THE FUND SEEKS LONG-TERM CAPITAL GROWTH AND INCOME BY INVESTING PRIMARILY IN A DIVERSIFIED
PORTFOLIO OF SECURITIES ISSUED BY INDIAN AND INDIA-RELATED COMPANIES.
GATEWAY OF INDIA, MUMBAI, INDIA
(C) Hannah Freeman
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Carefully review this important
section for a summary of the Fund’s
investments, risks and fees.
The section contains details
on the Fund’s investment strategies
and risks
Consult this section to obtain
details on how shares are
valued, how to purchase, sell
and exchange shares, related
charges and payments of dividends.
Review this section for details
on the people and organizations
who oversee The Fund and its
investments.
RISK/RETURN SUMMARY AND FUND EXPENSES
2
EM Capital India Gateway Fund
INVESTMENT OBJECTIVE AND STRATEGIES
5
EM Capital India Gateway Fund
7
Investment Risks
7
Risks of Investing in Foreign Securities Generally
7
Risks of Investing Primarily in India
8
Other Risks of Foreign Investment
SHAREHOLDER INFORMATION
8
Pricing of Fund Shares
9
Purchasing and Adding to Your Shares
14
Distribution Arrangements/Sales Charges
18
Dividends, Distributions and Taxes
FUND MANAGEMENT
19
The Investment Adviser
19
Portfolio Managers
20
The Distributor and Administrator
FINANCIAL HIGHLIGHTS
21
Financial Highlights
RISK/RETURN SUMMARY AND FUND EXPENSES
RISK/RETURN SUMMARY OF THE FUND
INVESTMENT OBJECTIVE:
The Fund seeks long-term capital growth and income by investing primarily in
a diversified portfolio of securities issued by Indian and India-related companies.
PRINCIPAL
INVESTMENT
STRATEGIES:
The Fund invests, under normal circumstances, at least 80% of its net assets, plus
the amount of any borrowings for investment purposes, in publicly-traded common stocks,
preferred stocks and convertible stocks of Indian companies listed on Indian stock
exchanges, as well as in India-related companies listed on global
stock exchanges. India-related companies are those companies that derive 50% or more of their revenues or
profits from operations in India. The Fund invests in companies with a broad range of market
capitalizations which may include small- and mid-cap Indian companies.
The Fund expects to invest at least 50% of its assets in the securities
of small- and mid-cap companies. The investment adviser believes that by
investing a significant portion of the Fund’s assets in Indian small-
and mid-cap companies the Fund will benefit by investing early in
lesser-known, high-growth companies that may provide higher long-term
returns to the Fund. Small- and mid-cap companies for these purposes are
companies with market capitalizations at the time of investment of less
than $1.5 billion.
The Fund makes its investments in Indian companies by investing through
EM Capital Gateway (Mauritius), Ltd., a special purpose limited
liability corporation registered in Mauritius, that was formed solely
for the purpose of facilitating the Fund’s purchase of Indian securities
and that is regulated by the Securities and Exchange Board of India
(“SEBI”). Investing through EM Capital Gateway (Mauritius), Ltd. allows
the Fund to take advantage of a India-Mauritius tax treaty, thereby
achieving increased tax-efficiency for U.S. investors.
PRINCIPAL
INVESTMENT RISKS:
Because the value of the Fund’s investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments. Some of the Fund’s
holdings may underperform its other holdings. In
addition, because the Fund invests primarily in
securities issued by Indian and India-related firms, the
Fund is subject to the political and economic risks
associated with investment in India.
WHO MAY WANT
TO INVEST?
Consider investing in the Fund if you are:
- investing for a long-term goal such as retirement (five-year or longer investment horizon)
- willing to accept higher risks of investing in the stock market in exchange for potentially
higher long-term returns
This Fund will not be appropriate for someone:
- seeking monthly income
- pursuing a short-term goal or investing emergency reserves
- seeking safety of principal
2
FUND PERFORMANCE:
The Fund commenced operations on July 23, 2007, and, as a result, has less than
a full calendar year of performance. Therefore, no performance information is shown.
3
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
CLASS
CLASS
CLASS
INVESTMENT)
A
C
I
Maximum sales charge (load) imposed
on purchases
5.00
%(1)
None
None
Maximum deferred sales charge (load)
1.00
%(2)
None
None
Maximum sales charge (load)
imposed on reinvested dividends
None
None
None
Redemption fees(3)
2.00
%
2.00
%
2.00
%
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management Fees(4)
1.20
%
1.20
%
1.20
%
Distribution and Service (12b-1) Fees
0.50
%
1.00
%
0.00
%
Other Expenses(5)
1.74
%
1.74
%
1.74
%
Total Fund Operating Expenses(6)
3.44
%
3.94
%
2.94
%
Fee Waiver and/or Expense
Reimbursement(6)
1.14
%
1.14
%
1.14
%
Net Expenses(6)
2.30
%
2.80
%
1.80
%
(1)
The sales charge is eliminated in certain circumstances, such as for
purchases of $1 million or more. See “Distribution Arrangements/Sales Charges.”
