monetary policy risk, and regulatory risk when selecting foreign
(non-U.S.) securities.
When
current market, economic, political or other conditions are unsuitable and would
impair the pursuit of the Fund’s investment objective, the Fund may temporarily
invest up to 100% of its assets in cash, or cash equivalents, including but not
limited to, obligations of the U.S. Government, money market fund shares,
commercial paper, repurchase agreements, certificates of deposit and/or bankers
acceptances, as well as other interest bearing or discount
obligations. When the Fund takes a temporary defensive position, it
may not achieve its investment objective.
Principal
Risks of Investing
The
Fund’s principal risks are mentioned below. Before you decide whether to invest
in the Fund, carefully consider these risk factors and special considerations
associated with investing in the Fund, which may cause investors to lose
money.
·
Investment
Risks: An investment in the Fund is subject to investment risk,
including the possible loss of the entire principal amount that you
invest.
5
·
Equity
Risks: A principal risk of investing in the Fund is equity risk,
which is the risk that the value of the securities held by the Fund will
fall due to general market and economic conditions, perceptions regarding
the industries in which the issuers of securities held by the Fund
participate, or factors relating to specific companies in which the Fund
invests. For example, an adverse event, such as an unfavorable earnings
report, may depress the value of equity securities of an issuer held by
the Fund; the price of common stock of an issuer may be particularly
sensitive to general movements in the stock market; or a drop in the stock
market may depress the price of most or all of the common stocks and other
equity securities held by the Fund. The stock market has been subject to
significant volatility recently which has increased the risk associated
with an investment in the Fund. Common stock of an issuer in
the Fund's portfolio may decline in price if the issuer fails to make
anticipated dividend payments because, among other reasons, the issuer of
the security experiences a decline in its financial condition. Common
stock is subordinated to preferred stocks, bonds and other debt
instruments in a company's capital structure, in terms of priority with
respect to corporate income, and therefore will be subject to greater
dividend risk than preferred stocks or debt instruments of such issuers.
In addition, while broad market measures of common stocks have
historically generated higher average returns than fixed income
securities, common stocks have also experienced significantly more
volatility in those returns.
·
Foreign
Investment Risks: The Fund's investments in non-U.S. issuers may
involve unique risks compared to investing in securities of U.S. issuers.
Adverse political, economic or social developments could undermine the
value of the Fund's investments or prevent the Fund from realizing the
full value of its investments. Financial reporting standards
and transaction settlement systems for companies based in foreign markets
differ from those in the United States. Finally, the value of the currency
of the country in which the Fund has invested could decline relative to
the value of the U.S. dollar, which may affect the value of the investment
to U.S. investors. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them
any voting rights with respect to the deposited
securities.
·
Currency
Risks: Foreign securities
that trade in, and receive revenues in, foreign currencies are subject to
the risk that those currencies will decline in value relative to the U.S.
dollar or, in the case of hedging positions, that the U.S. dollar will
decline in value relative to the currency being
hedged. Currency rates in foreign countries may fluctuate
significantly over short periods of time due to the imposition of currency
controls or other political developments in the United States or
abroad. As a result, the Fund’s investments in non-U.S.
dollar-denominated securities and currencies may reduce the returns of the
Fund.
·
Emerging
Markets Risks: The Fund’s investments in foreign issuers
in developing or emerging market countries involve exposure to changes in
economic and political factors. The economies of most emerging
market countries are in the infancy stage of capital market
development. As a result, their economic systems are still
evolving and their political systems are typically less stable than those
in developed economies. Emerging market countries often suffer
from currency devaluation and higher rates of
inflation.
·
Management
Risks: The Fund is subject to management risk because it is an
actively managed portfolio. The Advisor applies investment techniques and
risk analyses in making investment decisions for the Fund, but there can
be no guarantee that these will produce the desired results. The Fund and
its advisor are new and, as of the date of this Prospectus, have no
operating history. In addition, the portfolio manager for the
Fund has not previously managed investments for a registered investment
company.
·
Non-Diversification
Risks: The Fund is non-diversified, which means the Fund may focus
its investments in the securities of a comparatively small number of
issuers. Investment in securities of a limited number of issuers exposes
the Fund to greater market risk and potential losses than if its assets
were diversified among the securities of a greater number of
issuers.
·
Small- and
Mid-Cap Company Risks: The securities of small- or
mid-cap companies may be subject to more abrupt or erratic market
movements and may have lower trading volumes or more erratic trading than
securities of larger companies or the market averages in general. In
addition, such companies typically are subject to a greater degree of
change in earnings and business prospects than are larger, more
established companies.
6
·
ETF Risks:
The risk of ETFs generally reflects the risk of owning shares of
the underlying securities held by the ETFs, although the lack of liquidity
in an ETF could result in its value being more volatile than the
underlying portfolio of securities. The Fund limits its
investment in shares of other investment companies including ETFs to the
extent allowed by the 1940 Act. Fund assets invested in ETFs
and other mutual funds incur a layering of expenses, including operating
costs and advisory fees that you indirectly bear as a shareholder in the
Fund.
Portfolio
Holdings Information
A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio securities is available in the Fund’s Statement of
Additional Information (“SAI”) dated _______, 2010. Currently,
disclosure of the Fund’s holdings is required to be made quarterly within 60
days of the end of each fiscal quarter, in the Fund’s Annual Report and
Semi-Annual Report to Fund shareholders, and in the quarterly holdings report on
Form N-Q.
MANAGEMENT
OF THE FUND
Investment
Advisor
The
Advisor, Jubak Asset Management LLC, is the Fund’s investment advisor and
provides investment advisory services to the Fund pursuant to an investment
advisory agreement between the Advisor and the Trust (the “Advisory
Agreement”). The Advisor was founded in 2010 and its principal
address is 9 W. 57th Street,
26th
Floor, New York, NY10019. The Advisor is a newly-formed investment
advisor registered with the SEC. The Advisor does not currently
manage other assets.
The
Advisor is owned and managed by Tangent Advisors, LLC and James Jubak, who is
the Advisor’s Chief Investment Officer. Although Mr. Jubak has not
previously managed a mutual fund or other client assets, he has been researching
and analyzing portfolio securities as an investment journalist since 1985 and
has maintained and reported the results of a hypothetical investment portfolio
on the internet since 1997, using the same investment techniques he will use to
manage the Fund's assets.
Pursuant
to the Advisory Agreement, the Fund pays the Advisor an annual advisory fee of
1.20% of the Fund’s average daily net assets for the services and facilities it
provides, payable on a monthly basis.
A
discussion regarding the basis of Board’s approval of the Advisory Agreement
will be available in the Fund’s [semi/annual] report to shareholders for the
period ending ____________, 2010.
Portfolio
Manager
James
Jubak is responsible for the day-to-day management of the Fund.
James Jubak is the Advisor's
Chief Investment Officer and is also the author of the “Jubak Picks” website and
was recently awarded the 2009 “Best in Business” Award for excellence by the
Society of American Business Editors and Writers. Nielsen Net
Rating has rated Mr. Jubak the most-read investment journalist on the
internet in February 2008 and February 2009. From 1997 to May 2009,
Mr. Jubak served as the Senior Markets Editor for MSN Money, where he began the
“Jubak’s Picks” hypothetical portfolio. Mr. Jubak is also the author
of the book, The Jubak
Picks, published by Crown in December 2008. Mr. Jubak was a
Knight Bagehot Journalism Fellow at Colombia University from 1983 to 1984 and
earned his PhD in English literature from the University of
Virginia.
The SAI
provides additional information about the portfolio manager’s compensation
structure, other accounts managed by the portfolio manager and the portfolio
manager's ownership of Fund securities.
7
Fund
Expenses
The Fund
is responsible for its own operating expenses. The Advisor has
contractually agreed, however, to waive its fees and/or absorb expenses of the
Fund to ensure that the net annual fund operating expenses (excluding taxes,
leverage interest, brokerage commissions, dividend expenses on short sales,
acquired fund fees and expenses (as determined in accordance with Form N-1A,
expenses incurred in connection with any merger or reorganization, or
extraordinary expenses such as litigation) do not exceed 1.75% of average daily
net assets of the Fund. This agreement is effective until _______,
2011, and may be terminated by the Trust’s Board of Trustees.
Any
reduction in advisory fees or payment of expenses made by the Advisor may be
reimbursed by the Fund in subsequent fiscal years if the Advisor so
requests. This reimbursement may be requested if the aggregate amount
actually paid by the Fund toward operating expenses for such fiscal year (taking
into account the reimbursement) does not exceed the current limitation on Fund
expenses and the limitation on Fund expenses in place at the time of the fee
waiver or expense reimbursement. The Advisor is permitted to be
reimbursed for fee reductions and/or expense payments made for a period of three
years from the date the expenses were waived and/or Fund expenses were
reimbursed. Any such reimbursement is contingent upon the Board’s
subsequent review and ratification of the reimbursed amounts and will not cause
the total fee paid to exceed the applicable limitation on Fund
expenses. The Fund must pay current ordinary operating expenses
before the Advisor is entitled to any reimbursement of fees and/or
expenses.
DISTRIBUTION
PLAN
Distribution
(Rule 12b-1) Plan
The Fund
has adopted a plan pursuant to Rule 12b-1 of the 1940 Act that allows the Fund
to pay distribution fees for the sale and distribution of its
shares. The plan provides for the compensation of a distribution fee
at the annual rate of up to 0.25% of average daily net assets. Since
these fees are paid out of the Fund’s assets, these fees will increase the cost
of your investment and, over time, may cost you more than paying other types of
sales charges.
Additional
Payments to Broker-Dealers and Other Financial Intermediaries
The
Advisor, out of its own resources, and without additional cost to the Fund or
its shareholders, may provide additional cash payments or non-cash compensation
to broker-dealers or intermediaries that sell shares of the
Fund. These additional cash payments are generally made to
intermediaries that provide shareholder servicing, marketing support and/or
access to sales meetings, sales representatives and management representatives
of the intermediary. The Advisor may pay cash compensation for
inclusion of the Fund on a sales list, including a preferred or select sales
list, in other sales programs or may pay an expense reimbursement in cases where
the intermediary provides shareholder services to the Fund’s
shareholders. The Advisor may also pay cash compensation in the form
of finder’s fees that vary depending on the Fund and the dollar amount of the
shares sold.
YOUR
ACCOUNT WITH THE FUND
Share
Price
The
offering price of the Fund's shares is based upon the net asset value per share
(“NAV”). The NAV is determined by dividing (a) the difference between
the value of the Fund’s securities, cash and other assets and the amount of the
Fund’s expenses and liabilities by (b) the number of shares outstanding (assets
– liabilities / # of shares = NAV). The NAV takes into account all of
the expenses and fees of the Fund, including management fees and administration
fees, which are accrued daily. The Fund's NAV is typically calculated
as of the close of regular trading (generally, 4:00 p.m. Eastern Time) on
each day that the New York Stock Exchange (“NYSE”) is open for unrestricted
business. The Fund’s NAV may be calculated earlier if trading on the
NYSE is restricted or if permitted by the SEC. The NYSE is closed on
weekends and most U.S. national holidays. However, foreign securities
listed primarily on non-U.S. markets may trade on weekends or other days on
which the Fund does not value its shares, which may significantly affect the
Fund's NAV on days when you are not able to buy or sell Fund
shares.
8
In
certain circumstances, the Fund employs fair value pricing to ensure greater
accuracy in determining daily NAVs and to prevent dilution by frequent traders
or market timers who seek to exploit temporary market anomalies. The
Board has adopted procedures in the event that the Fund must utilize fair value
pricing, including when reliable market quotations are not readily available,
when the Fund’s pricing service does not provide a valuation (or provides a
valuation that, in the judgment of the Advisor, does not represent the
security’s fair value), or when, in the judgment of the Advisor, events have
rendered the market value unreliable (see the discussion of fair value pricing
of foreign securities in the paragraph below). Valuing securities at
fair value involves reliance on the judgment of the Board (or a committee
thereof), and may result in a different price being used in the calculation of
the Fund’s NAV from quoted or published prices for the same
securities. Fair value determinations are made in good faith in
accordance with procedures adopted by the Board. There can be no
assurance that the Fund will obtain the fair value assigned to a security if it
sells the security.
Fair
value pricing may be applied to foreign securities held by the Fund upon the
occurrence of an event after the close of trading on non-U.S. markets but before
the close of trading on the NYSE when the Fund’s NAV is
determined. If the event may result in a material adjustment to the
price of the Fund’s foreign securities once non-U.S. markets open on the
following business day (such as, for example, a significant surge or decline in
the U.S. market), the Fund may value such foreign securities at fair value,
taking into account the effect of such event, in order to calculate the Fund’s
NAV. Other types of portfolio securities that the Fund may value at
fair value include, but are not limited to: (1) investments that
are illiquid or traded infrequently, including “restricted” securities and
private placements for which there is no public market; (2) investments for
which, in the judgment of the Advisor, the market price is stale;
(3) securities of an issuer that has entered into a restructuring;
(4) securities for which trading has been halted or suspended; and
(5) fixed income securities for which there is not a current market value
quotation.
Buying
Fund Shares
To
purchase shares of the Fund, you must invest at least the minimum amount
indicated in the following table.
Minimum Investments
To
Open
Your Account
To
Add to
Your Account
Direct
Regular Accounts
$500
$250
Traditional
and Roth IRA Accounts
$500
$250
Automatic
Investment Plan
$500
$250
Gift
Account For Minors
$500
$250
Shares of
the Fund may be purchased by check, by wire transfer of funds via a bank or
through an approved financial intermediary (i.e., a supermarket,
investment advisor, financial planner or consultant, broker, dealer or other
investment professional and their agents) authorized by the Fund to receive
purchase orders. A financial intermediary may charge additional fees
and may require higher minimum investments or impose other limitations on buying
and selling Fund shares. You may make an initial investment in an
amount greater than the minimum amounts shown in the preceding table and the
Fund may, from time to time, reduce or waive the minimum initial investment
amounts. The minimum initial investment amount is automatically waived for
Fund shares purchased by Trustees of the Trust and current or retired directors
and employees of the Advisor and its affiliates.
In-Kind
Purchases and Redemptions
The Fund
reserves the right to accept payment for shares in the form of securities that
are permissible investments for the Fund. The Fund also reserves the
right to pay redemptions by an “in-kind” distribution of securities (instead of
cash) from the Fund. In-kind purchases and redemptions are taxable
events and may result in the recognition of gain or loss for federal income tax
purposes. See the SAI for further information about the terms of
these purchases and redemptions.
9
Additional
Investments
Additional
subscriptions in the Fund generally may be made by investing at least the
minimum amount shown in the table above. Exceptions may be made at
the Trust’s discretion. You may purchase additional shares of the
Fund by sending a check together with the investment stub from your most recent
account statement to the Fund at the applicable address listed in the table
below. Please ensure that you include your account number on the
check. If you do not have the investment stub from your account
statement, list your name, address and account number on a separate sheet of
paper and include it with your check. You may also make additional
investments in the Fund by wire transfer of funds or through an approved
financial intermediary. The minimum additional investment amount is
automatically waived for shares purchased by Trustees of the Trust and current
or retired directors and employees of the Advisor and its
affiliates. Please follow the procedures described in this
Prospectus.
Customer
Identification Information
To help
the government fight the funding of terrorism and money laundering activities,
federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. When
you open an account, you will be asked for your name, date of birth (for a
natural person), your residential address or principal place of business, and
mailing address, if different, as well as your social security number or
taxpayer identification number. Additional information is required
for corporations, partnerships and other entities. Applications
without such information will not be considered in good order. The
Fund reserves the right to deny applications if the application is not in good
order.
This
Prospectus should not be considered a solicitation to purchase or as an offer to
sell shares of the Fund in any jurisdiction where it would be unlawful to do so
under the laws of that jurisdiction.
Automatic
Investment Plan
If you
intend to use the Automatic Investment Plan (“AIP”), you may open your account
with the initial minimum investment amount. Once an account has been
opened, you may make additional investments in the Fund at regular intervals
through the AIP. If elected on your account application, funds can be
automatically transferred from your checking or savings account on the 5th,
10th,
15th,
20th
or 25th of each
month. In order to participate in the AIP, each additional
subscription must be at least $50, and your financial institution must be a
member of the Automated Clearing House (“ACH”) network. The first AIP
purchase will be made 15 days after the Fund’s transfer agent (the “Transfer
Agent”) receives your request in good order. The Transfer Agent will
charge a $25 fee for any ACH payment that is rejected by your
bank. Your AIP will be terminated if two successive mailings we send
to you are returned by the U.S. Postal Service as undeliverable. You
may terminate your participation in the AIP at any time by notifying the
Transfer Agent at 1-xxx-xxx-xxxx at least five days prior to the date of the
next AIP transfer. The Fund may modify or terminate the AIP at any
time without notice.
Timing
and Nature of Requests
The
purchase price you will pay for the Fund’s shares will be the next NAV
calculated after the Transfer Agent or your authorized financial intermediary
receives your request in good order. “Good order” means that your
purchase request includes: (1) the name of the Fund,
(2) the dollar amount of shares to be purchased, (3) your purchase
application or investment stub, and (4) a check payable to Jubak Global
Equity Fund. All requests received in good order before
4:00 p.m. (Eastern Time) will be processed on that same
day. Requests received after 4:00 p.m. (Eastern Time) will be
transacted at the next business day’s NAV.