(2)
A contingent deferred sales charge of 1% applies to redemptions made
within 12 months following certain purchases made without a sales charge.
(3)
Charged to shares redeemed within 90 days of purchase. Certain
exemptions may apply. Please see “Redemption Fee” for more information.
(4)
The Fund’s investment management fee is reduced as net assets in the
Fund increase, as follows: 1.20% of the first $500 million in net assets; 0.90% of
the next $500 million; 0.80% of the next $500 million; 0.70% of the next $500
million; 0.65% of the next $1 billion; and 0.60% of net assets over $3 billion.
(5)
Because the Fund has been in operation for less than six months, Other
Expenses are based on estimated amounts for the current fiscal year.
The estimated amounts are based on an estimate by the Fund’s
investment adviser of average net assets of $8,800,000 for the
current fiscal year.
(6)
The Adviser has contractually agreed until April 30, 2009 to waive fees
and/or reimburse the Fund certain expenses (excluding extraordinary expenses,
brokerage costs, interest, taxes and dividends) to the extent necessary to maintain
the Net Expenses for Class A, Class C and Class I shares at 2.30%, 2.80% and 1.80%,
respectively. The Fund has agreed to repay the Adviser for amounts waived or
reimbursed by the Adviser pursuant to the expense limitation agreement provided
that such repayment does not cause the Total Fund Operating Expenses for a class of
shares to exceed the above limits and the repayment is made within three years
after the year in which the Adviser incurred the expense.
4
EXPENSE EXAMPLE
Use this table to compare fees
and expenses with those of other
mutual funds. It illustrates the
amount of fees and expenses you
would pay, assuming the
following:
• $10,000 investment
• 5% annual return
• redemption at the end of each period
• no changes in the Fund’s operating expenses
• reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your actual costs will be
different.
1
3
YEAR
YEARS
Class A
$
721
$
1,403
Class C
$
283
$
1,097
Class I
$
183
$
802
Expenses for periods beyond 1 Year assume that the current expense limitation agreement expires and
is not renewed. However, if the expense limitation agreement is renewed, the expense of investing
in the Fund would be substantially lower.
INVESTMENT OBJECTIVE AND STRATEGIES
EM CAPITAL INDIA GATEWAY FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital growth and income by investing
primarily in a diversified portfolio of securities issued by Indian and India-related companies.
POLICIES AND STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of
any borrowings for investment purposes, in publicly-traded common stocks, preferred stocks and
convertible stocks of Indian companies listed on Indian stock exchanges, as well as in India-related companies listed on global stock
exchanges. India-related companies are those companies that derive 50% or more of their revenues or
profits from operations in India. The Fund invests in companies with a broad range of market
capitalizations which may include small- and mid-cap Indian companies. The Fund expects to invest
at least 50% of its assets in the securities of small- and mid-cap companies. Small- and mid-cap
companies for these purposes are companies with market capitalizations at the time of investment of
less than $1.5 billion.
EM Capital Management, LLC (the “Adviser”) selects securities using its proprietary Quantitative +
Qualitative™ investment methodology. This methodology combines quantitative fundamental company
valuation and portfolio risk management models with rigorous qualitative in-country research and
due diligence, including as appropriate, company visits and management interviews. The Adviser’s
quantitative methodology allows it to efficiently and pro-actively find Indian companies that are
attractively priced, providing the Fund with an early investment entry-point for achieving long-
5
term growth and income in the Indian market. The Adviser’s proprietary quantitative valuation
models systematically analyze both fundamental and investor sentiment indicators for over 3,000
individual Indian companies to identify a small subset of promising investment candidates. The
promising candidates are selected from a range of industries, and consist of some larger,
well-established firms and some smaller, less well-known firms, that the Adviser forecasts to have
higher earnings growth and liquidity than their peers. The Adviser believes that firms deemed
attractive by the Adviser’s models are likely to demonstrate stronger price growth based on solid
fundamentals that will attract attention from both sell-side analysts and other investors.
The Adviser then subjects attractive candidates to an in-country qualitative assessment and due
diligence process prior to recommendation for inclusion in the Fund. The due diligence process
considers information such as the quality of management, analysis of key drivers of the Indian
economy and sectoral growth trends, and other unique aspects of the target company that the Adviser
believes may be overlooked in its valuation. The Adviser also looks at the relationship of any
prospective sale or purchase in terms of the overall contribution to both risk and return of the
Fund, based on both quantitative and qualitative factors. Based upon all of these factors the
decision to invest is made by the Adviser’s Investment Committee.
The Adviser believes that deep local-market knowledge is important for long-term success in
emerging markets, particularly in a large and complex country such as India. In-country
qualitative research is performed by the Adviser’s New Delhi-based Portfolio Manager and research
analysts. The Adviser also believes its location in India’s capital provides greater insights into
national policy and regulatory changes that impact investing in India. In addition, the Adviser
may consult with its panel of senior advisors comprising leading corporate senior executives,
academics and policy-makers.
The Indian equity market currently comprises approximately 6,000 companies listed on the Indian
stock exchanges. By allocating a portion of its assets to mid-cap and small-cap stocks, the Fund
will invest in Indian companies that may experience higher growth rates than larger Indian
companies and may provide the Fund with the opportunity to experience greater capital appreciation
over time.
The Fund makes its investments in Indian companies by investing through EM Capital Gateway
(Mauritius), Ltd., a special purpose limited liability corporation, registered in Mauritius and
regulated by the Mauritius Financial Services Commission. EM Capital Gateway (Mauritius), Ltd. was
formed solely for the purpose of facilitating the Fund’s investment in Indian securities and is
regulated by the Securities and Exchange Board of India (“SEBI”). Investing through EM Capital
Gateway (Mauritius) Ltd. provides the Fund with a tax efficient method of investing indirectly in
the Indian stock market through local Indian brokers. Investing directly through Indian brokers
provides the Fund access to a wide selection of small- and mid-cap Indian companies consistent with
the Fund’s investment strategies.
Consistent with the Fund’s investment objective, the Fund:
•
may invest in the following types of equity securities: common stocks, preferred
stocks, securities convertible into or exchangeable for common stocks, warrants and any
rights to purchase common stocks
•
may invest in fixed income securities consisting of corporate notes, bonds and
debentures
•
may invest in initial public offerings and shares offered prior to the commencement
of public offerings
•
may invest in sponsored and unsponsored American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs) and European Depositary Receipts (EDRs)
•
may invest in private investment in public entity investments (PIPES)
•
may invest in foreign currency transactions including forward contracts, options and
swaps
•
may invest in futures contracts and options thereon
•
may invest in foreign government obligations and supranational obligations
•
may invest in call options and put options
•
may invest in restricted and illiquid securities
•
may invest in commercial paper
•
may engage in repurchase transactions and reverse repurchase transactions
•
may invest in securities of other investment companies including exchange traded
funds
•
may invest in short-term money market instruments and bank obligations
•
may invest in U.S. Treasury securities including Treasury bills, Treasury notes and
Treasury bonds
•
may invest in obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government
6
•
may lend securities to qualified brokers, dealers, banks and other financial
institutions for the purpose of realizing additional income
In the event that the Adviser determines that current market conditions are not suitable for the
Fund’s typical investments, the Adviser may instead, for temporary defensive purposes during such
unusual market conditions, invest all or any portion of the Fund’s assets in money market
instruments and repurchase agreements.
INVESTMENT RISKS
RISK FACTORS
An investment in the Fund is subject to investment risks, including the possible loss of the
principal amount invested. An investment in the Fund is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government
agency.
Generally, the Fund will be subject to the following risks:
MARKET RISK: Market risk refers to the risk related to investments in securities in general and the
daily fluctuations in the securities markets. The Fund’s performance will change daily based on
many factors, including fluctuation in interest rates, the quality of the instruments in the Fund’s
investment portfolio, national (i.e., Indian) and international economic conditions and general
market conditions.
SMALL- AND MID-SIZED COMPANY RISK: Generally, the smaller the market capitalization of a company,
the fewer the number of shares traded daily, the less liquid its stock and the more volatile its
price. Mid-sized company risk is the possibility that the securities of medium-sized companies may
under certain market conditions be more volatile and more speculative than the securities of larger
companies. Market capitalization of a company is determined by multiplying the number of its
outstanding shares by the current market price per share. Companies with smaller market
capitalizations also tend to have unproven track records, a limited product or service base,
limited access to capital and may lack management experience. Those factors also increase risks and
make those companies more likely to fail than companies with larger market capitalizations.
RISKS OF INVESTING IN FOREIGN SECURITIES GENERALLY
Foreign investing involves risks not typically associated with U.S. investments. These risks
include, among others, adverse fluctuations in currency exchange rates, and unstable or adverse
political, social and economic developments affecting a foreign country. In addition, foreign
investing may involve less publicly available or accurate company information, more volatile or
less liquid securities markets. differences in the way securities markets operate, and less secure
foreign banks or securities depositories than those in the U.S. Investments in foreign countries
could be affected by factors not present in the U.S., such as restrictions on receiving the
investment proceeds from a foreign country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Foreign accounting may be less transparent than U.S. accounting
practices and foreign regulation may be inadequate or irregular.