10
Methods
of Buying
Through
a broker-
dealer
or other
financial
intermediary
The
Fund is offered through certain approved financial intermediaries (and
their agents). The Fund is also offered directly. An
order placed with a financial intermediary or its authorized agent is
treated as if such order were placed directly with the Fund, and will be
executed at the next NAV calculated by the Fund. Your financial
intermediary will hold your shares in a pooled account in its (or its
agent’s) name. The Fund may pay your financial intermediary (or
its agent) to maintain your individual ownership information, maintain
required records, and provide other shareholder services. The
financial intermediary which offers shares may require payment of
additional fees from its individual clients. If you invest
through your financial intermediary, the policies and fees may be
different than those described in this Prospectus. For example,
the financial intermediary may charge transaction fees or set different
minimum investments. Your financial intermediary is responsible
for processing your order correctly and promptly, keeping you advised of
the status of your account, confirming your transactions and ensuring that
you receive copies of the Fund’s Prospectus. Please contact
your financial intermediary to determine whether it is an approved
financial intermediary of the Fund or for additional
information.
By
mail
The
Fund will not accept payment in cash, including cashier’s
checks. Also, to prevent check fraud, the Fund will not accept
third party checks, Treasury checks, credit card checks, traveler’s
checks, money orders or starter checks for the purchase of
shares.
To
buy shares of the Fund, complete an account application and send it
together with your check for the amount you wish to invest in the Fund to
the address indicated below. To make additional investments
once you have opened your account, write your account number on the check
and send it together with the most recent confirmation statement received
from the Transfer Agent. If your check is returned for
insufficient funds, your purchase will be canceled and a $25 fee will be
assessed against your account by the Transfer
Agent.
The
Fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents.
By
telephone
To
make additional investments by telephone, you must authorize telephone
purchases on your account application. If you have given
authorization for telephone transactions and your account has been open
for at least 15 days, call the Transfer Agent toll-free at
1-xxx-xxx-xxxx and you will be allowed to move money in amounts of at
least $250 but not greater than $50,000 from your bank account to the Fund
account upon request. Only bank accounts held at U.S.
institutions that are ACH members may be used for telephone
transactions. If your order is placed before 4:00 p.m. (Eastern
Time) shares will be purchased in your account at the NAV determined on
that day. For security reasons, requests by telephone will be
recorded.
11
By
wire
To
open an account by wire, a completed account application is required
before your wire can be accepted. You may mail or send by
overnight delivery your account application to the Transfer
Agent. Upon receipt of your completed account application form,
an account will be established for you. The account number
assigned will be required as part of the instruction that should be
provided to your bank to send the wire. Your bank must include
the name of the Fund, the account number, and your name so that monies can
be correctly applied. Your bank should transmit funds by wire
to:
UMB
Bank, n.a.
ABA
Number 101000695
For
credit to Jubak
Global Equity Fund
A/C
# XXXXXXXX
For
further credit to:
“Jubak
Global Equity Fund”
Your
account number(s)
Name(s)
of investor(s)
Social
security or tax payer ID number
Before
sending your wire, please contact the Transfer Agent at 1-xxx-xxx-xxxx to
notify it of your intention to wire funds. This will ensure
prompt and accurate credit upon receipt of your wire. Your bank
may charge a fee for its wiring service.
Wired
funds must be received prior to 4:00 p.m. (Eastern Time) to be eligible
for same day pricing. The Fund and UMB Bank, n.a. are
not responsible for the consequences of delays resulting from the banking
or Federal Reserve wire system, or from incomplete wiring
instructions.
Selling
(Redeeming) Fund Shares
Through
a broker-
dealer
or other
financial
intermediary
If
you purchased your shares through an approved financial intermediary, your
redemption order must be placed through the same financial
intermediary. The financial intermediary must receive and
transmit your redemption order to the Transfer Agent prior to
4:00 p.m. (Eastern Time) for the redemption to be processed at the
current day’s NAV. Orders received after 4:00 p.m. (Eastern
Time) will be transacted at the next business day’s NAV. Please
keep in mind that your financial intermediary may charge additional fees
for its services.
By
mail
You
may redeem shares purchased directly from the Fund by
mail. Send your written redemption request to Jubak Global Equity Fund
at the address indicated below. Your request must be in good
order and contain the Fund name, the name(s) on the account, your account
number and the dollar amount or the number of shares to be
redeemed. The redemption request must be signed by all
shareholders listed on the account. Additional documents are
required for certain types of shareholders, such as corporations,
partnerships, executors, trustees, administrators, or guardians (i.e., corporate
resolutions, or trust documents indicating proper
authorization).
A
Medallion signature guarantee must be included if any of the following
situations apply:
12
·
You
wish to redeem more than $50,000 worth of shares;
·
When
redemption proceeds are sent to any person, address or bank account not on
record;
·
If
a change of address was received by the Transfer Agent within the last 15
days;
·
If
ownership is changed on your account; or
·
When
establishing or modifying certain services on your
account.
By
telephone
To
redeem shares by telephone, call the Fund at 1-xxx-xxx-xxxx and specify
the amount of money you wish to redeem. You may have a check
sent to the address of record, or, if previously established on your
account, you may have proceeds sent by wire or electronic funds transfer
through the ACH network directly to your bank account. Wire
transfers or overnight check delivery are subject to a $15 fee ($20 if you
request for Saturday check delivery) paid by the investor and your bank
may charge a fee to receive wired funds. You do not incur any
charge when proceeds are sent via the ACH network; however, credit may not
be available for two to three business days.
If
you are authorized to perform telephone transactions (either through your
account application form or by subsequent arrangement in writing with the
Fund), you may redeem shares up to $50,000, by instructing the Fund by
phone at 1-xxx-xxx-xxxx. Unless noted on the initial account application,
a Medallion signature guarantee is required of all shareholders in order
to qualify for or to change telephone redemption privileges.
Note: The
Fund and all of its service providers will not be liable for any loss or
expense in acting upon instructions that are reasonably believed to be
genuine. To confirm that all telephone instructions are
genuine, the caller must verify the
following:
·
The
Fund account number;
·
The
name in which his or her account is registered;
·
The
social security or tax identification number under which the account is
registered; and
·
The
address of the account holder, as stated in the account application
form.
Medallion
Signature Guarantee
In
addition to the situations described above, the Fund reserves the right to
require a Medallion signature guarantee in other instances based on the
circumstances relative to the particular situation.
Shareholders
redeeming more than $50,000 worth of shares by mail should submit written
instructions with a Medallion signature guarantee from an eligible institution
acceptable to the Transfer Agent, such as a domestic bank or trust company,
broker, dealer, clearing agency or savings association, or from any participant
in a Medallion program recognized by the Securities Transfer
Association. The three recognized Medallion programs are Securities
Transfer Agents Medallion Program, Stock Exchanges Medallion Program and New
York Stock Exchange, Inc. Medallion Signature Program. Signature
guarantees that are not part of these programs will not be
accepted. Participants in Medallion programs are subject to dollar
limitations which must be considered when requesting their guarantee. The
Transfer Agent may reject any signature guarantee if it believes the transaction
would otherwise be improper. A notary public cannot provide a
signature guarantee.
13
Systematic
Withdrawal Plan
You may
request that a predetermined dollar amount be sent to you on a monthly or
quarterly basis. Your account must maintain a value of at least $500
for you to be eligible to participate in the Systematic Withdrawal Plan
(“SWP”). The minimum withdrawal amount is $250. If you
elect to receive redemptions through the SWP, the Fund will send a check to your
address of record, or will send the payment via electronic funds transfer
through the ACH network, directly to your bank account. You may
request an application for the SWP by calling the Transfer Agent toll-free at
1-xxx-xxx-xxxx. The Fund may modify or terminate the SWP at any
time. You may terminate your participation in the SWP by calling the
Transfer Agent at least five business days before the next
withdrawal.
Payment
of Redemption Proceeds
You may
redeem shares of the Fund at a price equal to the NAV next determined after the
Transfer Agent and/or authorized agent receives your redemption request in good
order. Generally, your redemption request cannot be processed on days
the NYSE is closed. All requests received in good order by the
Transfer Agent and/or authorized agent before the close of the regular trading
session of the NYSE (generally, 4:00 p.m. Eastern Time) will usually be
sent to the bank you indicate or mailed on the following day to the address of
record. In all cases, proceeds will be processed within seven
calendar days and sent to you after your redemption request has been
received.
If you
purchase shares using a check and soon after request a redemption, the Fund will
honor the redemption request, but will not mail the proceeds until your purchase
check has cleared (usually within 12 days). Furthermore, there
are certain times when you may be unable to sell Fund shares or receive
proceeds. Specifically, the Fund may suspend the right to redeem
shares or postpone the date of payment upon redemption for more than three
business days: (1) for any period during which the NYSE is closed (other
than customary weekend or holiday closings) or trading on the NYSE is
restricted; (2) for any period during which an emergency exists affecting
the sale of the Fund’s securities or making such sale or the fair determination
of the value of the Fund’s net assets not reasonably practicable; or
(3) for such other periods as the SEC may permit for the protection of the
Fund’s shareholders.
Other
Redemption Information
Shareholders
who have an IRA or other retirement plan must indicate on their redemption
request whether to withhold federal income tax. Redemption requests
failing to indicate an election not to have taxes withheld will generally be
subject to a 10% federal income tax withholding.
The Fund
generally pays sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund’s remaining shareholders), the Fund may pay all or part of a
shareholder’s redemption proceeds in liquid securities with a market value equal
to the redemption price (redemption-in-kind).
The Fund
may redeem all of the shares held in your account if your balance falls below
the Fund’s minimum initial investment amount due to your redemption
activity. If, within 30 days of the Fund’s written request, you
have not increased your account balance, your shares will be automatically
redeemed at the current NAV. The Fund will not require that your
shares be redeemed if the value of your account drops below the investment
minimum due to fluctuations of the Fund’s NAV.
Tools
to Combat Frequent Transactions
The Fund
discourages excessive, short-term trading and other abusive trading practices
that may disrupt portfolio management strategies and harm the Fund’s
performance. The Fund takes steps to reduce the frequency and effect
of these activities in the Fund. These steps may include monitoring
trading activity and using fair value pricing. Although these efforts
(which are described in more detail below) are designed to discourage abusive
trading practices, these tools cannot eliminate the possibility that such
activity may occur. Further, while the Fund makes efforts to identify
and restrict frequent trading, the Fund receives purchase and sale orders
through financial intermediaries and cannot always know or detect frequent
trading that may be facilitated by the use of intermediaries or the use of group
or omnibus accounts by those intermediaries. The Fund seeks to
exercise its judgment in implementing these tools to the best of its ability in
a manner that the Fund believes is consistent with shareholder
interests.
14
Redemption
Fee
You
will be charged a redemption fee of 2.00% of the value of the shares being
redeemed if you redeem your shares of the Fund within 90 days of
purchase. The “first in, first out” (“FIFO”) method is used to
determine the holding period; this means that if you bought shares on
different days, the shares purchased first will be redeemed first for the
purpose of determining whether the redemption fee applies. The
redemption fee is deducted from the sale proceeds and is retained by the
Fund for the benefit of its remaining shareholders. The fee will not apply
to redemptions (i) due to shareholder’s death or disability, (ii) from
certain omnibus accounts with systematic or contractual limitations, (iii)
of shares acquired through reinvestments of dividends or capital gains
distributions, (iv) through certain employer-sponsored retirement plans or
employee benefit plans or, with respect to any plan, to comply with
minimum distribution requirements, (v) effected pursuant to an automatic
non-discretionary rebalancing program, (vi) pursuant to asset allocation
programs, wrap fee programs, and other investment programs offered by
financial institutions where investment decisions are made on a
discretionary basis by investment professionals, (vii) pursuant to the
SWP, or (viii) by the Fund of accounts falling below the minimum initial
investment amount. The Fund reserves the right to waive this
fee in other circumstances if the Advisor determines that doing so is in
the best interests of the Fund.
Monitoring
Trading
Practices
The
Fund may monitor trades in an effort to detect short-term trading
activities. If, as a result of this monitoring, the Fund
believes that a shareholder has engaged in excessive short-term trading,
it may, in its discretion, ask the shareholder to stop such activities or
refuse to process purchases in the shareholder’s accounts. In
making such judgments, the Fund seeks to act in a manner that it believes
is consistent with the best interest of shareholders. Due to
the complexity and subjectivity involved in identifying abusive trading
activity, there can be no assurance that the Fund’s efforts will identify
all trades or trading practices that may be considered
abusive.
General
Transaction Policies
Some of
the following policies are mentioned above. In general, the Fund
reserves the right to:
·
vary
or waive any minimum investment
requirement;
·
refuse,
change, discontinue, or temporarily suspend account services, including
purchase or telephone redemption privileges, for any
reason;
·
reject
any purchase request for any reason (generally, the Fund does this if the
purchase is disruptive to the efficient management of the Fund due to the
timing of the investment or an investor’s history of excessive
trading);
·
delay
paying redemption proceeds for up to seven calendar days after receiving a
request, if an earlier payment could adversely affect the Fund;
and
·
reject
any purchase or redemption request that does not contain all required
documentation.
15
If you
elect telephone privileges on the account application or in a letter to the
Fund, you may be responsible for any fraudulent telephone orders as long as the
Fund and/or its service providers have taken reasonable precautions to verify
your identity. In addition, once you place a telephone transaction
request, it cannot be canceled or modified.
During
periods of significant economic or market change, telephone transactions may be
difficult to complete. If you are unable to contact the Fund by
telephone, you may also mail your request to the Fund at the address listed
under “Methods of Buying.”
Your
broker or other financial intermediary may establish policies that differ from
those of the Fund. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on buying or selling shares in addition to those identified in this
Prospectus. Contact your broker or other financial intermediary for
details.
DIVIDENDS
AND DISTRIBUTIONS
The Fund
will make distributions of net investment income quarterly and net capital
gains, if any, at least annually, typically in December. The Fund may
make an additional payment of dividends or distributions if it deems it
desirable at any other time during the year.
Some of
the Fund’s investment income may be subject to foreign income taxes that are
withheld at the country of origin. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
If you
buy shares of the Fund just before it makes a distribution (on or before the
record date), you will receive some of the purchase price back in the form of a
taxable distribution.
All
dividends and distributions will be reinvested in Fund shares unless you choose
one of the following options: (1) receive net investment income
dividends in cash, while reinvesting capital gain distributions in additional
Fund shares; or (2) receive all dividends and distributions in
cash. If you wish to change your distribution option, please write to
the Transfer Agent before the payment date of the distribution.
If you
elect to receive distributions in cash and the U.S. Postal Service cannot
deliver your check, or if your distribution check has not been cashed for six
months, the Fund reserves the right to reinvest the distribution check in your
account at the Fund’s then current NAV and to reinvest all subsequent
distributions.
FINANCIAL
HIGHLIGHTS
Because
the Fund has not commenced operations as of the date of this Prospectus, no
financial information is available.
FEDERAL
INCOME TAX CONSEQUENCES
The Fund
intends to qualify and elect to be treated as a regulated investment company
under the Internal Revenue code of 1986, as amended (the “Code”). If
the Fund so qualifies, it will not pay federal income tax on the net investment
income and capital gains that it distributes to its shareholders.
The Fund
intends to distribute all of its net investment income and capital gains to
shareholders. Unless otherwise exempt, shareholders are required to
pay federal income tax on any dividends and other distributions
received. This applies whether dividends or distributions are
received in cash or additional shares.
16
Distributions
of net investment income, other than “qualified dividend income,” are taxable
for federal income tax purposes at ordinary income tax rates. For
taxable years beginning on or before December 31, 2010, distributions designated
as qualified dividend income are taxed to individuals and other non-corporate
investors at rates applicable to long-term capital gains, provided certain
holding period and other requirements contained in the Code are
satisfied. Distributions of net long-term capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) are taxable for federal
income tax purposes as long-term capital gain, regardless of how long the
shareholder has held Fund shares. Long-term capital gain is currently
taxable to non-corporate shareholders at a maximum federal income tax rate of
15%. Distributions of net short-term capital gain (i.e., net short-term capital
gain less any net long-term capital loss) are taxable as ordinary income,
regardless of how long the shareholder has held Fund
shares. Dividends paid by a Fund may qualify in part for the dividend
deduction available to corporate shareholders, provided certain holding period
and other requirements are satisfied.
Dividends
declared in October, November or December to shareholders of record as of a date
in such month and paid during the following January are treated as if received
on December 31 of the calendar year when the dividends were
declared. Information on the federal income tax status of dividends
and distributions is provided annually.
By law,
the Fund must withhold a percentage of your distributions and redemption
proceeds (“backup withholding”) if you do not provide your correct social
security or taxpayer identification number or certify that you are not subject
to backup withholding, or if the Internal Revenue Service instructs the Fund to
do so. Backup withholding is not an additional tax. Any
amounts withheld may be credited against your federal income tax liability
provided the appropriate information is furnished to the Internal Revenue
Service.