In addition, individual foreign economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency, and balance of payments position. Also, certain investments in foreign
securities also may be subject to foreign withholding taxes.
RISKS OF INVESTING PRIMARILY IN INDIA
The Fund will invest primarily in Indian and India-related securities. The value of the Fund’s
investments may therefore be adversely affected by political and social instability in India and by
changes in economic or taxation policies in the country. Investments in Indian securities will
expose the Fund to the direct or indirect consequences of political, social or economic changes in
India. India is considered to still be an emerging market nation and, as a result, has historically
experienced, and may continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and
extreme poverty and unemployment. Emerging market nations may be characterized by political
uncertainty and instability. In addition, there may be a risk of the possibility of
7
expropriation of assets, confiscatory taxation, difficulty in obtaining or enforcing a court
judgment, economic, political or social instability, and diplomatic developments that could affect
investments in India.
OTHER RISKS OF FOREIGN INVESTMENT
OVERSEAS EXCHANGES RISK: The Fund will engage in transactions on a number of overseas stock
exchanges. It is possible that market practices relating to clearance and settlement of securities
transactions and custody of assets can pose increased risk to the Fund and may involve delays in
obtaining accurate information on the value of securities (which may, as a result affect the
calculation of the Fund’s net asset value per share (“NAV”)).
FOREIGN CURRENCY RISK: Although the Fund will report its net asset value and pay dividends in U.S.
dollars, foreign securities often are purchased with and make interest payments in foreign
currencies. Therefore, when the Fund invests in foreign securities, it will be subject to foreign
currency risk, which means that the Fund’s net asset value could decline as a result of changes in
the exchange rates between foreign currencies and the U.S. dollar. Certain foreign countries may
impose restrictions on the ability of issuers of foreign securities to make payment of principal
and interest to investors
located outside the country, due to blockage of foreign currency exchanges or otherwise.
CURRENCY HEDGING RISK: The Fund may engage in various investments that are designed to hedge the
Fund’s foreign currency risks. While these transactions will be entered into to seek to manage
these risks, these investments may not prove to be successful or may have the effect of limiting
the gains from favorable market movements.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund’s investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets – Liabilities
Number of Shares Outstanding
You may find the Fund’s NAV in certain newspapers.
Per share net asset value (NAV) for the Fund is determined and its shares are priced at the close
of regular trading on the New York Stock Exchange (the “NYSE”), normally at 4:00 p.m. Eastern time
on days the Exchange is open for business.
Your order for purchase, sale or exchange of shares is priced at the next NAV calculated after your
order is accepted by the Fund plus any applicable sales charge. This is what is known as the
offering price.
The Fund’s securities are generally valued at current market prices. The Fund’s assets generally
are valued at their market value using market quotations. The Fund may use pricing services to
determine market value. If market prices are not available or, in the Adviser’s opinion, market
prices do not reflect fair value, or if an event occurs after the close of trading on the domestic
or foreign exchange or market on which the security is principally traded (but prior to the time
the NAV is calculated) that materially affects fair value, the Adviser will value the Fund’s assets
at their fair value according to policies approved by the Fund’s Board of Trustees. For example,
if trading in a portfolio security is halted and does not
8
resume before the Fund calculates its
NAV, the Adviser may need to price the security using the Fund’s fair value pricing
guidelines. Without a fair value price, short term traders could take advantage of the arbitrage
opportunity and dilute the NAV of long term investors. Securities trading on overseas markets
present time zone arbitrage opportunities when events effecting portfolio security values occur
after the close of the overseas market, bur prior to the close of the U.S. market. Fair valuation
of the Fund’s portfolio securities can serve to reduce arbitrage opportunities available to
short-term traders, but there is no assurance that fair value pricing policies will prevent
dilution of the Fund’s NAV by short-term traders. Fair valuation involves subjective judgments and
it is possible that the fair value determined for a security may differ materially from the value
that could be realized upon the sale of the security. The Fund will invest in other investment
companies. The Fund’s NAV is calculated based, in part, upon the market prices of the investment
companies in its portfolio, and the prospectuses of those companies explain the circumstances under
which they will use fair value pricing and the effects of using fair value pricing.
PURCHASING AND ADDING TO YOUR SHARES
You may purchase the Fund through the Distributor or through investment
representatives, who may charge fees and may require higher minimum investments
or impose other limitations on buying and selling shares. If you purchase shares
through an investment representative, that party is responsible for transmitting
orders by close of business and may have an earlier cut-off time for purchase
and sale requests. Consult your investment representative for specific
information.
CLASS A AND CLASS C SHARES*
MINIMUM
MINIMUM
INITIAL
SUBSEQUENT
ACCOUNT TYPE
INVESTMENT
INVESTMENT
Regular
(non-retirement)
$
1,000
$
100
Retirement
$
500
$
100
Automatic Investment
Plan Regular
$
1,000
$
100
Automatic Investment
Plan Retirement
$
500
$
100
*
The minimum initial investment for all account types in Class I shares is $100,000.
All purchases must be in U.S. dollars. A fee will be charged for any checks that do not clear.
Third-party checks, starter checks, traveler’s checks, money orders, credit card convenience checks
and cash are not accepted.
The Fund may waive its minimum purchase requirement and it may reject a purchase order if it
considers it in the best interest of the Fund and its shareholders.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
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. What this means for you is that when you open an account, you are
required to provide your name, residential address, date of birth, and identification number. We
may require other information that will allow us to identify you.
9
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1.
Carefully read and complete the application. Establishing your account privileges now saves
you the inconvenience of having to add them later.
2.
Make check or certified check payable to “EM Capital India Gateway Fund.”
Please call 1-866-611-4967 for instructions on opening an account or
purchasing additional shares by wire transfer.
You can add to your account by using the convenient options described below. The Fund reserves the
right to change or eliminate these privileges at any time with 60 days notice.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account. Automatic investments can
be as little as $100, once you’ve invested the $1,000 minimum required to open the account.
To invest regularly from your bank account:
10
•
Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
•
Your bank name, address and ABA number
•
Your checking or savings account number
•
The amount you wish to invest automatically (minimum $100)
•
How often you want to invest (monthly or quarterly)
•
Attach a voided personal check or savings deposit slip.
PURCHASES MADE THROUGH CERTAIN SELECTED DEALERS
Shares of the Fund may also be purchased through certain broker-dealers or other financial
intermediaries that have entered into selling agreements or related arrangements with the Fund or
the Distributor. If you invest through such entities, you must follow their procedures for buying
and selling Fund shares. Please note that such financial intermediaries may charge you fees in
connection with purchases of Fund shares. Such broker-dealers or financial intermediaries are
authorized to designate other intermediaries to accept purchase and redemption orders on behalf of
the Fund. If the broker-dealer or financial intermediary submits trades to the Fund, the Fund will
use the time of day when such entity or its designee receives the order to determine the time of
purchase or redemption, and will process the order at the next closing price computed after
acceptance. The Adviser may make payments to such entities out of its own resources in connection
with certain administrative services provided by them in connection with the Fund.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you request otherwise.
Capital gains are distributed at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU’VE OWNED YOUR SHARES.
THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME OF YOUR INVESTMENT WILL BE
RETURNED TO YOU IN THE FORM OF A DISTRIBUTION AND MAY BE SUBJECT TO INCOME TAX.
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a
week after your request is
received. See section on
“General Policies on
Selling Shares” below.
11
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you request
a withdrawal in cash. This is also known as redeeming shares or a redemption of shares.
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-866-611-4967 with instructions as to how you wish to receive your funds (check,
wire, electronic transfer).
BY MAIL
1. Call 1-866-611-4967 to request redemption forms or write a letter of instruction
indicating:
•
your Fund and account number
•
amount you wish to redeem
•
address where your check should be sent
•
account owner signature
2. Mail to: EM Capital India Gateway Fund, P.O. Box 182626 Columbus, OH43218-2626
BY OVERNIGHT SERVICE
SEE INSTRUCTION 1 ABOVE UNDER “BY MAIL.”
2. Send to: EM Capital India Gateway Fund, Attn: Shareholder Services, 3435 Stelzer Road,
Columbus, OH43219
WIRE TRANSFER
You must indicate this option on your application.
The Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
If you call by 4 p.m. Eastern time, your payment will normally be wired to your bank on the
next business day.
AUTOMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or quarterly basis. The minimum
withdrawal is $100. To activate this feature:
•
Make sure you’ve checked the appropriate box and completed the Automatic Withdrawal section
of the Account Application. Or call 1-866-611-4967.
•
Include a voided personal check.
•
Your account must have a value of $5,000 or more to start withdrawals.
•
If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
12
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemptions in writing in the following situations:
1.
Redemptions from Individual Retirement Accounts (“IRAs”).
2.