If you
sell your Fund shares, it is considered a taxable event for
you. Depending on the purchase price and the selling price of the
shares you sell, you may have a gain or a loss on the
transaction. The gain or loss will generally be treated as a
long-term capital gain or loss if you held your shares for more than one
year. If you held your shares for one year or less, the gain or loss
will generally be treated as a short-term capital gain or
loss. Short-term capital gain is taxable at ordinary federal income
tax rates. Shareholders may be limited in their ability to utilize
capital losses. You are responsible for any tax liabilities generated
by your transaction.
Investment
income received from sources within foreign countries may be subject to foreign
income taxes, which generally will reduce the Fund’s
distributions. However, the United States has entered into tax
treaties with several foreign countries that entitle certain investors to a
lower taxation or to certain tax exemptions. Accordingly, the Fund
will attempt to operate in such a way as to qualify for such reduced tax rates
or tax exemptions whenever practicable.
Prospective
shareholders of the Fund should consult their own tax advisors concerning the
effect of owning shares of the Fund in light of their particular tax
situation.
You can
find more information about the Fund in the following documents:
Statement
of Additional Information (SAI)
The SAI
provides additional details about the investments and techniques of the Fund and
certain other additional information. A current SAI is on file with
the SEC and is incorporated into this Prospectus by reference. This
means that the SAI is legally considered a part of this Prospectus even though
it is not physically within this Prospectus.
Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the Fund’s annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during its most recent fiscal
year.
The SAI
is available free of charge on the Fund’s website at
______________. You can obtain a free copy of the Fund’s SAI, request
other information, or inquire about the Fund by contacting a broker that sells
the Fund or by calling the Fund (toll-free) at 1-xxx-xxx-xxxx or by writing
to:
You may
review and copy information including the shareholder reports and SAI at the
Public Reference Room of the SEC in Washington, DC. You can obtain
information on the operation of the Public Reference Room by calling
(202) 551-8090. Reports and other information about the Fund are
also available:
·
Free
of charge from the SEC’s EDGAR database on the SEC’s Internet website at
http://www.sec.gov;
·
For
a fee, by writing to the Public Reference Section of the SEC, Washington,
DC 20549-1520; or
·
For
a fee, by electronic request at the following e-mail address:
publicinfo@sec.gov.
(The
Trust’s SEC Investment Company Act file number is 811- 21719)
19
The information in this
Statement of Additional Information is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This Statement of Additional Information is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
Statement
of Additional Information
________,
2010
Jubak
Global Equity Fund (NASDAQ Symbol)
A
series of the Investment Managers Series Trust
This
Statement of Additional Information (“SAI”) is not a prospectus, and it should
be read in conjunction with the Prospectus for the Jubak Global Equity
Fund (the “Fund”) dated ______, 2010, as may be amended or supplemented
from time to time. The Fund is a
series of the Investment Managers Series Trust (the “Trust”). Jubak Asset Management,
LLC (“Jubak” or the “Advisor”) is the investment advisor to the
Fund. A copy of the Fund’s Prospectus may be obtained by contacting
the Fund at the address or the telephone number below:
The Trust
(formerly called Claymore Trust) is an open-end management investment company
organized as a Delaware statutory trust under the laws of the State of Delaware
on February 15, 2005. The Trust changed its name to Investment
Managers Series Trust on December 3, 2007. The Trust currently
consists of several other series of shares of beneficial interest, par value
$0.01 per share. This SAI relates only to the Fund and not to the
other series of the Trust. The Fund is a non-diversified mutual fund,
which means that it is permitted to invest its assets in a more limited number
of issuers than diversified funds.
The Trust
is registered with the U.S. Securities and Exchange Commission (“SEC”) as an
open-end management investment company. Such a registration does not
involve supervision of the management or policies of the Fund. The
Prospectus of the Fund and this SAI omit certain of the information contained in
the Registration Statement filed with the SEC. Copies of such
information may be obtained from the SEC upon payment of the prescribed
fee.
INVESTMENT
STRATEGIES AND POLICIES
Descriptions
in this SAI of a particular investment practice or technique in which the Fund
may engage is meant to describe the spectrum of investments that the Advisor in
its discretion might, but is not required to, use in managing the Fund’s
portfolio assets. The Advisor may in its discretion at any time employ such
practice, technique or instrument for the Fund. Furthermore, it is
possible that certain types of financial instruments or investment techniques
described herein may not be available, permissible, economically feasible or
effective for their intended purposes in all markets. Certain practices,
techniques or instruments may not be principal activities of the Fund, but to
the extent employed, could from time to time have a material impact on the
Fund’s performance.
The
equity and debt capital markets in the United States and internationally have
experienced unprecedented volatility. This financial crisis has
caused a significant decline in the value and liquidity of many
securities. These market conditions may continue or get
worse. Because the situation is unprecedented and widespread, it may
be unusually difficult to identify both risks and opportunities using past
models of the interplay of market forces, or to predict the duration of these
events.
Additional Information
Regarding the Fund’s Investments
Common
Stock. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other class of securities, including the
company's debt securities, preferred stock and other senior equity
securities. Common stock of an issuer in the Fund’s portfolio may
decline in price if the issuer fails to make anticipated dividend payments
because, among other reasons, the issuer of the security experiences a decline
in its financial condition. While broad market measures of common stocks have
historically generated higher average returns than fixed income securities,
common stocks have also experienced significantly more volatility in those
returns.
2
The Fund
may invest in common stock of companies with market capitalizations that are
small compared to other publicly traded companies. Investments in larger
companies present certain advantages in that such companies generally have
greater financial resources, more extensive research and development,
manufacturing, marketing and service capabilities, and more stability and
greater depth of management and personnel. Investments in smaller, less seasoned
companies may present greater opportunities for growth but also may involve
greater risks than customarily are associated with more established companies.
The securities of smaller companies may be subject to more abrupt or erratic
market movements than larger, more established companies. These companies may
have limited product lines, markets or financial resources, or they may be
dependent upon a limited management group. Their securities may be traded in the
over-the-counter market or on a regional exchange, or may otherwise have limited
liquidity. As a result of owning large positions in this type of security, the
Fund is subject to the additional risk of possibly having to sell portfolio
securities at disadvantageous times and prices if redemptions require the Fund
to liquidate its securities positions. In addition, it may be prudent for the
Fund, as its asset size grows, to limit the number of relatively small positions
it holds in securities having limited liquidity in order to minimize its
exposure to such risks, to minimize transaction costs, and to maximize the
benefits of research. As a consequence, as the Fund’s asset size increases, the
Fund may reduce its exposure to illiquid small capitalization securities, which
could adversely affect performance.
The Fund
may also invest in stocks of companies with medium market capitalizations (i.e.,
mid cap companies). Such investments share some of the risk characteristics of
investments in stocks of companies with small market capitalizations described
above, although mid cap companies tend to have longer operating histories,
broader product lines and greater financial resources and their stocks tend to
be more liquid and less volatile than those of smaller capitalization
issuers.
Warrants
and Rights. The Fund may invest in warrants or rights (including those
acquired in units or attached to other securities) that entitle the holder to
buy equity securities at specific prices for specific periods of time but will
do so only if such equity securities are deemed appropriate by the Advisor for
inclusion in the Fund’s portfolio.
Investing
in warrants is purely speculative in that they have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. They do not represent ownership of the securities but only the
right to buy them. Warrants are issued by the issuer of the security, which may
be purchased on their exercise. The prices of warrants do not necessarily
parallel the prices of the underlying securities.
Preferred
Stocks. Preferred stock has a preference over common stock in liquidation
(and generally as to dividends as well), but is subordinated to the liabilities
of the issuer in all respects. Preferred stock may offer the opportunity for
capital appreciation as well as periodic income.
There are
special risks associated with investing in preferred stock,
including:
Deferral. Preferred stocks may include
provisions that permit the issuer, at its discretion, to defer distributions for
a stated period without any adverse consequences to the issuer. If the Fund owns
a preferred stock that is deferring its distributions, the Fund in certain
circumstances may be required to report income for federal income tax purposes
prior to the actual receipt of such income.
3
Non-Cumulative
Dividends. Some preferred stocks are non-cumulative, meaning that the
dividends do not accumulate and need not ever be paid. A portion of the
portfolio may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any arrearages to its
shareholders. Should an issuer of a non-cumulative preferred stock held by the
Fund determine not to pay dividends on such stock, the amount of dividends the
Fund pays may be adversely affected. There is no assurance that dividends or
distributions on non-cumulative preferred stocks in which the Fund invests will
be declared or otherwise made payable.
Subordination.
Preferred stocks are subordinated to bonds and other debt instruments in a
company's capital structure in terms of priority to corporate income and
liquidation payments, and therefore will be subject to greater credit risk than
more senior debt instruments.
Liquidity.
Preferred stocks may be substantially less liquid than many other securities,
such as common stocks or U.S. government securities.
Limited Voting
Rights. Generally, preferred stock holders (such as the Fund) have no
voting rights with respect to the issuing company unless preferred dividends
have been in arrears for a specified number of periods, at which time the
preferred security holders may have the right to elect a number of directors to
the issuer's board. Generally, once all the arrearages have been paid, the
preferred security holders no longer have voting rights.
Special
Redemption Rights. In certain varying circumstances, an issuer of
preferred stock may redeem the securities prior to a specified date. For
instance, for certain types of preferred stocks, a redemption may be triggered
by a change in federal income tax or securities laws. As with call provisions, a
redemption by the issuer may negatively impact the return of the security held
by the Fund.
Convertible
Securities. A convertible security is a preferred stock, warrant or other
security that may be converted into or exchanged for a prescribed amount of
common stock or other security of the same or a different issuer or into cash
within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive the dividend paid
on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities generally have
characteristics similar to both fixed income and equity securities.
Foreign
Investments. Investments
in the securities of foreign issuers may involve risks in addition to those
normally associated with investments in the securities of U.S.
issuers. All foreign investments are subject to risks of foreign
political and economic instability, adverse movements in foreign exchange rates,
and the imposition or tightening of exchange controls and limitations on the
repatriation of foreign capital. Other risks stem from potential
changes in governmental attitude or policy toward private investment, which in
turn raises the risk of nationalization, increased taxation or confiscation of
foreign investors’ assets.
Additional
non-U.S. taxes and expenses may also adversely affect the Fund’s performance,
including foreign withholding taxes on foreign securities’ dividends, and
generally higher commission rates payable on foreign
transactions. Foreign companies may be subject to different
accounting, auditing and financial reporting standards and accordingly, less
information may be available about foreign companies than is generally available
on issuers of comparable securities in the United States. Foreign
securities may also trade less frequently and with lower volume and may exhibit
greater price volatility than U.S. securities.
4
Changes
in foreign exchange rates will affect the value in U.S. dollars of all foreign
currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income
from foreign securities will be received and realized in foreign currencies, and
the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign
currency against the U.S. dollar occurring after the Fund’s income has been
earned and computed in U.S. dollars may require the Fund to liquidate portfolio
securities to acquire sufficient U.S. dollars to make a
distribution. Similarly, if the exchange rate declines between the
time the Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the Fund may be required to liquidate additional foreign securities to
purchase the U.S. dollars required to meet such expenses.
Emerging
Market Securities. The Fund may
invest in emerging market countries or developing countries as defined by the
World Bank, International Financial Corporation or the Morgan Stanley Capital
International (MSCI) emerging market indices or other comparable
indices. Developing countries may impose restrictions on the
Fund’s ability to repatriate investment income or capital. Even where
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the Fund.
Some of
the currencies in emerging markets have experienced devaluations relative to the
U.S. dollar, and major adjustments have been made periodically in certain of
such currencies. Certain developing countries face serious exchange
constraints.
Governments
of some developing countries exercise substantial influence over many aspects of
the private sector. In some countries, the government owns or
controls many companies. Therefore, government actions in the future
could have a significant effect on economic conditions in developing countries,
which could affect the private sector companies in which the Fund
invests.
Foreign
Currency Transactions.
The Fund
may conduct foreign currency exchange transactions either on a spot,
i.e., cash, basis at the prevailing rate in the foreign exchange market or by
entering into a forward foreign currency contract. A forward foreign
currency contract (“forward contract”) involves an obligation to purchase or
sell a specific amount of a specific currency at a future date, which may be any
fixed number of days (usually less than one year) from the date of the contract
agreed upon by the parties, at a price set at the time of the
contract. Forward contracts are considered to be
derivatives. The Fund enters into forward contracts in order to “lock
in” the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. In addition, the Fund
may enter into forward contracts to hedge against risks arising from securities
the Fund
owns or anticipates purchasing or the U.S. dollar value of interest and
dividends paid on those securities. The Fund will not have more than
10% of its total assets committed to forward contracts, or maintain a net
exposure to forward contracts that would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund’s investment securities
or other assets denominated in that currency.
If the
Fund delivers the foreign currency at or before the settlement of a forward
contract, it may be required to obtain the currency by selling some of the
Fund’s assets that are denominated in that specific currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract, in which case it will realize a gain
or a loss.
5
Foreign
currency transactions involve certain costs and risks. The Fund
incurs foreign exchange expenses in converting assets from one currency to
another. Forward contracts involve a risk of loss if the Advisor is inaccurate
in predicting currency movements. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. The precise
matching of forward contract amounts and the value of the securities involved is
generally not possible. Accordingly, it may be necessary for the Fund
to purchase additional foreign currency if the market value of the security is
less than the amount of the foreign currency the Fund is obligated to deliver
under the forward contract and the decision is made to sell the security and
deliver the foreign currency. The use of forward contracts as a
hedging technique does not eliminate the fluctuation in the prices of the
underlying securities the Fund owns or intends to acquire, but it fixes a rate
of exchange in advance. Although forward contracts can reduce the
risk of loss if the values of the hedged currencies decline, these instruments
also limit the potential gain that might result from an increase in the value of
the hedged currencies.
There is
no systematic reporting of last sale information for foreign currencies, and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a
global around-the-clock market. Since foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
Depository
Receipts. Global depository receipts ("GDRs") are negotiable
certificates held in the bank of one country representing a specific number of
shares of a stock traded on an exchange of another country. American
Depository Receipts ("ADRs") are negotiable receipts issued by a U.S. bank or
trust company that evidence ownership of securities in a foreign company which
have been deposited with such bank or trust company's office or agent in a
foreign country. Canadian depository receipts (“CDRs”) are negotiable receipts
issued by a Canadian bank or trust company that evidence ownership of securities
in a foreign company which have been deposited with such bank or trust company's
office or agent in a foreign country. European depository receipts (“EDRs”) are
negotiable certificates held in the bank of one country representing a specific
number of shares of a stock traded on an exchange of another
country. Investing in GDRs, CDRs, EDRs and ADRs presents risks that
may not be equal to the risk inherent in holding the equivalent shares of the
same companies that are traded in the local markets even though the Fund will
purchase, sell and be paid dividends on GDRs, CDRs, EDRs and ADRs in U.S.
dollars. These risks include fluctuations in currency exchange rates,
which are affected by international balances of payments and other economic and
financial conditions; government intervention; speculation; and other
factors. With respect to certain foreign countries, there is the
possibility of expropriation or nationalization of assets, confiscatory
taxation, political and social upheaval, and economic
instability. The Fund may be required to pay foreign withholding or
other taxes on certain GDRs, CDRs, EDRs or ADRs that it owns, but investors may
or may not be able to deduct their prorata shares of such taxes in computing
their taxable income, or take such shares as a credit against their U.S. federal
income taxes. See "Federal Income Tax Matters." GDRs,
CDRs, EDRs and ADRs may be sponsored by the foreign issuer or may be
unsponsored. Unsponsored GDRs, CDRs, EDRs and ADRs are organized
independently and without the cooperation of the foreign issuer of the
underlying securities. Unsponsored GDRs, CDRs, EDRs and ADRs are
offered by companies which are not prepared to meet either the reporting or
accounting standards of the United States. While readily exchangeable
with stock in local markets, unsponsored GDRs, CDRs, EDRs and ADRs may be less
liquid than sponsored GDRs, CDRs, EDRs and ADRs. Additionally, there
generally is less publicly available information with respect to unsponsored
GDRs, CDRs, EDRs and ADRs.
6
Strategic
Transactions
The Fund
may, but is not required to, use various investment strategies as described
below ("Strategic Transactions") to earn income, to facilitate portfolio
management and to mitigate risks. Techniques and instruments may change over
time as new instruments and strategies are developed or as regulatory changes
occur. Although the Advisor, as applicable, seeks to use such transactions to
further the Fund’s investment objective, no assurance can be given that the use
of these transactions will achieve this result. The Fund’s activities involving
Strategic Transactions may be limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code" or "Code"), for
qualification as a regulated investment company.
Short
Sales. A short sale is
a transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. Any
gain will be decreased, and any loss will be increased, by the transaction costs
incurred by the Fund, including the costs associated with providing collateral
to the broker-dealer (usually cash and liquid securities) and the maintenance of
collateral with its custodian. Although the Fund’s gain is limited to the price
at which it sold the security short, its potential loss is theoretically
unlimited.