Redemption requests requiring a signature guarantee. Signature guarantees are required in
the following situations:
•
Your account address has changed within the last 15 business days
•
The check is not being mailed to the address on your account
•
The check is not being made payable to the owner(s) of the account
•
The redemption proceeds are being transferred to another Fund account with a different
registration
•
The redemption proceeds are being wired to bank instructions currently not on your account
A signature guarantee can be obtained from a financial institution, such as a bank, broker-dealer,
or credit union, which are members of the STAMP (Securities Transfer Agents Medallion Program), MSP
(New York Stock Exchange Medallion Program) or SEMP (Stock Exchanges Medallion Program), but not
from a notary public. Members 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.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made by authorized
shareholders. All telephone calls are recorded for your protection and you will be asked for
information to verify your identity. Given these precautions, unless you have specifically
indicated on your application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions have not been taken,
the Transfer Agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF SHARES PURCHASED BY CHECK
When you have made your investment by check, you cannot redeem any portion of it until the Transfer
Agent is satisfied that the check has cleared (which may require up to 10 business days). You can
avoid this delay by purchasing shares with a federal funds wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as permitted by the SEC in
order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash, known as “redemption in
kind.” This could occur under extraordinary circumstances, such as a very large redemption that
could affect the Fund’s operations (for example, more than 1% of the Fund’s net assets). If the
Fund deems it advisable for the benefit of all shareholders, redemption in kind will consist of
securities equal in market value to your shares. When you convert these securities to cash, you
will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
13
If your account falls below $500, the Fund may ask you to increase your balance. If it is still
below $500 after 60 days, the Fund may close your account and send you the proceeds at the current
NAV.
UNDELIVERABLE DISTRIBUTION CHECKS
For any shareholder who chooses to receive distributions in cash: If distribution checks are
returned and marked as “undeliverable” or remain uncashed for six months, your account may be
changed automatically so that all future distributions are reinvested in your account.
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes the sales charges and fees you will pay as an investor in the Fund and ways
to qualify for reduced sales charges. You may also obtain information about the Fund’s sales
charges and ways to reduce sales charges through the use of breakpoints and waiver arrangements by
visiting the Fund’s website at http://www.emcapitalmanagement.com.
Class A
Class C
Class I
Sales Charge (Load)
Front-end sales
charge; reduced
sales charges
available. A
contingent
deferred
sales charge of
1% applies to
redemptions made
within 12 months
following certain
purchases made
without a sales
charge.
No front-end sales
charge or
contingent sales
charge.
No front-end sales
charge or
contingent sales
charge.
Distribution and
Service (12b-1) Fee
Subject to annual
distribution and
shareholder
servicing fees of
up to 0.50% of the
fund’s total assets
applicable to Class
A shares.
Subject to annual
distribution and
shareholder
servicing fees of
up to 1.00% of the
fund’s total assets
applicable to Class
C shares.
No distribution and
shareholder
servicing fees.
Fund Expenses
Lower annual
expenses than Class
C shares; higher
annual expenses
than Class I
shares.
Higher annual
expenses than Class
A and Class I
shares.
Lower annual
expenses than Class
A and Class C
shares.
CALCULATION OF SALES CHARGES
CLASS A SHARES
Class A shares are sold at their public offering price. This price includes the initial sales
charge. Therefore, part of the money you invest will be used to pay the sales charge. The remainder
is invested in Fund shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates for the Class A shares of the Fund are as follows:
14
DEALER
SALES CHARGE
SALES CHARGE
COMMISSION
YOUR
AS A % OF
AS A % OF
AS A % OF
INVESTMENT
OFFERING PRICE
YOUR INVESTMENT
OFFERING PRICE
Less than $50,000
5.00
%
5.26
%
4.50
%
$50,000 but less than $100,000
4.00
%
4.17
%
3.65
%
$100,000 but less than $250,000
3.75
%
3.90
%
3.40
%
$250,000 but less than $500,000
3.00
%
3.09
%
2.75
%
$500,000 but less than $1,000,000
2.00
%
2.04
%
1.75
%
$1,000,000(1) or more
None
None
None
(1)
There is no initial sales charge on purchase of $1 million or more. However, a contingent
deferred sales charge (“CDSC”) of up to 1.00% of the purchase price will be charged to the
shareholder if shares are redeemed in the first 12 months after purchase. This charge will be based
on the lower of your cost for the shares or their NAV at the time of redemption. There will be no
CDSC on reinvested distributions. For sales of $1 million or more, payments may be made to those
broker-dealers having at least $1 million of assets invested in the Fund, a fee of up to 1% of the
offering price of such shares up to $2.5 million, 0.5% of the offering price from $2.5 million to
$5 million, and 0.25% of the offering price over $5 million.
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with investments of $50,000
or more. In addition, you may qualify for reduced sales charges under the following circumstances:
LETTER OF INTENT — You inform the Fund in writing that you intend to purchase enough shares over a
13-month period to qualify for a reduced sales charge. Shares purchased under the non-binding
Letter of Intent will be held in escrow until the total investment has been completed. In the event
the Letter of Intent is not completed, sufficient escrowed shares will be redeemed to pay any
applicable front-end sales charges.
RIGHTS OF ACCUMULATION — When the value of shares you already own in all share classes plus the
amount you intend to invest reaches the amount needed to qualify for reduced sales charges, your
added investment will qualify for the reduced sales charge.
REINSTATEMENT PRIVILEGE
If you have sold Class A shares and decide to reinvest in the Fund within a 120 day period, you
will not be charged the applicable sales load on amounts up to the value of the shares you sold.
You must provide a written reinstatement request and payment within 120 days of the date your
instructions to sell were processed.
SALES CHARGE WAIVERS
The sales charge will not apply to purchases of Class A shares by:
(1) The Fund’s distributor or any of its affiliates;
(2) Trustees or officers of the Fund;
(3) Officers, directors and employees of the Adviser and their immediate families;
(4) Employees of investment dealers and registered investment advisers authorized to sell the
Fund;
15
(5) Institutional investors (such as qualified retirement plans, wrap fee plans and other
programs charging asset-based fees) that have received authorization from the Distributor;
(6) Accounts that are held with certain selected financial intermediaries that have entered into
service agreements that have received authorization from the Distributor.
For these purposes, “immediate family” is defined to include a person’s spouse, parents and
children.
The Adviser, at its expense, may provide compensation to dealers in connection with sales of
shares of the Fund.
CLASS C SHARES
Class C shares are sold without any initial sales charge or contingent sales charge.
CLASS I SHARES
Class I shares are sold without any initial sales charge, with a minimum initial investment of
$100,000 to the following:
(1) Accounts for which the Adviser or any of its affiliates act as fiduciary, agent,
investment adviser or custodian.
(2) Institutional investors (such as qualified retirement plans, wrap fee plans and other
programs charging asset-based fees) that have received authorization from the Distributor.
(3) Advisory clients of the Adviser with a fee-based asset management account.
For these purposes, “immediate family” is defined to include a person’s spouse, parents and
children. The initial investment minimum may be waived for persons affiliated with the Adviser and
its affiliated entities.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate dealers and investment representatives for services and expenses relating to
the sale and distribution of the Fund’s shares and/or for providing shareholder services. 12b-1
fees are paid from Fund assets on an ongoing basis, and will increase the cost of your investment.
The 12b-1 fees vary by share class as follows:
•
Class A shares pay a 12b-1 fee of up to 0.50% of the average daily net assets of the Fund
attributable to Class A shares. This will cause expenses for Class A shares to be higher and
dividends to be lower than for Class I shares.
•
Class C shares pay a 12b-1 fee of up to 1.00% of the average daily net assets of the Fund
attributable to Class C shares. This will cause expenses for Class C shares to be higher and
dividends to be lower than for Class A and Class I shares.
•
The higher 12b-1 fee on Class C shares helps the Distributor sell Class C shares without an
“up-front” sales charge.
•
The Distributor may use up to 0.25% of the 12b-1 fee for shareholder servicing and up to
0.75% for distribution, as applicable.
Long-term shareholders of Class A shares and Class C shares may pay indirectly more than the
equivalent of the maximum permitted front-end sales charge due to the recurring nature of 12b-1
distribution and service fees.
Class I shares are not subject to any 12b-1 distribution or service fees.
16
The Adviser, at its expense, may provide compensation to dealers in connection with sales of shares
of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS — ADDITIONAL PAYMENTS
The Adviser has entered into an agreement with the Distributor whereby the Adviser has agreed that,
in the event that the Fund’s 12b-1 fees are not sufficient to pay for certain distribution
activities described elsewhere in this Prospectus and disclosed above, the Adviser will use its own
resources to pay the Distributor for the portion of distribution activities not paid for by the
Fund’s 12b-1 fees. Such payments by the Adviser may be made, among other things, to supplement
commissions re-allowed to dealers, or more generally to promote the sale of Fund shares or to
service Fund shareholders. Among other things, such payments may include, but are not limited to:
(1) due diligence payments for a broker-dealer’s examination of the Fund and payments for employee
training and education in relation to the Fund; (2) listing fees for the placement of the Fund on a
broker-dealer’s list of mutual funds available for purchase by its clients; (3) marketing support
fees for providing assistance in promoting the sale of Fund shares; (4) payments in connection
with attendance at sales meetings for the promotion of the sale of Fund shares; and (5) payments
for the sale of Fund shares and/or the maintenance of Fund share balances. These payments will not
change the price an investor will pay for Fund shares. In some circumstances, the payments may
create an incentive for a dealer, other organizations and their investment professionals to
recommend or sell Fund shares to a client over shares of other mutual funds. For more information,
please contact your investment professional.