When the
Advisor believes that the price of a particular security held by the Fund may
decline, it may make short sales “against the box" to hedge the unrealized gain
on such security. Selling short against the box involves selling a
security which the Fund owns for delivery at a specified date in the
future.
To the
extent the Fund sells securities short, it will provide collateral to the
broker-dealer and (except in the case of short sales “against the box”) will
maintain additional asset coverage in the form of liquid assets with its
custodian in a segregated account in an amount at least equal to the difference
between the current market value of the securities sold short and any amounts
required to be deposited as collateral with the selling broker (not including
the proceeds of the short sale).
Selling Call and
Put Options. The principal reason for selling options is to obtain,
through receipt of premiums, a greater current return than would be realized on
the underlying securities alone. Such current return could be expected to
fluctuate because premiums earned from an option selling program and dividend or
interest income yields on portfolio securities vary as economic and market
conditions change. Selling options on portfolio securities is likely to result
in a higher portfolio turnover rate.
7
The
purchaser of a call option pays a premium to the seller (i.e., the writer) for
the right to buy the underlying security from the seller at a specified price
during a certain period. The Fund would write call options only on a covered
basis or for cross-hedging purposes. A call option is covered if, at all times
during the option period, the Fund owns or has the right to acquire the
securities of the type that it would be obligated to deliver if any outstanding
option were exercised. An option is used for cross-hedging purposes if it is not
covered by the security subject to the option, but is designed to provide a
hedge against another security which the Fund owns or has the right to acquire.
In such circumstances, the Fund collateralizes the option by segregating cash
and/or liquid securities in an amount at least equal to the market value of the
underlying security, marked to market daily, while the option is
outstanding.
The
purchaser of a put option pays a premium to the seller (i.e., the writer) for
the right to sell the underlying security to the writer at a specified price
during a certain period. The Fund would sell put options only on a secured
basis, which means that, at all times during the option period, the Fund would
segregate cash and/or liquid securities in an amount at least equal to the
exercise price of the option, or would hold a put on the same underlying
security at an equal or greater exercise price.
To
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund
could sell options that are listed on an exchange as well as options which are
privately negotiated in over-the-counter transactions. The Fund could close out
its position as a seller of an option only if a liquid secondary market exists
for options of that series, but there is no assurance that such a market will
exist, particularly in the case of over-the-counter options, since they can be
closed out only with the other party to the transaction. Alternatively, the Fund
could purchase an offsetting option, which would not close out its position as a
seller, but would provide an asset of equal value to its obligation under the
option sold. If the Fund is not able to enter into a closing purchase
transaction or to purchase an offsetting option with respect to an option it has
sold, it will be required to maintain the securities subject to the call or the
collateral securing the option until a closing purchase transaction can be
entered into (or the option is exercised or expires) even though it might not be
advantageous to do so. The staff of the SEC currently takes the position that,
in general, over-the-counter options on securities other than U.S. government
securities purchased by a fund, and portfolio securities "covering" the amount
of such fund’s obligation pursuant to an over-the-counter option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are
illiquid. Therefore any such options in which the Fund invests are
subject to the Fund’s limitation on illiquid securities described
herein.
Risks of Writing
Options. By selling a call option, the Fund loses the potential for gain
on the underlying security above the exercise price while the option is
outstanding; by selling a put option the Fund might become obligated to purchase
the underlying security at an exercise price that exceeds the then current
market price.
8
Purchasing Call
or Put Options. The Fund could purchase call options to protect against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, the Fund could purchase call options for capital appreciation.
Since the premium paid for a call option is typically a small fraction of the
price of the underlying security, a given amount of cash will purchase call
options covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security directly. However, because
of the very high volatility of option premiums, the Fund would bear a
significant risk of losing the entire premium if the price of the underlying
security did not rise sufficiently, or if it did not do so before the option
expired.
Put
options may be purchased to protect against anticipated declines in the market
value of either specific portfolio securities or of the Fund’s assets generally.
Alternatively, put options may be purchased for capital appreciation in
anticipation of a price decline in the underlying security and a corresponding
increase in the value of the put option. The purchase of put options for capital
appreciation involves the same significant risk of loss as described above for
call options.
In any
case, the purchase of options for capital appreciation would increase the Fund’s
volatility by increasing the impact of changes in the market price of the
underlying securities on the Fund's net asset value per share
(“NAV”).
Options on Stock
Indices. Options on stock indices are similar to options on stock, but
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive an amount of cash which amount will depend upon
the closing level of the stock index upon which the option is based being
greater than (in the case of a call) or less than (in the case of a put) the
exercise price of the option. The amount of cash received will be the difference
between the closing price of the index and the exercise price of the option,
multiplied by a specified dollar multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount.
Some
stock index options are based on a broad market index such as the Standard &
Poor's 500 or the New York Stock Exchange Composite Index, or a narrower index
such as the Standard & Poor's 100. Indices are also based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. A stock index fluctuates with changes in the market values of
the stocks included in the index. Options are currently traded on several
exchanges.
Gain or
loss to the Fund on transactions in stock index options will depend on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements of individual securities. As with
stock options, the Fund may offset its position in stock index options prior to
expiration by entering into a closing transaction, or it may let the option
expire unexercised.
Futures
Contracts. The Fund may engage in transactions involving futures
contracts and options on futures contracts in accordance with the rules and
interpretations of the Commodity Futures Trading Commission ("CFTC") under which
the Fund would be exempt from registration as a "commodity pool."
An index
futures contract is an agreement pursuant to which a party agrees to take or
make delivery of an amount of cash equal to a specified dollar amount multiplied
by the difference between the index value at a specified time and the price at
which the futures contract originally was struck. No physical delivery of the
underlying securities in the index is made.
9
Currently,
securities index futures contracts can be purchased with respect to several
indices on various exchanges. Differences in the securities included in the
indices may result in differences in correlation of the futures contracts with
movements in the value of the securities being hedged.
In
contrast to the purchase or sale of a security, no price is paid or received
upon the purchase or sale of a futures contract. Initially, the Fund is required
to deposit an amount of cash and/or liquid securities equal to a percentage
(which will normally range between 1% and 10%) of the contract amount with
either a futures commission merchant pursuant to rules and regulations
promulgated under the Investment Company Act of 1940, as amended (the “1940
Act”) or with its custodian in an account in the broker's name. This amount is
known as initial margin. The nature of initial margin in futures contract
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transaction. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract, which is returned to the
Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the initial margin
account, called variation margin, are made on a daily basis as the price of the
underlying securities or index fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as marking to
market.
For
example, when the Fund purchases a futures contract and the price of the
underlying security or index rises, that position increases in value, and the
Fund receives a variation margin payment equal to that increase in value.
Conversely, where the Fund purchases a futures contract and the value of the
underlying security or index declines, the position is less valuable, and the
Fund is required to make a variation margin payment.
At any
time prior to expiration of the futures contract, the Fund may elect to
terminate the position by taking an opposite position. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
When the
Fund anticipates a significant market or market sector advance, the purchase of
a futures contract affords a hedge against not participating in the advance at a
time when the Fund is otherwise fully invested ("anticipatory hedge"). Such
purchase of a futures contract would serve as a temporary substitute for the
purchase of individual securities, which may be purchased in an orderly fashion
once the market has stabilized. As individual securities are purchased, an
equivalent amount of futures contracts could be terminated by offsetting sales.
The Fund may sell futures contracts in anticipation of or in a general market or
market sector decline that may adversely affect the market value of the Fund's
securities ("defensive hedge"). To the extent that the Fund’s portfolio of
securities changes in value in correlation with the underlying security or
index, the sale of futures contracts would substantially reduce the risk to the
Fund of a market decline and, by so doing, provides an alternative to the
liquidation of securities positions in the Fund. Ordinarily, transaction costs
associated with futures contract transactions are lower than transaction costs
that would be incurred in the purchase and sale of the underlying
securities.
10
Special Risks
Associated with Futures Contract Transactions. There are several risks
connected with the use of futures contracts. These include the risk of imperfect
correlation between movements in the price of the futures contracts and of the
underlying securities or index; the risk of market distortion; the risk of
illiquidity; and the risk of error in anticipating price movement.
There may
be an imperfect correlation (or no correlation) between movements in the price
of the futures contracts and of the securities being hedged. The risk of
imperfect correlation increases as the composition of the securities being
hedged diverges from the securities upon which the futures contract is based. If
the price of the futures contract moves less than the price of the securities
being hedged, the hedge will not be fully effective. To compensate for the
imperfect correlation, the Fund could buy or sell futures contracts in a greater
dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is
also the risk that the price of futures contracts may not correlate perfectly
with movements in the securities or index underlying the futures contract due to
certain market distortions. First, all participants in the futures contract
market are subject to margin depository and maintenance requirements. Rather
than meet additional margin depository requirements, investors may close futures
contracts through offsetting transactions, which could distort the normal
relationship between the futures contract market and the securities or index
underlying the futures contract. Second, from the point of view of speculators,
the deposit requirements in the futures contract market are less onerous than
margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures contract markets may cause temporary
price distortions. Due to the possibility of price distortion in the futures
contract markets and because of the imperfect correlation between movements in
futures contracts and movements in the securities underlying them, a correct
forecast of general market trends by the Advisor may still not result in a
successful hedging transaction.
There is
also the risk that futures contract markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures contracts only on exchanges and boards of trade where
there appears to be an active secondary market, there can be no assurance that
an active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures contract position and, in the event of adverse price movement,
the Fund would continue to be required to make daily payments of variation
margin. Since the securities being hedged would not be sold until the related
futures contract is sold, an increase, if any, in the price of the securities
may to some extent offset losses on the related futures contract. In such event,
the Fund would lose the benefit of the appreciation in value of the
securities.
Successful
use of futures contracts is also subject to the Advisor's ability to correctly
predict the direction of movements in the market. For example, if the Fund
hedges against a decline in the market, and market prices instead advance, the
Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so to meet the daily
variation margin.
11
Although
the Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist for the contracts at any particular time. Most U.S. futures contract
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures contract positions and
subjecting some futures contract traders to substantial losses. In such event,
and in the event of adverse price movements, the Fund would be required to make
daily cash payments of variation margin. In such circumstances, an increase in
the value of the portion of the portfolio being hedged, if any, may partially or
completely offset losses on the futures contract. However, there is no guarantee
that the price of the securities being hedged will, in fact, correlate with the
price movements in a futures contract and thus provide an offset to losses on
the futures contract.
Options on
Futures Contracts. The Fund may also purchase and write options on
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the option
period. As a writer of an option on a futures contract, the Fund would be
subject to initial margin and maintenance requirements similar to those
applicable to futures contracts. In addition, net option premiums received by
the Fund are required to be included as initial margin deposits. When an option
on a futures contract is exercised, delivery of the futures contract position is
accompanied by cash representing the difference between the current market price
of the futures contract and the exercise price of the option. The Fund could
purchase put options on futures contracts in lieu of, and for the same purposes
as, the sale of a futures contract; at the same time, it could write put options
at a lower strike price (a "put bear spread") to offset part of the cost of the
strategy to the Fund. The purchase of call options on futures contracts is
intended to serve the same purpose as the actual purchase of the futures
contracts.
Risks of
Transactions in Options on Futures Contracts. In addition to the risks
described above which apply to all options transactions, there are several
special risks relating to options on futures contracts. The Advisor will not
purchase options on futures contracts on any exchange unless in the Advisor's
opinion a liquid secondary exchange market for such options exists. Compared to
the use of futures contracts, the purchase of options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). However,
there may be circumstances, such as when there is no movement in the price of
the underlying security or index, when the use of an option on a future contract
would result in a loss to the Fund when the use of a future contract would
not.
Additional Risks
of Options, Futures Contracts and Options on Futures Contracts. Each of
the exchanges has established limitations governing the maximum number of call
or put options on the same underlying security or futures contract (whether or
not covered) which may be written by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed
options which the Fund may write.
12
In the
event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures contracts or options on futures contracts, the
Fund could experience delays or losses in liquidating open positions purchased
or incur a loss of all or part of its margin deposits. Transactions
are entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Advisor.
Swap
Agreements. A swap is a derivative financial instrument that typically
involves the exchange of cash flows between two parties on specified dates
(settlement dates), where the cash flows are based on agreed-upon prices, rates,
indices, etc. Swaps are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors. The
Fund may enter into swap agreements with respect to individual securities,
indices of securities, interest rates, currencies and other assets or measures
of risk or return. The Fund may also enter into options on swap agreements
("swaptions"). These transactions are entered into in an attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost to the Fund than if the Fund had invested directly in an instrument that
yielded that desired return.
Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate or
in a "basket" of securities representing a particular index. Forms of swap
agreements include caps, under which, in return for a premium, one party agrees
to make payments to the other to the extent that, for example, the return on a
given equity index exceeds a specified rate, or "cap"; floors, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that, for example, the return on a given equity index falls below a
specified rate, or "floor"; and collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against
movements exceeding given minimum or maximum levels. A swaption is a contract
that gives a counterparty the right (but not the obligation) to enter into a new
swap agreement or to shorten, extend, cancel or otherwise modify an existing
swap agreement, at some designated future time on specified terms. The Fund may
write (sell) and purchase put and call swaptions.
Many swap
agreements entered into by the Fund would calculate the obligations of the
parties to the agreement on a "net basis." Consequently, the Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owed to the Fund). Although it has no current
intention to do so, the Fund may use swap agreements to add leverage to the
portfolio. The Fund may (but is not required to) cover any accrued but unpaid
net amounts owed to a swap counterparty through the segregation of assets
determined to be liquid by the Fund in accordance with procedures established by
the Trust’s Board of Trustees (the “Board”). Obligations under swap agreements
so covered will not be construed to be "senior securities" for purposes of the
Fund’s investment restriction concerning senior securities and
borrowings.
13
Whether
the Fund’s use of swap agreements or swaptions will be successful in furthering
its investment objectives will depend to a large extent on the Advisor’s ability
to predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, the Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. If a counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses. The performance of swap agreements may
be affected by a change in the specific currency, or by other factors that
determine the amount of payments due. If a swap agreement calls for a payment by
the Fund, the Fund must be prepared to make such payments when due.
The swaps
market is largely unregulated. The Fund’s ability to terminate or transfer a
swap agreement is generally very limited. Swap agreements may increase the
overall volatility of the investments of the Fund. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund’s ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
Use of Segregated
and other Special Accounts. Many Strategic Transactions, in addition to
other requirements, require that the Fund segregate cash and/or liquid
securities to the extent Fund obligations are not otherwise "covered" as
described above. In general, either the full amount of any obligation by the
Fund to pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered (or securities
convertible into the needed securities without additional consideration), or,
subject to any regulatory restrictions, the Fund must segregate cash and/or
liquid securities in an amount at least equal to the current amount of the
obligation. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. In the case of a futures contract or an option on a futures
contract, the Fund must deposit initial margin and possible daily variation
margin in addition to segregating cash and/or liquid securities sufficient to
meet its obligation to purchase or provide securities or currencies, or to pay
the amount owed at the expiration of an index-based futures contract. Strategic
Transactions may be covered by other means when consistent with applicable
regulatory policies.
Certain Other Investment
Practices
When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may
enter into forward commitments for the purchase or sale of securities, including
on a "when issued" or "delayed delivery" basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization or debt
restructuring, (i.e., a when, as and if issued security). When such transactions
are negotiated, the price is fixed at the time of the commitment, with payment
and delivery taking place in the future, generally a month or more after the
date of the commitment. At the time the Fund makes the commitment to purchase a
security in a delayed-delivery transaction, it will record the transaction and
reflect the value of the security in determining its NAV. While it will only
enter into a forward commitment with the intention of actually acquiring the
security, the Fund may sell the security before the settlement date if it is
deemed advisable.
14
Securities
purchased under a forward commitment are subject to market fluctuation, and no
interest (or dividends) accrues to the Fund prior to the settlement date. The
Fund will segregate with its custodian cash or liquid securities in an aggregate
amount at least equal to the amount of its outstanding forward
commitments.
Repurchase
Agreements. Repurchase agreements may be seen as loans by the Fund
collateralized by underlying debt securities. Under the terms of a typical
repurchase agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed price and time. This arrangement results in a fixed rate of return
to the Fund that is not subject to market fluctuations during the holding
period. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed in or
prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which it seeks to assert these rights. The
Advisor, acting under the supervision of the Board, reviews the creditworthiness
of those banks and dealers with which the Fund enters into repurchase agreements
to evaluate these risks and monitors on an ongoing basis the value of the
securities subject to repurchase agreements to ensure that the value is
maintained at the required level.
Investment
Company Securities. The Fund may invest in
shares of other open-end and closed-end investment companies (each, an
“Underlying Fund”), including affiliated funds and exchange-traded funds
("ETFs"), to the extent permitted by applicable law and subject to
certain restrictions set forth in this SAI. Generally, under the 1940
Act, and SEC rules adopted pursuant to the 1940 Act, the Fund’s acquisition of
the securities of affiliated and unaffiliated funds is subject to the following
guidelines and restrictions:
·
The
Fund may own an unlimited amount of any affiliated fund’s voting
securities.
·
The
Fund and its “affiliated persons” may own no more than 3% of an
unaffiliated fund’s voting securities, subject to the following
restrictions:
•
the
Fund and the Underlying Fund, in the aggregate, may not charge a sales
load greater than the limits set forth in Rule 2830(d)(3) of the Conduct
Rules of the Financial Industry Regulatory Authority (“FINRA”) applicable
to funds of funds;
•
the
Underlying Fund is not obligated to redeem more than 1% of its total
outstanding securities during any period less than 30 days;
and
•
the
purchase or acquisition of the Underlying Fund is made pursuant to an
arrangement with the Underlying Fund or its principal underwriter whereby
the Fund is obligated either to (i) seek instructions from its
shareholders with regard to the voting of all proxies with respect to the
Underlying Fund and to vote in accordance with such instructions, or (ii)
to vote the shares of the Underlying Fund held by the Fund in the same
proportion as the vote of all other shareholders of the Underlying
Fund.
15
·
Any
Underlying Fund must have a policy that prohibits it from acquiring any
securities of registered open-end funds or registered unit investment
trusts in reliance on certain sections of the 1940
Act.
Acquired
funds typically incur fees that are separate from those fees incurred directly
by the Fund. The Fund’s purchase of such investment company
securities results in the layering of expenses as Fund shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses.
Under
certain circumstances an open-end investment company in which the Fund invests
may determine to make payment of a redemption by the Fund wholly or in part by a
distribution in kind of securities from its portfolio, instead of in
cash. As a result, the Fund may hold such securities until the
Advisor determines it is appropriate to dispose of them. Such
disposition will impose additional costs on the Fund.
The Fund
expects that its investments in underlying funds will primarily be in
ETFs. Investment decisions by the investment advisors to the
registered investment companies in which the Fund invests are made independently
of the Fund. At any particular time, one Underlying Fund may be
purchasing shares of an issuer whose shares are being sold by another Underlying
Fund. As a result, under these circumstances the Fund indirectly
would incur certain transactional costs without accomplishing any investment
purpose.
Illiquid
and Restricted Securities. The Fund may invest in illiquid securities
(i.e., securities that are not readily marketable). For purposes of this
restriction, illiquid securities include, but are not limited to, restricted
securities (securities the disposition of which is restricted under the federal
securities laws), securities that may only be resold pursuant to Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), but that are
deemed to be illiquid; and repurchase agreements with maturities in excess of
seven days. However, the Fund will not acquire illiquid securities if, as a
result, such securities would comprise more than 15% of the value of the Fund's
net assets. The Board or its delegate has the ultimate authority to determine,
to the extent permissible under the federal securities laws, which securities
are liquid or illiquid for purposes of this 15% limitation. The Board has
delegated to the Advisor the day-to-day determination of the illiquidity of any
security held by the Fund, although the Board has retained oversight and
ultimate responsibility for such determinations. Although no definitive
liquidity criteria are used, the Board has directed the Advisor to look to such
factors as (a) frequency of trading and availability of quotations; (b) the
number of dealers willing to purchase or sell the security and the availability
of buyers; (c) the willingness of dealers to be market makers in the security;
and (d) the nature of trading activity including (i) the time needed to dispose
of a position or part of a position and (ii) offer and solicitation
methods.
Restricted
securities may be sold only in privately negotiated transactions or in a public
offering with respect to which a registration statement is in effect under the
Securities Act. Where registration is required, the Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than that which prevailed when it decided to
sell.
16
Illiquid
securities will usually be priced at fair value as determined in good faith by
the Board or its delegate. If, through the appreciation of illiquid securities
or the depreciation of liquid securities, the Fund should be in a position where
more than 15% of the value of its net assets is invested in illiquid securities,
including restricted securities which are not readily marketable, the Fund will
take such steps as is deemed advisable, if any, to protect
liquidity.
Loans of
Portfolio Securities. Consistent with applicable regulatory requirements
and the Fund’s investment restrictions, the Fund may lend portfolio securities
to securities broker-dealers or financial institutions, provided that such loans
are callable at any time by the Fund (subject to notice provisions described
below), and are at all times secured by cash or cash equivalents, which are
maintained in a segregated account pursuant to applicable regulations and that
are at least equal to the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Fund continues to receive
the income on the loaned securities while at the same time earns interest on the
cash amounts deposited as collateral, which will be invested in short-term
obligations. The Fund will not lend portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale. The Fund’s loans of portfolio securities will be
collateralized in accordance with applicable regulatory requirements and no loan
will cause the value of all loaned securities to exceed 33 1/3% of the value of
the Fund’s total assets.
A loan
may generally be terminated by the borrower on one business day’s notice, or by
the Fund on five business days’ notice. If the borrower fails to deliver the
loaned securities within five days after receipt of notice or fails to maintain
the requisite amount of collateral, the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over collateral. As with any extensions of credit, there are risks of delay
in recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund’s management to be
creditworthy and when the income that can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The risks associated with loans of
portfolio securities are substantially similar to those associated with
repurchase agreements. Thus, if the counterparty to the loan petitions for
bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme
circumstances, there may be a restriction on the Fund’s ability to sell the
collateral, and the Fund would suffer a loss. When voting or consent rights that
accompany loaned securities pass to the borrower, the Fund will follow the
policy of calling the loaned securities, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Fund’s investment in such loaned securities. The Fund
will pay reasonable finder's, administrative and custodial fees in connection
with a loan of its securities.
Temporary Defensive
Investments
When a
temporary defensive posture is believed by the Advisor to be warranted
("temporary defensive periods"), the Fund may, without limitation, hold up to
100% of its assets in cash or invest up to 100% of its assets in money market
instruments and repurchase agreements. The money market instruments in which the
Fund may invest are obligations of the U.S. government, its agencies or
instrumentalities; commercial paper rated A-1 or higher by S&P or Prime-1 by
Moody's; and certificates of deposit, bankers' acceptances and bank time
deposits issued by domestic branches of U.S. banks that are members of the
Federal Deposit Insurance Corporation. During temporary defensive periods, the
Fund also may invest in shares of money market mutual funds to the extent
permitted under applicable law. Money market mutual funds are investment
companies, and the investments in those companies by the Fund are in some cases
subject to certain fundamental investment restrictions. As a shareholder in a
mutual fund, the Fund will bear its ratable share of its expenses, including
management fees, and will remain subject to payment of the fees to the Advisor,
with respect to assets so invested. The Fund may not achieve its investment
objectives during temporary defensive periods.
17
Investment
Restrictions
The Fund
has adopted the following restrictions as fundamental policies, which may not be
changed without the favorable vote of the holders of a “majority,” as defined in
the 1940 Act, of the outstanding voting securities of the Fund. Under
the 1940 Act, the “vote of the holders of a majority of the outstanding voting
securities” means the vote of the holders of the lesser of (i) 67% of the
shares of the Fund represented at a meeting at which the holders of more than
50% of its outstanding shares are represented or (ii) more than 50% of the
outstanding shares of the Fund. The Fund’s investment objective is a
non-fundamental policy and may be changed without shareholder
approval.
The Fund
may not:
1.
Issue
senior securities, borrow money or pledge its assets, except that
(i) the Fund may borrow from banks in amounts not exceeding one-third
of its net assets (including the amount borrowed); and (ii) this
restriction shall not prohibit the Fund from engaging in options
transactions or short sales and in investing in financial futures and
reverse repurchase agreements.
2.
Act
as underwriter, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio;
3.
Invest
25% or more of its total assets, calculated at the time of purchase and
taken at market value, in any one industry (other than U.S. Government
securities);
4.
Purchase
or sell real estate or interests in real estate or real estate limited
partnerships (although the Fund may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in
real estate such as real estate investment trust
(“REITs”);
5.
Make
loans of money, except (a) for purchases of debt securities consistent
with the investment policies of the Fund, (b) by engaging in repurchase
agreements or, (c) through the loan of portfolio securities in an amount
up to 33 1/3% of the Fund’s net assets;
or
6.
Purchase
or sell commodities or commodity futures contracts (although the Fund may
invest in financial futures and in companies involved in the production,
extraction, or processing of agricultural, energy, base metals, precious
metals, and other commodity-related
products).
The Fund
observes the following restriction as a matter of operating but not fundamental
policy, pursuant to positions taken by federal regulatory
authorities:
18
The Fund
may not invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities that are not
readily marketable and repurchase agreements with more than seven days to
maturity.
Except
with respect to borrowing, if a percentage or rating restriction on investment
or use of assets set forth herein or in the Prospectus is adhered to at the time
a transaction is effected, later changes in percentage resulting from any cause
other than actions by the Fund will not be considered a violation.
MANAGEMENT
OF THE FUND
Trustees and
Officers
The
overall management of the business and affairs of the Trust is vested with its
Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, co-administrators, distributor, custodian and
transfer agent. The day-to-day operations of the Trust are delegated
to its officers, except that the Advisor is responsible for making day-to-day
investment decisions in accordance with the Fund’s investment objective,
strategies, and policies, all of which is subject to general supervision by the
Board.
The
Trustees and officers of the Trust, their years of birth and positions with the
Trust, term of office with the Trust and length of time served, their business
addresses and principal occupations during the past five years and other
directorships held are listed in the table below. Unless noted
otherwise, each person has held the position listed for a minimum of five years.
Charles H. Miller, Ashley Toomey Rabun and William H. Young are all of the
Trustees who are not “interested persons” of the Trust, as that term is defined
in the 1940 Act (collectively, the “Independent Trustees”).
Name, Address, Year
of Birth and
Position(s) held with
Trust
Term of
Officec and
Length of
Time
Served
Principal Occupation During the Past
Five Years and Other Affiliations
Number of
Portfolios in
the Fund
Complex
Overseen by
Trustee
Other
Directorships
Held by
Trustee
“Independent”
Trustees:
Charles
H. Millera
(Born
1947)
Trustee
Since
November 2007
Executive
Vice President, Client Management and Development, Access Data
Corporation, a Broadridge company, a provider of technology and services
to asset management firms (1997-present).
20
None
Ashley
Toomey Rabun
a (born 1952)
Trustee
and Chairperson of the Board
Since
November 2007
President
and Founder, InvestorReach, Inc. a financial services consulting firm
(1996-present).
20
None
William
H. Young a
(born 1950)
Trustee
Since
November 2007
Independent
financial services consultant (1996-present); Consultant-Interim CEO,
Unified Fund Services, Inc., a mutual fund service provider (2003-2006);
Ex-officio Board Member of the National Investment Company Service
Association and past President and Chairman (1995-1997); Senior Vice
President, Oppenheimer Management Company (1983-1996).
20
None
19
Name, Address, Year
of Birth and
Position(s) held with
Trust
Term of
Officec and
Length of
Time
Served
Principal Occupation During the Past
Five Years and Other Affiliations
Number of
Portfolios in
the Fund
Complex
Overseen by
Trustee
Other
Directorships
Held by
Trustee
Interested
Trustees:
John
P. Zader a
†
(born
1961)
Trustee
and President
Since
November 2007 as Trustee and December 2007 as
President
CEO,
UMB Fund Services, Inc., a mutual and hedge fund service provider, and the
transfer agent, fund accountant, and co-administrator for the Fund, and
affiliate of the Fund’s distributor and custodian (2006-present);
Consultant to Jefferson Wells International, a provider of professional
services for multiple industries, including financial services
organizations (2006); Senior Vice President and Chief Financial Officer,
U.S. Bancorp Fund Services, LLC, a mutual and hedge fund service provider
(1988-2006).
20
None
Eric
M. Banhazlb†
(born
1957)
Trustee
and Vice President
Since
January 2008 as Trustee and December 2007 as Vice
President
President,
Mutual Fund Administration Corp. (2006 – present); Senior Vice President,
U.S. Bancorp Fund Services, LLC, a mutual and hedge fund service provider
(2001 – 2006.
20
None
Officers
of the Trust
Rita
Damb
(born
1966)
Treasurer
and Assistant Secretary
Since
December 2007
Vice
President, Mutual Fund Administration Corp. (2006 – present); Vice
President, U.S. Bancorp Fund Services, LLC, a mutual and hedge fund
service provider (2001 - 2006).
N/A
N/A
Joy
Ausilib
(born
1966)
Secretary
and Assistant Treasurer
Since
December 2007
Vice
President, Mutual Fund Administration Corp. (2006 – present); Vice
President, U.S. Bancorp Fund Services, LLC, a mutual and hedge fund
service provider (2001 - 2006).
N/A
N/A
Terrance
P. Gallagher, CPA, JD
a
(born
1958)
Vice
President
Since
December 2007
Executive
Vice President, UMB Fund Services, Inc. (2007 – present); Director of
Compliance, Unified Fund Services Inc. (2004 – 2007); Partner, The Academy
of Financial Services Studies and Precision Marketing Partners (1998 -
2004); Senior Vice President, Chief Financial Officer and Treasurer of AAL
Capital Management and The AAL Mutual Funds (1987 - 1998).
N/A
N/A
Robert
Tuszynski
a
(born
1959)
Vice
President
Since
March
2010
Senior
Vice President, Director of Distribution Services, UMB Fund Services, Inc.
(2008 – present); Vice President and CCO, CUNA Mutual Fund Group (2004 –
2008).
Address
for certain Trustees and certain officers: 803 West Michigan
Street, Milwaukee,
WI53233-2301.
b
Address
for Mr. Banhazl, Ms. Ausili and Ms. Dam: 2220 E. Route 66, Suite 226,
Glendora, CA91740. Address for Mr. Cipperman: 500 Swedesford
Road, Suite 104, Wayne, PA19087.
c
Trustees
and officers serve until their successors have been duly
elected.
†
Mr.
Zader is an “interested person” of the Trust by virtue of his position
with the Fund’s distributor, Grand Distribution Services,
LLC and its affiliates, UMB Fund Services, Inc., the transfer
agent, fund accountant and co-administrator of the Fund, and the Fund’s
custodian, UMB Bank, n.a. Mr. Banhazl is deemed to be an
“interested person” of the Trust by virtue of his position with Mutual
Fund Administration Corp., the Fund’s
co-administrator.
Compensation
Each
Independent Trustee receives $5,000 from the Trust for each meeting attended
(except that the Chairperson receives $6,000 for each meeting attended) and
$1,000 from the Trust for each telephonic meeting attended, in the discretion of
the Chairperson. The Audit Committee chairman receives an additional
$500 for each Audit Committee meeting attended. The Trust has no
pension or retirement plan. No other entity affiliated with the Trust
pays any compensation to the Trustees.
Name of Person/Position
Aggregate
Compensation
From the Fund1
Pension or
Retirement
Benefits Accrued
as Part of Fund’s
Expenses
Estimated
Annual Benefits
Upon
Retirement
Total
Compensation
from Trust Paid
to Trustees1
Independent
Trustees
Charles
H. Miller, Trustee
$2,000
None
None
$20,000
Ashley
Toomey Rabun,
Trustee
and Chairperson
$2,000
None
None
$24,000
William
H. Young, Trustee
and
Audit Committee Chair
$2,000
None
None
$22,000
1
Estimated
annual compensation.
Additional
Information Concerning the Board and the Trustees
The
current Trustees were selected in November 2007 (January 2008 for Mr. Banhazl)
with a view towards establishing a Board that would have the broad experience
needed to oversee a registered investment company comprised of multiple series
employing a variety of different investment strategies. As a group, the Board
has extensive experience in many different aspects of the financial services and
asset management industries.
21
The
Trustees were selected to join the Board based upon the following factors, among
others: character and integrity; willingness to serve and willingness and
ability to commit the time necessary to perform the duties of a Trustee; as to
each Trustee other than Messrs. Banhazl and Zader, satisfying the criteria for
not being classified as an “interested person” of the Trust as defined in the
1940 Act; and, as to Messrs. Banhazl and Zader, their positions with the Trust’s
co-administrators. In addition, the Trustees have the following
specific experience, qualifications, attributes and/or skills relevant to the
operations of the Trust:
·
Ms.
Rabun has substantial senior executive experience in mutual fund marketing
and distribution and serving in senior executive and board positions with
mutual funds, including multiple series trusts similar to the
Trust.
·
Mr.
Miller has significant senior executive experience with respect to
marketing and distribution of mutual funds, including multiple series
trusts similar to the Trust.
·
Mr.
Young has broad senior executive experience with respect to the operations
and management of mutual funds and administrative service providers,
including multiple series trusts similar to the
Trust.
·
Mr.
Banhazl has significant experience serving in senior executive and board
positions for mutual funds and with respect to the organization and
operation of mutual funds and multiple series trusts similar to the
Trust.
·
Mr.
Zader has substantial experience serving in senior executive positions at
mutual fund administrative service
providers.
In its
periodic self-assessment of the effectiveness of the Board, the Board considers
the complementary individual skills and experience of the individual Trustees
primarily in the broader context of the Board’s overall composition so that the
Board, as a body, possesses the appropriate (and appropriately diverse) skills
and experience to oversee the business of the series of the
Trust. The summaries set forth above as to the qualifications,
attributes and skills of the Trustees are required by the registration form
adopted by the SEC, do not constitute holding out the Board or any Trustee as
having any special expertise or experience, and do not impose any greater
responsibility or liability on any such person or on the Board as a whole than
would otherwise be the case.
The Board
of Trustees has three standing committees: the Audit Committee, the
Nominating and Governance Committee (the “Nominating Committee”), and the
Valuation Committee.
·
The
function of the Audit Committee, with respect to each series of the Trust,
is to review the scope and results of the Trust’s annual audit and any
matters bearing on the audit or the Fund’s financial statements and to
assist the Board’s oversight of the integrity of the Fund’s pricing and
financial reporting. The Audit Committee is comprised of all of
the Independent Trustees and is chaired by Mr. Young. It
does not include any Interested Trustees. The Audit Committee
is expected to meet at least twice a year with
respect to each series of the
Trust.
The Audit
Committee also serves as the Qualified Legal Compliance Committee (“QLCC”) for
the Trust for the purpose of compliance with Rules 205.2(k) and 205.3(c) of
the Code of Federal Regulations regarding alternative reporting procedures for
attorneys retained or employed by an issuer who appear and practice before the
SEC on behalf of the issuer. The QLCC meets as needed. The
QLCC has not met with respect to the Fund.
22
·
The
Nominating Committee is responsible for seeking and reviewing candidates
for consideration as nominees for Trustees as it considers necessary from
time to time and meets at least annually. The Nominating
Committee will consider nominees properly recommended by the Trust’s
shareholders. Shareholders who wish to recommend a nominee
should send nominations that include, among other things, biographical
data and the qualifications of the proposed nominee to the Trust’s
Secretary. The Independent Trustees comprise the Nominating
Committee, and the Committee is chaired by Mr. Miller. The
Nominating Committee has not met with respect to the
Fund.
·
The
function of the Valuation Committee is to value securities held by any
series of the Trust for which current and reliable market quotations are
not readily available. Such securities are valued at their
respective fair values as determined in good faith by the Valuation
Committee and the actions of the Valuation Committee are subsequently
reviewed by the Board. The Valuation Committee meets as
needed. The Valuation Committee is comprised of all the
Trustees, but action may be taken by any one of the
Trustees. The Valuation Committee has not met with respect to
the Fund.
Independent
Trustees comprise 60% of the Board and Ashley Toomey Rabun, an Independent
Trustee, serves as Chairperson of the Board. The Chairperson serves
as a key point person for dealings between the Trust’s management and the other
Independent Trustees. As noted above, through the committees of the Board the
Independent Trustees consider and address important matters involving each
series of the Trust, including those presenting conflicts or potential conflicts
of interest. The Independent Trustees also regularly meet outside the presence
of management and are advised by independent legal counsel. The Board has
determined that its organization and leadership structure are appropriate in
light of its fiduciary and oversight obligations, the special obligations of the
Independent Trustees, and the relationship between the Interested Trustees and
the Trust’s co-administrators. The Board also believes that its
structure facilitates the orderly and efficient flow of information to the
Independent Trustees from management.
Consistent
with its responsibility for oversight of the Fund in the interests of
shareholders, the Board among other things oversees risk management of the
Fund’s investment programs and business affairs directly and through the Audit
Committee. The Board has emphasized to the Advisor the importance of
maintaining vigorous risk management programs and procedures.
The Fund
faces a number of risks, such as investment risk, valuation risk, reputational
risk, risk of operational failure or lack of business continuity, and legal,
compliance and regulatory risk. Risk management seeks to identify and
address risks, i.e., events or circumstances that could have material adverse
effects on the business, operations, shareholder services, investment
performance or reputation of the Fund. Under the overall supervision
of the Board, the Advisor and other service providers to the Fund employ a
variety of processes, procedures and controls to identify various of those
possible events or circumstances, to lessen the probability of their occurrence
and/or to mitigate the effects of such events or circumstances if they do
occur. Different processes, procedures and controls are employed with
respect to different types of risks. Various personnel, including the
Trust’s CCO, the Advisor’s management, and other service providers (such as the
Fund’s independent accountants) make periodic reports to the Board or to the
Audit Committee with respect to various aspects of risk
management. The Board recognizes that not all risks that may affect
the Fund can be identified, that it may not be practical or cost-effective to
eliminate or mitigate certain risks, that it may be necessary to bear certain
risks (such as investment-related risks) to achieve the Fund’s investment
objective, and that the processes, procedures and controls employed to address
certain risks may be limited in their effectiveness. Moreover,
reports received by the Trustees as to risk management matters are typically
summaries of the relevant information. As a result of the foregoing
and other factors, the Board’s risk management oversight is subject to
substantial limitations.
23
Fund Shares Beneficially Owned by
Trustees. As of the date of this SAI, no Trustees, including
the Independent Trustees, beneficially owned shares of the Fund.
Control
Persons, Principal Shareholders, and Management Ownership
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of the Fund. A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of the Fund or acknowledges the existence of control of the
Fund.
As of the
date of this SAI, the Fund is under the control of James Jubak, William James
Peet and Robert E. Rice, who had voting authority with respect to 100% of the
outstanding shares in the Fund on such date. However, once the Fund
commences investment operations and its shares are sold to the public, James
Jubak, William James Peet and Robert E. Rice’s control will be
diluted. The Trustees and officers of the Trust as a group did not
own more than 1% of the outstanding shares of the Fund. Furthermore,
neither the Independent Trustees, nor members of their immediate families, own
securities beneficially or of record in the Advisor, the Fund’s distributor,
Grand Distribution Services, LLC (the “Distributor”), or any affiliate of the
Advisor or Distributor. Accordingly, neither the Independent Trustees
nor members of their immediate families, have direct or indirect interest, the
value of which exceeds $120,000, in the Advisor, the Distributor or any of their
affiliates.
24
The
Advisor
Jubak
Asset Management, LLC, located at 9 W. 57th Street,
26th
Floor, New York, NY10019, acts as investment advisor to the Fund pursuant to an
Investment Advisory Agreement (the “Advisory Agreement”). The Advisor is owned
by James Jubak and Tangent Advisors, LLC, a Delaware limited liability company.
Tangent Advisors, LLC is owned and controlled by Robert E. Rice and William
James Peet who also own and control Tangent Capital Partners, LLC, a registered
broker-dealer. Subject to such policies as the Board of Trustees may determine,
the Advisor is ultimately responsible for investment decisions for the
Fund. Pursuant to the terms of the Advisory Agreement, the Advisor
provides the Fund with such investment advice and supervision as it deems
necessary for the proper supervision of the Fund’s investments. The
Advisor also continuously monitors and maintains the Fund’s investment criteria
and determines from time to time what securities may be purchased by the
Fund.
The
Advisory Agreement will remain in effect for an initial two-year
period. After the initial two-year period, the Advisory Agreement
will continue in effect from year to year only if such continuance is
specifically approved at least annually by the Board or by vote of a majority of
the Fund’s outstanding voting securities and by a majority of the Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory
Agreement. The Advisory Agreement is terminable without penalty by
the Trust on behalf of the Fund, upon giving the Advisor 60 days’ notice when
authorized either by a majority vote of the Fund’s shareholders or by a vote of
a majority of the Board, or by the Advisor on 60 days’ written notice, and will
automatically terminate in the event of its “assignment” (as defined in the 1940
Act). The Advisory Agreement provides that the Advisor under such
agreement shall not be liable for any error of judgment or for any loss suffered
by the Trust in connection with the Advisory Agreement, except for a loss
resulting from a breach of fiduciary duty, or for a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
from reckless disregard by the Advisor of its duties under the Advisory
Agreement.
In
consideration of the services to be provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on an annual rate
equal to a percentage of the Fund’s average daily net assets specified in the
Prospectus.
The Fund
is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce fees payable to it by the Fund and/or to pay Fund
operating expenses to the extent necessary to limit the Fund’s aggregate annual
operating expenses (excluding taxes, leverage interest, brokerage commissions,
dividend expenses on short sales, acquired fund fees and expenses as determined
in accordance with Form N1-A, expenses incurred in connection with any merger or
reorganization, or extraordinary expenses such as litigation) to the limit set
forth in the Expense Table in the Prospectus (the “expense cap”). Any
such reductions made by the Advisor in its fees or payment of expenses which are
the Fund’s obligation are subject to reimbursement by the Fund to the Advisor,
if so requested by the Advisor, in subsequent fiscal years if the aggregate
amount actually paid by the Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses currently in effect and the applicable limitation in
effect at the time of such fee waivers or expense reimbursement. The
Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years from the date the expense was
incurred. Any such reimbursement is also contingent upon the Board’s
subsequent review and ratification of the reimbursed amounts. Such
reimbursement may not be paid prior to the Fund’s payment of current ordinary
operating expenses.
25
Portfolio
Manager
James
Jubak, Chief Investment
Officer of the Advisor, serves as the portfolio manager responsible for the
day-to-day management of the Fund. The following table shows the
number of other accounts managed by the portfolio manager and the total assets
in the accounts managed within various categories as of the date of this
SAI.
With
Advisory Fee based on performance
Type of Accounts
Number of
Accounts
Total
Assets
Number of
Accounts
Total
Assets
Registered
Investment Companies
0
$-
0
$-
Other
Pooled Investments
0
$-
0
$-
Other
Accounts
0
$-
0
$-
Material Conflict of
Interest. Currently, the Advisor and the portfolio manager
only manage the Fund and have no other investment clients. The
Advisor will allocate all investment opportunities to the
Fund. Should the Advisor decide in the future to offer and provide
its services to more than one client, the Advisor will amend and adopt
procedures to ensure that allocations of investment opportunities are done in a
fair and equitable basis for all clients.
Compensation. The
portfolio manager does not receive a fixed salary. The portfolio
manager owns 50% of the Advisor, and will therefore be entitled to 50% of its
profits, with a preferential right to receive the first $100,000 of profits in
any given year.
Ownership of the Fund by the
Portfolio Manager. The dollar range of equity securities owned
by the portfolio manager in the Fund as of the date of this SAI is $XXXX -
$XXXX.
Service
Providers
Pursuant
to a Co-Administration Agreement (the “Co-Administration Agreement”), UMB Fund
Services, Inc. (“UMBFS”), 803 W. Michigan Street, Milwaukee, Wisconsin53233,
and Mutual Fund Administration Corporation (“MFAC”), 2220 E. Route
66, Suite 226, Glendora, California91740 (collectively the
“Co-Administrators”), act as co-administrators for the Fund. The
Co-Administrators provide certain administrative services to the Fund,
including, among other responsibilities, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Fund’s independent contractors and agents; preparing for signature by an officer
of the Trust of all documents required to be filed for compliance with
applicable laws and regulations including those of the securities laws of
various states; arranging for the computation of performance data, including net
asset value and yield; arranging for the maintenance of books and records of the
Fund; and providing, at their own expense, office facilities, equipment and
personnel necessary to carry out their duties. In this capacity, the
Co-Administrators do not have any responsibility or authority for the management
of the Fund, the determination of investment policy, or for any matter
pertaining to the distribution of Fund shares.
UMBFS
also acts as the Trust’s fund accountant, transfer agent and dividend disbursing
agent pursuant to separate agreements.
26
UMB Bank,
n.a. (the “Custodian”), an affiliate of UMBFS, is the custodian of the assets of
the Fund pursuant to a custody agreement between the Custodian and the Trust,
whereby the Custodian provides services for fees on a transactional basis plus
out-of-pocket expenses. The Custodian’s address is 928 Grand
Boulevard, Kansas City, Missouri64106. The Custodian does
not participate in decisions pertaining to the purchase and sale of securities
by the Fund.
__________________
is the independent registered public accounting firm for the Fund’s services
include auditing the Fund’s financial statements and the performance of related
tax services.
Bingham
McCutchen LLP (“Bingham”), 355 South Grand Avenue, Suite 4400, Los Angeles,
California90071, serves as counsel to the Trust and provides counsel on legal
matters relating to the Fund. Bingham also serves as independent
legal counsel to the Independent Trustees.
Distribution
Agreement
The Trust
has entered into a Distribution Agreement (the “Distribution Agreement”) with
Grand Distribution Services, LLC, 803 W. Michigan Street, Milwaukee,
Wisconsin53233 (the “Distributor”), pursuant to which the
Distributor acts as the Fund’s distributor, provides certain administrative
services and arranges for the sale of the Fund’s shares. The offering
of the Fund’s shares is continuous. The Distributor, UMBFS and
Custodian are affiliated companies. The Distributor is a registered
broker-dealer and a member of FINRA.
The
Distribution Agreement has an initial term of up to two years and will continue
in effect only if such continuance is specifically approved at least annually by
the Board or by vote of a majority of the Fund’s outstanding voting securities
and, in either case, by a majority of the trustees who are not parties to the
Distribution Agreement or “interested persons” (as defined in the 1940 Act) of
any such party. The Distribution Agreement is terminable without
penalty by the Trust on behalf of the Fund on 60 days’ written
notice when authorized either by a majority vote of the Fund’s shareholders or
by vote of a majority of the Board, including a majority of the trustees who are
not “interested persons” (as defined in the 1940 Act) of the Trust, or by
the Distributor on 60 days’ written notice, and will automatically
terminate in the event of its “assignment” (as defined in the
1940 Act).
Rule
12b-1 Plan
The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1
Plan") that provides for fees, not to exceed 0.25% of the Fund’s average daily
net assets, payable to the Advisor as an expense of the Fund that are used by
the Advisor to pay for distribution services. The Rule 12b-1 Plan
provides alternative methods for paying sales charges and may help the fund grow
or maintain asset levels to provide operational efficiencies and economies of
scale. The Rule 12b-1 Plan also provides for post-sales servicing to
shareholders. Because 12b-1 fees are paid out of Fund assets on an
ongoing basis, they will, over time, increase the cost of an investment and may
cost more than other types of sales charges. The Rule 12b-1 Plan is a
compensation plan, which means that the Advisor is compensated regardless of its
expenses, as opposed to a reimbursement plan which reimburses only for expenses
incurred
27
The Rule
12b-1 Plan may not be amended to materially increase the amount to be paid by
the Fund for distribution services without the vote of a majority of the
outstanding voting securities. The Rule 12b-1 Plan shall continue in effect
indefinitely, provided that such continuance is approved at least annually by a
vote of a majority of the Trustees, including the Independent Trustees, cast in
person at a meeting called for such purpose or by vote of at least a majority of
the outstanding voting securities. The Rule 12b-1 Plan may be terminated at any
time without penalty by vote of a majority of the Independent Trustees or by
vote of the majority of the outstanding voting securities.
If the
Rule 12b-1 Plan is terminated for the Fund in accordance with its terms, the
obligation of the Fund to make payments to the Advisor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments
past the termination date. Thus, there is no legal obligation for the Fund to
pay any expenses incurred by the Advisor other than fees already payable under
the Rule 12b-1 Plan, if the Rule 12b-1 Plan is terminated in accordance with its
terms for any reason.
Marketing
and Support Payments
The
Advisor, out of its own resources and without additional cost to the Fund or its
shareholders, may provide cash payments or other compensation to certain
financial intermediaries who sell shares of the Fund. These payments are in
addition to other fees described in the Fund’s Prospectus and this SAI, and are
generally provided for shareholder services or marketing
support. Payments for marketing support are typically for inclusion
of the Fund on sales lists, including electronic sales
platforms. Investors may wish to take these payments into account
when considering and evaluating recommendations to purchase shares of the
Fund.
PORTFOLIO
TRANSACTIONS AND BROKERAGE
Pursuant
to the Advisory Agreement, the Advisor determines which securities are to be
purchased and sold by the Fund and which broker-dealers are eligible to execute
the Fund’s portfolio transactions. The purchases and sales of
securities in the over-the-counter market will generally be executed by using a
broker for the transaction.
Purchases
of portfolio securities for the Fund also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions
will be effected through dealers (including banks) that specialize in the types
of securities which the Fund will be holding unless better executions are
available elsewhere. Dealers and underwriters usually act as
principals for their own accounts. Purchases from underwriters will
include a concession paid by the issuer to the underwriter and purchases from
dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or
underwriter are comparable, the order may be allocated to a dealer or
underwriter that has provided research or other services as discussed
below.
28
In
placing portfolio transactions, the Advisor will use its reasonable efforts to
choose broker-dealers capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and
quality of services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operational
facilities of the broker-dealer involved, the risk in positioning the block of
securities, and other factors. In those instances where it is
reasonably determined that more than one broker-dealer can offer the services
needed to obtain the most favorable price and execution available, consideration
may be given to those broker-dealers which furnish or supply research and
statistical information to the Advisor that they may lawfully and appropriately
use in their investment advisory capacities, as well as provide other services
in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Advisory Agreement with the Fund, to be useful in
varying degrees, but of indeterminable value.
While it
is the Fund’s general policy to seek to obtain the most favorable price and
execution available in selecting a broker-dealer to execute portfolio
transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services as defined in Section
28(e) of the Securities Exchange Act of 1934, as amended, to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In
negotiating commissions with a broker or evaluating the spread to be paid to a
dealer, the Fund may therefore pay a higher commission or spread than would be
the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by the Advisor to be reasonable in relation to the
value of the brokerage and/or research services provided by such
broker-dealer. The standard of reasonableness is to be measured in
light of the Advisor’s overall responsibilities to the Fund.
Investment
decisions for the Fund are made independently from those of other client
accounts that may be managed or advised by the Advisor. Nevertheless,
it is possible that at times, identical securities will be acceptable for both
the Fund and one or more of such client accounts. In such event, the
position of the Fund and such client accounts in the same issuer may vary and
the holding period may likewise vary. However, to the extent any of
these client accounts seek to acquire the same security as the Fund at the same
time, the Fund may not be able to acquire as large a position in such security
as it desires, or it may have to pay a higher price or obtain a lower yield for
such security. Similarly, the Fund may not be able to obtain as high
a price for, or as large an execution of, an order to sell any particular
security at the same time as the Advisor’s other client accounts.
The Fund
does not effect securities transactions through brokers in accordance with any
formula, nor does it effect securities transactions through brokers for selling
shares of the Fund. However, broker-dealers who execute brokerage
transactions may effect purchase of shares of the Fund for their
customers.
PORTFOLIO
TURNOVER
Although
the Fund generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Advisor, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing
(1) the lesser of purchases or sales of portfolio securities for the fiscal
year by (2) the monthly average of the value of portfolio securities owned
during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund’s portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of
portfolio turnover (100% or more) generally leads to higher transaction costs
and may result in a greater number of taxable transactions. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains will be taxed at ordinary income tax rates for federal income
tax purposes.
29
PROXY
VOTING POLICY
The Board
has adopted Proxy Voting Policies and Procedures (“Policies”) on behalf of the
Trust, which delegates the responsibility for voting the Fund’s proxies to the
Advisor, subject to the Board’s continuing oversight. The Policies
require that the Advisor vote proxies received in a manner consistent with the
best interests of the Fund. The Policies also require the Advisor to
present to the Board, at least annually, the Advisor’s Proxy Voting Policies and
Procedures (“Advisor’s Proxy Policies”) and a record of each proxy voted by the
Advisor on behalf of the Fund, including a report on the resolution of all
proxies identified by the Advisor as involving a conflict of interest. See Appendix B for the
Advisor’s Proxy Voting Policy. This policy is intended to serve as a guideline
and to further the economic value of each security held by the
Fund. The Trust’s CCO will review this policy on a regular
basis. Each proxy will be considered individually, taking into
account the relevant circumstances at the time of each vote.
If a
proxy proposal raises a material conflict between the Advisor’s interests and
the Fund’s interests, the Advisor will resolve the conflict by following the
policy guidelines or the recommendation of an independent third
party.
The Fund
is required to annually file Form N-PX, which lists the Fund’s complete proxy
voting record for the 12-month period ending June 30th each
year. Once filed, the Fund’s proxy voting record will be available
without charge, upon request, by calling toll-free 1-888-xxx-xxxx and on the
SEC’s web site at www.sec.gov.
ANTI-MONEY
LAUNDERING PROGRAM
The Trust
has established an Anti-Money Laundering Compliance Program (the “Program”) as
required by the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT
Act”). In order to ensure compliance with this law, the Program
provides for the development and implementation of internal practices,
procedures and controls, designation of anti-money laundering compliance
officers, an ongoing training program and an independent audit function to
determine the effectiveness of the Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Fund’s Distributor and Transfer Agent have established proper anti-money
laundering procedures, reporting suspicious and/or fraudulent activity, checking
shareholder names against designated government lists, including Office of
Foreign Assets Control (“OFAC”), and a complete and thorough review of all new
opening account applications. The Trust will not transact business
with any person or entity whose identity cannot be adequately verified under the
provisions of the USA PATRIOT Act.
30
PORTFOLIO
HOLDINGS INFORMATION
The Fund
has adopted policies and procedures regarding disclosure of portfolio holdings
information (the “Disclosure Policy”). The Board of Trustees
determined that the adoption of the Disclosure Policy, including the disclosure
permitted therein, was in the best interests of the Fund. The
Disclosure Policy applies to the Fund, Advisor and other internal parties
involved in the administration, operation or custody of the Fund, including, but
not limited to UMBFS, MFAC, the Board of Trustees, counsel to the Trust and
Independent Trustees, Bingham McCutchen LLP, and the Fund’s independent
accountants, _______________________ (collectively, the “Service
Providers”). Pursuant to the Disclosure Policy, non-public
information concerning the Fund’s portfolio holdings may be disclosed to its
Service Providers only if such disclosure is consistent with the antifraud
provisions of the federal securities laws and the fiduciary duties owed by the
Fund and the Advisor to the Fund’s shareholders. The Fund and its
Service Providers may not receive compensation or any other consideration (which
includes any agreement to maintain assets in the Fund or in other investment
companies or accounts managed by the Advisor or any affiliated person of the
Advisor) in connection with the disclosure of portfolio holdings information of
the Fund. The Fund’s Disclosure Policy is implemented and overseen by
the CCO of the Trust, subject to the oversight of the Board of
Trustees. Periodic reports regarding these procedures will be
provided to the Trust’s Board.
Portfolio
holdings information will be deemed public when it has been posted to a Fund’s
public website.
Non-Public
Portfolio Holdings Information Policy. All portfolio holdings
information that has not been disseminated in a manner making it available to
investors generally as described above is considered non-public portfolio
holdings information for the purposes of the Disclosure
Policy. Pursuant to the Disclosure Policy, the Fund or its Service
Providers may disclose non-public portfolio holdings information to certain
third parties who fall within pre-authorized categories on a daily basis, with
no lag time unless otherwise specified below. These third parties
include: (i) the Fund’s Service Providers and others who need access to such
information in the performance of their contractual or other duties and
responsibilities to the Fund (e.g., custodians, accountants, the Advisor,
administrators, attorneys, officers and Trustees) and who are subject to duties
of confidentiality imposed by law or contract, (ii) brokers who execute trades
for the Fund, (iii) evaluation service providers (as described below) and (iv)
shareholders requesting in-kind redemptions (as described below).
Evaluation
Service Providers. These third parties include mutual fund
evaluation services, such as Morningstar and Lipper, if the Fund has a
legitimate business purpose for disclosing the information, provided that the
third party expressly agrees to maintain the non-public portfolio holdings
information in confidence and not to trade portfolio securities based on the
non-public portfolio holdings information. Subject to the terms and
conditions of any agreement between the Fund or its authorized service providers
and the third party, if these conditions for disclosure are satisfied, there
shall be no restriction on the frequency with which the Fund’s non-public
portfolio holdings information is released, and no lag period shall
apply. In addition, persons who owe a duty of trust or confidence to
the Fund or its Service Providers (such as legal counsel) may receive non-public
portfolio holdings information without entering into a non-disclosure
agreement.
31
Shareholder
In-Kind Distributions. The Fund’s shareholders may, in some
circumstances, elect to redeem their shares of the Fund in exchange for their
pro rata share of the securities held by the Fund. In such
circumstances, pursuant to the Disclosure Policy, Fund shareholders may receive
a complete listing of the portfolio holdings of the Fund up to seven (7)
calendar days prior to making the redemption request provided that they
represent orally or in writing that they agree to maintain the confidentiality
of the portfolio holdings information.
Other
Entities. Pursuant to the Disclosure Policy, the Fund or the
Advisor may disclose non-public portfolio holdings information to a third party
who does not fall within the pre-approved categories, and who are not executing
broker-dealers; however, prior to the receipt of any non-public portfolio
holdings information by such third party, the recipient must have entered into a
non-disclosure agreement and the disclosure arrangement must have been approved
by the CCO and the President of the Trust. The CCO will report to the
Board of Trustees on a quarterly basis regarding any recipients of non-public
portfolio holdings information approved pursuant to this
paragraph. There are no other ongoing arrangements as of the date of
this SAI.
DETERMINATION
OF NET ASSET VALUE
The NAV
of the Fund’s shares will fluctuate and is determined as of the close of trading
on the New York Stock Exchange (the “NYSE”) (generally 4:00 p.m. Eastern
Time) each business day. The NYSE annually announces the days on
which it will not be open for trading. The most recent announcement
indicates that the NYSE will not be open for the following holidays: New Year’s
Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. However, the NYSE may close on days not included in that
announcement.
The NAV
is computed by dividing the value of the securities held by the Fund plus any
cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total number
of shares in the Fund outstanding at such time.
Net
Assets
=
NAV
Shares
Outstanding
Generally,
the Fund’s investments are valued at market value or, in the absence of a market
value, at fair value as determined in good faith by the Advisor and the Trust’s
Valuation Committee pursuant to procedures approved by or under the direction of
the Board. Pursuant to those procedures, the Board considers, among
other things: 1) the last sale price on the securities exchange, if any, on
which a security is primarily traded; 2) the mean between the bid and ask
prices; 3) price quotations from an approved pricing service, and
4) other factors as necessary to determine a fair value under certain
circumstances.
The
Fund’s securities which are traded on securities exchanges are valued at the
last sale price on the exchange on which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
reported sales, at the mean between the last available bid and ask
prices.
32
Securities
that are traded on more than one exchange are valued on the exchange determined
by the Advisor to be the primary market. Securities primarily traded
in the National Association of Securities Dealers Automated Quotation
(“NASDAQ”), National Market System for which market quotations are readily
available shall be valued using the NASDAQ Official Closing Price
(“NOCP”). If the NOCP is not available, such securities shall be
valued at the last sale price on the day of valuation, or if there has not been
any sale on such day, at the mean between the bid and ask
prices. Over-the-counter (“OTC”) securities which are not traded in
the NASDAQ National Market System shall be valued at the most recent trade
price.
Stocks
that are “thinly traded” or events occurring when a foreign market is closed but
the NYSE is open (for example, the value of a security held by the Fund has been
materially affected by events occurring after the close of the exchange or
market on which the security is principally traded) may create a situation where
a market quote would not be readily available. When a market quote is not
readily available, the security’s value is based on “fair value” as determined
by procedures adopted by the Board. The Board will periodically review the
reliability of the Fund’s fair value methodology. The Fund may hold portfolio
securities, such as those traded on foreign exchanges that trade on weekends or
other days when the Fund’s shares are not priced. Therefore, the value of the
Fund’s shares may change on days when shareholders will not be able to purchase
or redeem shares.
Short-term
debt obligations with remaining maturities in excess of 60 days are valued
at current market prices, as discussed above. Short-term securities
with 60 days or less remaining to maturity are, unless conditions indicate
otherwise, amortized to maturity based on their cost to the Fund if acquired
within 60 days of maturity or, if already held by the Fund on the 60th day,
based on the value determined on the 61st day.
All other
assets of the Fund are valued in such manner as the Board in good faith deems
appropriate to reflect as their fair value.
PURCHASE
AND REDEMPTION OF FUND SHARES
Detailed
information on the purchase and redemption of shares is included in the Fund’s
Prospectus. Shares of the Fund are sold at the next offering price
calculated after receipt of an order for purchase. In order to
purchase shares of the Fund, you must invest the initial minimum investment for
the relevant class of shares. However, the Fund reserves the right,
in its sole discretion, to waive the minimum initial investment amount for
certain investors, or to waive or reduce the minimum initial investment for
401(k) plans or other tax-deferred retirement plans. You may purchase
shares on any day that the NYSE is open for business by placing orders with the
Fund.
The Fund
reserves the right to refuse any purchase requests, particularly those that
would not be in the best interests of the Fund or its shareholders and could
adversely affect the Fund or its operations. This includes those from
any individual or group who, in the Fund’s view, is likely to engage in or has a
history of excessive trading (usually defined as more than four round-trip
transactions out of the Fund within a calendar year). Furthermore,
the Trust may suspend the right to redeem its shares or postpone the date of
payment upon redemption for more than three business days (i) for any
period during which the NYSE is closed (other than customary weekend or holiday
closings) or trading on the NYSE is restricted; (ii) for any
period during which an emergency exists as a result of which the sale by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets; (iii) for such other periods as the SEC may permit for
the protection of the Fund’s shareholders; or (iv) to ensure a recent purchase
made by check clears.
33
FEDERAL
INCOME TAX MATTERS
The Fund
is treated as a separate entity for federal income tax purposes. The
Fund, as a series of the Trust, intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code, provided it
complies with all applicable requirements under the Code, including, among other
things, the source of its income, diversification of its assets and timing of
distributions. The Fund’s policy is to distribute to its shareholders
all investment company taxable income (determined without regard to the
deduction for dividends paid) and any net realized long-term capital gains for
each fiscal year in a manner that complies with the distribution requirements of
the Code, so that the Fund will not be subject to any federal income or excise
taxes. In order to avoid liability for federal excise tax, the Fund
must distribute (or be deemed to have distributed) by December 31 of each
calendar year (i) at least 98% of its ordinary income for such year,
(ii) at least 98% of the excess of its realized capital gains over its
realized capital losses for the 12-month period ending on October 31 during
such year and (iii) any amounts from the prior calendar year that were not
distributed and on which the Fund paid no federal income tax.
Shareholders
will be subject to federal income taxes on distributions made by the Fund
whether received in cash or additional shares. Distributions of net
investment income (including interest, dividend income and net short-term
capital gain in excess of any net long-term capital loss, less certain
expenses), other than qualified dividend income, will be taxable to shareholders
as ordinary income. For taxable years beginning on or before December31, 2010, distributions of qualified dividend income, as such term is defined in
Section 1(h)(11) of the Code (generally dividends received from U.S. domestic
corporations and qualified foreign corporations), generally will be taxed to
non-corporate shareholders at the federal income tax rates applicable to net
capital gain, provided the Fund designates the amount distributed as qualified
dividend income and certain holding period and other requirements are
satisfied.
Distributions
of net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, will be taxable to non-corporate shareholders
at a maximum federal income tax rate of 15% without regard to how long a
shareholder has held shares of the Fund. Unless extended by future
legislation, the 15% federal income tax rate on net capital gain will expire for
taxable years beginning after December 31, 2010 and will be replaced by a
maximum federal income tax rate on net capital gains of
20%. Corporate shareholders are taxed on net capital gain at the same
federal income tax rates applicable to ordinary income.
34
Dividends
paid by the Fund may qualify in part for the 70% dividends received deduction
available to corporate shareholders, provided the Fund designates the amount
distributed as a qualifying dividend and certain holding period and other
requirements under the Code are satisfied. The designated amount,
however, cannot exceed the aggregate amount of qualifying dividends received by
the Fund for its taxable year. In view of the Fund’s investment
policies, it is expected that dividends from domestic corporations will be part
of the Fund’s gross income and that, accordingly, a portion of the distributions
by the Fund will be eligible for treatment as qualified dividend income for the
dividends received deduction. However, the portion of the Fund’s
gross income attributable to qualified dividend income and qualifying dividends
is largely dependent on the Fund’s investment activities for a particular year
and, therefore, cannot be predicted with any certainty. Qualified
dividend income treatment and the dividends received deduction may be reduced or
eliminated if, among other things, (i) the shareholder is under an obligation
(whether pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property or (ii)
certain holding period requirements are not satisfied at both the Fund and
shareholder levels. In addition, qualified dividend income treatment
is not available if a shareholder elects to have the dividend income treated as
investment income for purposes of the limitation on deductibility of investment
interest.
Shareholders
who choose to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the NAV of a share on the reinvestment date. Distributions are
generally taxable when received. However, distributions declared in
October, November or December to shareholders of record on a date in such a
month and paid the following January are taxable for federal income tax purposes
as if received on December 31 of the calendar year in which
declared. Distributions are includable in alternative minimum taxable
income in computing a shareholder’s liability for the federal alternative
minimum tax.
A
redemption of Fund shares may result in recognition of a taxable gain or
loss. The gain or loss will generally be treated as a long-term
capital gain or loss if the shares were held for more than one
year. If the shares were held for one year or less, the gain or loss
will generally be treated as a short-term capital gain or
loss. Short-term capital gain is taxable at ordinary federal income
tax rates. Any loss realized upon redemption or exchange of shares
held for six months or less will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gains during
such six-month period. Any loss realized upon a redemption may be
disallowed under certain wash sale rules to the extent shares of the same Fund
or other substantially identical stock or security are purchased (through
reinvestment of distributions or otherwise) within 30 days before or after
the redemption.
The
Fund’s transactions in options and other similar transactions, such as futures,
may be subject to special provisions of the Code that, among other things,
affect the character of any income realized by the Fund from such investments,
accelerate recognition of income to the Fund, defer Fund losses, affect the
holding period of the Fund’s securities, affect whether distributions will be
eligible for the dividends received deduction or be treated as qualified
dividend income and affect the determination of whether capital gain and loss is
characterized as long-term or short-term capital gain or loss. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions may also require the Fund to
“mark-to-market” certain types of the positions in its portfolio (i.e., treat
them as if they were closed out), which may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for avoiding U.S. federal income and
excise taxes. The Fund will monitor these transactions and will make
the appropriate entries in its books and records, and if the Fund deems it
advisable, will make appropriate elections in order to mitigate the effect of
these rules, prevent disqualification of the Fund as a regulated investment
company and minimize the imposition of U.S. federal income and excise
taxes.
35
The
Fund’s transactions in broad based equity index futures contracts,
exchange-traded options on such indices and certain other futures contracts are
generally considered “Section 1256 contracts” for federal income tax
purposes. Any unrealized gains or losses on such Section 1256
contracts are treated as though they were realized at the end of each taxable
year. The resulting gain or loss is treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. Gain or loss
recognized on actual sales of Section 1256 contracts is treated in the same
manner. As noted above, distributions of net short-term capital gain
are taxable to shareholders as ordinary income while distributions of net
long-term capital gain are taxable to shareholders as long-term capital gain,
regardless of how long the shareholder has held shares of the Fund.
The
Fund’s entry into a short sale transaction, an option or certain other
contracts, such as futures, could be treated as the constructive sale of an
appreciated financial position, causing the Fund to realize gain, but not loss,
on the position.
If the Fund invests in certain pay-in-kind securities, zero coupon securities,
deferred interest securities or, in general, any other securities with original
issue discount (or with market discount if the Fund elects to include market
discount in income currently), the Fund must accrue income on
such investments for each taxable year, which generally will be prior to the
receipt of the corresponding cash payments.
However,
the Fund must distribute, at least annually, all or substantially all of its
investment company taxable income (determined without regard to the deduction
for dividends paid), including such accrued income to shareholders to avoid
federal income and excise taxes. Therefore, the Fund may have to
dispose of portfolio securities under disadvantageous circumstances to generate
cash, or may have to leverage itself by borrowing cash, to satisfy these
distribution requirements.
If the Fund invests in a market discount bond, it will
be required to treat any gain recognized on the disposition of such market
discount bond as ordinary income (instead
of capital gain) to the extent of the accrued market discount, unless the Fund
elects to include the market discount in income as it accrues as discussed
above. A market discount bond is a security acquired in the secondary
market
at a price below its redemption value (or its adjusted issue price if it is also
an original issue discount bond).
The Fund
may be subject to withholding and other taxes imposed by foreign countries,
including taxes on interest, dividends and capital gains with respect to its
investments in those countries, which would, if imposed, reduce the yield on or
return from those investments. Tax treaties between certain countries
and the United States may reduce or eliminate such taxes in some
cases. With respect to the Fund, so long as it (i) qualifies for
treatment as a regulated investment company; (ii) is liable for foreign income
taxes; and (iii) more than 50% of its net assets at the close of its taxable
year consist of stock or securities of foreign corporations, it may elect to
“pass through” to its shareholders the amount of such foreign taxes
paid. If this election is made, information with respect to the
amount of the foreign income taxes that are allocated to the Fund’s shareholders
will be provided to them and any shareholder subject to tax on dividends will be
required (i) to include in ordinary gross income (in addition to the amount of
the taxable dividends actually received) his/her proportionate share of the
foreign taxes paid that are attributable to such dividends; and (ii) either
deduct his/her proportionate share of foreign taxes in computing his/her taxable
income or to claim that amount as a foreign tax credit (subject to applicable
limitations) against U.S. income taxes. The Fund does not expect to
satisfy the requirements for passing through to its shareholders their
respective pro rata shares of qualified foreign taxes paid by the Fund, with the
result that shareholders will not be required to include such taxes in their
gross incomes and will not be entitled to a tax deduction or credit for such
taxes on their own federal income tax returns.
36
Foreign
exchange gains or losses realized by the Fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
options and futures contracts relating to foreign currency, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which generally
causes such gains or losses to be treated as ordinary gain or loss and may
affect the amount, timing and character of distributions to
shareholders.
The Fund
may purchase the securities of certain foreign investment funds or trusts called
passive foreign investment companies (“PFICs”). Currently, PFICs are
the only or primary means by which the Fund may invest in some
countries. If the Fund invests in PFICs, it may be subject to U.S.
federal income tax on a portion of any “excess distribution” or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend to shareholders. In addition to bearing their proportionate
share of the Fund’s expenses, shareholders will also indirectly bear similar
expenses of PFICs in which the Fund has invested. Additional charges
in the nature of interest may be imposed on either the Fund or shareholders with
respect to deferred taxes arising from such distributions or
gains. Capital gains on the sale of such holdings will be deemed to
be ordinary income regardless of how long such PFICs are held. If the
Fund invests in PFICs and elects to treat the PFIC as a “qualified electing
fund” under the Code, in lieu of the foregoing requirements, the Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified electing fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and calendar year
distribution requirements described above.
Under the
Code, the Fund will be required to report to the Internal Revenue Service
(“IRS”) all distributions of income and capital gains as well as gross proceeds
from the redemption of Fund shares, except in the case of exempt shareholders,
which include most corporations. Pursuant to the backup withholding
provisions of the Code, distributions of any taxable income and capital gains
and proceeds from the redemption of Fund shares may be subject to withholding of
federal income tax in the case of non-exempt shareholders who fail to furnish
the Fund with their taxpayer identification numbers or with required
certifications regarding their status under the federal income tax law or if the
IRS has notified the Fund that such withholding is required. If the
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Corporate and other exempt
shareholders should provide the Fund with their taxpayer identification numbers
or certify their exempt status in order to avoid possible erroneous application
of backup withholding. The Fund reserves the right to refuse to open
an account for any person failing to provide a certified taxpayer identification
number.
The
foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who
is not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty).
37
This
discussion and the related discussion in the Prospectus have been prepared by
management of the Fund, and counsel to the Trust has expressed no opinion in
respect thereof.
Prospective
shareholders of the Fund should consult their own tax advisors concerning the
effect of owning shares of the Fund in light of their particular tax
situation.
DIVIDENDS
AND DISTRIBUTIONS
The Fund
will receive income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in
its operations, is the Fund’s net investment income, substantially all of which
will be declared as dividends to the Fund’s shareholders.
The
amount of income dividend payments by the Fund is dependent upon the amount of
net investment income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. The Fund
does not pay “interest” or guarantee any fixed rate of return on an investment
in its shares.
The Fund
also may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held for less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
the income dividends paid by the Fund and will be taxable to shareholders as
ordinary income for federal income tax purposes. If during any year
the Fund realizes a net gain on transactions involving investments held for more
than the period required for long-term capital gain or loss recognition or
otherwise producing long-term capital gains and losses, the Fund will have a net
long-term capital gain. After deduction of the amount of any net
short-term capital loss, the balance (to the extent not offset by any capital
losses carried over from the eight previous taxable years) generally will be
distributed and treated as long-term capital gains in the hands of the
shareholders regardless of the length of time the Fund’s shares may have been
held by the shareholders. For more information concerning applicable
capital gains tax rates, see your tax advisor.
Any
dividend or distribution paid by the Fund reduces the Fund’s NAV on the date
paid by the amount of the dividend or distribution per
share. Accordingly, a dividend or distribution paid shortly after a
purchase of shares by a shareholder would represent, in substance, a partial
return of capital (to the extent it is paid on the shares so purchased), even
though it would be subject to federal income taxes.
Dividends
and other distributions will be made in the form of additional shares of the
Fund unless the shareholder has otherwise indicated. Investors have
the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the transfer agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the transfer agent
has received the written request.
38
GENERAL
INFORMATION
Investment
Managers Series Trust (formerly known as Claymore Trust) is an open-end
management investment company organized as a statutory trust under the laws of
the State of Delaware on February 15, 2005. The Trust currently
consists of multiple series of shares of beneficial interest, par value of $0.01
per share. The Trust’s Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
and to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interest in the
Fund. Each share represents an interest in the Fund proportionately
equal to the interest of each other share. Upon the Fund’s
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.
With
respect to the Fund, the Trust may offer more than one class of
shares. The Trust has reserved the right to create and issue
additional series or classes. Each share of a series or class
represents an equal proportionate interest in that series or class with each
other share of that series or class.
The
shares of each series or class participate equally in the earnings, dividends
and assets of the particular series or class. Expenses of the Trust,
which are not attributable to a specific series or class, are allocated among
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares issued do not have pre-emptive or conversion
rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each
share held. Shares of each series or class generally vote together,
except when required under federal securities laws to vote separately on matters
that only affect a particular series or class, such as the approval of
distribution plans for a particular class.
The Trust
is not required to hold annual meetings of shareholders but will hold special
meetings of shareholders of a series or class when, in the judgment of the
Board, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more
trustees. Shareholders also have, in certain circumstances, the right
to remove one or more trustees without a meeting. No material
amendment may be made to the Trust’s Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of each
portfolio affected by the amendment. The Trust’s Declaration of Trust
provides that, at any meeting of shareholders of the Trust or of any series or
class, a shareholder servicing agent may vote any shares as to which such
shareholder servicing agent is the agent of record for shareholders who are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such shareholder
servicing agent is the agent of record. Any shares so voted by a
shareholder servicing agent will be deemed represented at the meeting for
purposes of quorum requirements. Any series or class may be
terminated (i) upon the merger or consolidation with, or the sale or
disposition of all or substantially all of its assets to, another entity, if
approved by the vote of the holders of two-thirds of its outstanding shares,
except that if the Board recommends such merger, consolidation or sale or
disposition of assets, the approval by vote of the holders of a majority of the
series’ or class’ outstanding shares will be sufficient, or (ii) by the
vote of the holders of a majority of its outstanding shares, or (iii) by
the Board by written notice to the series’ or class’
shareholders. Unless each series and class is so terminated, the
Trust will continue indefinitely.
39
The
Trust’s Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The
Declaration of Trust does not require the issuance of stock
certificates. If stock certificates are issued, they must be returned
by the registered owners prior to the transfer or redemption of shares
represented by such certificates.
Rule 18f-2
under the 1940 Act provides that as to any investment company which has two or
more series outstanding and as to any matter required to be submitted to
shareholder vote, such matter is not deemed to have been effectively acted upon
unless approved by the holders of a “majority” (as defined in the rule) of the
voting securities of each series affected by the matter. Such
separate voting requirements do not apply to the election of Trustees or the
ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into
effect as to one or more series whose holders so approve the change even though
the required vote is not obtained as to the holders of other affected
series.
The
Board, the Advisor and the Distributor have adopted Codes of Ethics under
Rule 17j-1 of the 1940 Act. These codes of ethics permit,
subject to certain conditions, personnel of the Advisor and Distributor to
invest in securities that may be purchased or held by the Fund.
FINANCIAL
STATEMENTS
As the
Fund has recently commenced operations, there are no financial statements
available at this time. Shareholders of the Fund will be informed of
the Fund’s progress through periodic reports when those reports become
available. Financial statements certified by the independent
registered public accounting firm will be submitted to shareholders at least
annually.
APPENDIX
A
DESCRIPTION
OF SHORT-TERM RATINGS
Description
of certain short-term ratings assigned by Standard & Poor’s Ratings Services
(“S&P”) and Moody’s Investors Service (“Moody’s”):
40
S&P
A-1 - A short-term obligation
rated ‘A-1’ is rated in the highest category by S&P. The
obligor’s capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are given a plus
sign (+) designation. This indicates that the obligor’s capacity to
meet its financial commitment on these obligations is extremely
strong.
Issuers
rated Prime-2 (or
supporting institutions) have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers
rated Prime-3 (or
supporting institutions) have an acceptable ability for repayment of senior
short-term obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is
maintained.
41
APPENDIX
B
Jubak
Asset Management, LLC
Proxy
Voting Policy and Guidelines
Pending.
42
PART C: OTHER
INFORMATION
Jubak
Global Equity Fund
ITEM
28.
EXHIBITS
(a)
(1)
Agreement and Declaration of Trust of Registrant(1)
(2)
Certificate of Trust (1)
(3)
Amendment to Certificate of Trust (1)
(4)
Amendment to Certificate of Trust (2)
(5)
Amendment to Certificate of Trust (7)
(6) Amendment
to Agreement and Declaration of Trust (2)
(7) Amendment
to Agreement and Declaration of Trust (4)
(8) Amendment
to Agreement and Declaration of Trust (6)
ITEM
29. PERSONS
CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
See the
Statement of Additional Information.
ITEM
30.
INDEMNIFICATION
Pursuant
to Del. Code Ann. Title 12 Section 3817, a Delaware statutory trust may provide
in its governing instrument for the indemnification of its officers and Trustees
from and against any and all claims and demands whatsoever.
Reference
is made to Article 8, Section 8.4 of the Registrant's Agreement and Declaration
of Trust, which provides:
Subject
to the limitations, if applicable, hereinafter set forth in this Section 8.4,
the Trust shall indemnify (from the assets of the Series or Series to which the
conduct in question relates) each of its Trustees, officers, employees and
agents (including Persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise (hereinafter, together with such
Person's heirs, executors, administrators or personal representative, referred
to as a "Covered Person")) against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such Covered
Person may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Trustee or officer, director or trustee,
except with respect to any matter as to which it has been determined that such
Covered Person (i) did not act in good faith in the reasonable belief that such
Covered Person's action was in or not opposed to the best interests of the
Trust; (ii) had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (iii) for a criminal proceeding, had reasonable cause to believe
that his conduct was unlawful (the conduct described in (i), (ii) and (iii)
being referred to hereafter as "Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the Covered Person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the facts,
that the indemnity was not liable by reason of Disabling Conduct by (a) a vote
of a majority of a quorum of Trustees who are neither "interested persons" of
the Trust as defined in Section 2(a)(19) of the 1940 Act nor parties to the
proceeding (the "Disinterested Trustees"), or (b) an independent legal counsel
in a written opinion. Expenses, including accountants' and counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), may be paid from time to
time by one or more Series to which the conduct in question related in advance
of the final disposition of any such action, suit or proceeding; provided that
the Covered Person shall have undertaken to repay the amounts so paid to such
Series if it is ultimately determined that indemnification of such expenses is
not authorized under this Article 8 and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the disinterested Trustees, or an independent legal counsel in a written
opinion, shall have determined, based on a review of readily available facts (as
opposed to a full trial type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Pursuant
to the Distribution Agreement between the Trust and Grand Distribution Services,
LLC (the “Distributor”), the Trust has agreed to indemnify, defend and hold the
Distributor, and each of its present or former directors, members, officers,
employees, representatives and any person who controls or previously controlled
the Distributor within the meaning of Section 15 of the 1933 Act (“Distributor
Indemnitees”), free and harmless (a) from and against any and all losses,
claims, demands, liabilities, damages, charges, payments, costs and expenses
(including the costs of investigating or defending any alleged losses, claims,
demands, liabilities, damages, charges, payments, costs or expenses and any
counsel fees incurred in connection therewith) of any and every nature
(“Losses”) which Distributor and/or each of the Distributor Indemnitees may
incur under the 1933 Act, the 1934 Act, any other statute (including Blue Sky
laws) or any rule or regulation thereunder, or under common law or otherwise,
arising out of or based upon any untrue statement, or alleged untrue statement,
of a material fact contained in the registration statement or any prospectus, an
annual or interim report to shareholders or sales literature, or any amendments
or supplements thereto, or arising out of or based upon any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Trust’s obligation to indemnify Distributor and any of the Distributor
Indemnitees shall not be deemed to cover any Losses arising out of any untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with information relating to the
Distributor and furnished to the Trust or its counsel by Distributor in writing
for the purpose of, and used in, the preparation thereof; (b) from and against
any and all Losses which Distributor and/or each of the Distributor Indemnitees
may incur in connection with this Agreement or the Distributor’s performance
hereunder, except to the extent the Losses result from the Distributor’s willful
misfeasance, bad faith or negligence in the performance of its duties, or by
reason of its reckless disregard of its obligations and duties under this
Agreement, (c) from and against any and all Losses which Distributor and/or each
of the Distributor Indemnitees may incur resulting from the actions or inactions
of any prior service provider to the Trust or any Funds in existence prior to,
and added to Schedule A after, the date of this Agreement, or (d) from and
against any and all Losses which Distributor and/or each of the Distributor
Indemnitees may incur when acting in accordance with instructions from the Trust
or its representatives; and provided further that to the extent this agreement
of indemnity may require indemnity of any Distributor Indemnitee who is also a
trustee or officer of the Trust, no such indemnity shall inure to the benefit of
such trustee or officer if to do so would be against public policy as expressed
in the 1933 Act or the 1940 Act.
ITEM
31. BUSINESS
AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
With
respect to the Advisor, the response to this Item will be incorporated by
reference to the Advisor’s Uniform Application for Investment Adviser
Registration (Form ADV) on file with the Securities and Exchange Commission
(“SEC”). The Advisor’s Form ADV may be obtained, free of charge, at
the SEC’s website at www.adviserinfo.sec.gov.
ITEM
32. PRINCIPAL
UNDERWRITER
(a)
Grand
Distribution Services, LLC currently serves as distributor of the shares
of the Stewart Capital Mutual
Funds.
(b)
To
the best of Registrant’s knowledge, the officers of Grand Distribution
Services, LLC, distributor for Registrant, are as
follows:
Pursuant
to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Milwaukee and State of Wisconsin, on the 16th day
of April, 2010.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed on the 16th day
of April, 2010, by the following persons in the capacities set forth
below.
⇒ JUBAX