FREQUENT TRADING POLICY
Frequent trading into and out of the Fund can have adverse consequences for the Fund and for
long-term shareholders in the Fund. The Fund believes that frequent or excessive short-term trading
activity by shareholders of the Fund may be detrimental to long-term shareholders because those
activities may, among other things: (a) dilute the value of shares held by long-term shareholders;
(b) cause the Fund to maintain larger cash positions than would otherwise be necessary; (c)
increase brokerage commissions and related costs and expenses, and (d) incur additional tax
liability. The Fund therefore discourages frequent purchases and redemptions by shareholders and it
does not make any effort to accommodate this practice. To protect against such activity, the Board
of Trustees has adopted policies and procedures that are intended to permit the Fund to curtail
frequent or excessive short-term trading by shareholders. As described immediately below, the Fund
changes a redemption fee of 2.00% of the total redemption amount on the sale of shares held for
less than 90 days. At the present time the Fund does not impose limits on the frequency of
purchases and redemptions. The Fund reserves the right, however, to impose certain limitations at
any time with respect to trading in shares of the Fund, including suspending or terminating trading
privileges in Fund shares, for any investor whom the Fund believes has a history of abusive trading
or whose trading, in the judgment of the Fund, has been or may be disruptive to the Fund.
SHAREHOLDER INFORMATION
REDEMPTION FEE
The Fund charges a redemption fee of 2.00% of the total redemption amount if you sell your shares
within 90 days of purchase, subject to certain exceptions and limitations as described below. The
redemption fee is paid directly to the Fund and is designed to offset brokerage commissions, market
impact and other costs associated with short-term trading of Fund shares. For purposes of
determining whether the redemption fee applies, the shares that were held the longest will be
redeemed first. This redemption fee is in addition to any contingent deferred sales charges that
may be applicable at the time of sale. The redemption fee will not apply to shares representing
the reinvestment of dividends and capital gains distributions. The redemption fee may not apply in
certain circumstances such as redemptions of shares through systematic withdrawal plans,
redemptions of shares purchased via an automatic investment plan, redemptions requested within 90
days following the death or disability of the shareholders (or, if a trust, its beneficiary), and
redemptions requested pursuant to minimum required distributions from retirement plans or
redemptions initiated by the Fund.
The Fund reserves the right to modify or eliminate the redemption fee or waivers at any time and
will give 60 days prior written notice of any material changes, unless otherwise provided by law.
The redemption fee policy may be modified or amended in the future.
17
In addition to the circumstances noted above, the Fund reserves the right to grant additional
exceptions based on such factors as system limitations, operational limitations, contractual
limitations and further guidance from the SEC or other regulators.
If your shares are held through an investment representative in an omnibus or other group account,
the Fund relies on the investment representative to assess the redemption fee on underlying
shareholder accounts. The application of redemption fees and exemptions may vary and certain
intermediaries may not apply the exceptions listed above. If you invest through a financial
intermediary, please contact your intermediary for more information regarding when redemption fees
will be applied to the redemption of your shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of interest and dividends is paid out, less expenses, to
its shareholders. Income dividends and capital gains for the Fund are distributed at least
annually.
Dividends and distributions are treated in the same manner for federal income tax purposes whether
you receive them in cash or in additional shares.
An exchange of shares is considered a sale, and any related gains may be subject to applicable
taxes.
Dividends are taxable as ordinary income. Taxation on capital gains will vary with the length of
time the Fund has held the security — not how long the shareholder has been in the Fund.
Dividends are taxable in the year they are paid or credited to your account. However, dividends
declared in October, November or December to shareholders of record in such a month and paid by
January 31st are taxable on December 31st of the year they are declared.
Currently effective tax legislation generally provides for a maximum tax rate for individual
taxpayers of 15% on long-term gains and from certain qualifying dividends on corporate stock. These
rate reductions do not apply to corporate taxpayers. The following are guidelines for how certain
distributions by the Fund are generally taxed to individual taxpayers:
•
Distributions of earnings from qualifying dividends and qualifying long-term capital gains
will be taxed at a maximum rate of 15%.
•
Note that distributions of earnings from dividends paid by certain “qualified foreign
corporations” can also qualify for the lower tax rates on qualifying dividends.
•
A shareholder will also have to satisfy a greater than 60-day holding period with respect to
any distributions of qualifying dividends in order to obtain the benefit of the lower tax
rate.
•
Distributions of earnings from non-qualifying dividends, interest income, other types of
ordinary income and short-term capital gains will be taxed at the ordinary income tax rate
applicable to the taxpayer.
You will be notified in January each year about the federal tax status of distributions made by the
Fund. Depending on your residence for tax purposes, distributions also may be subject to state and
local taxes, including withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There is a penalty on
certain pre-retirement distributions from retirement accounts. Consult your tax advisor about the
federal, state and local tax consequences in your particular circumstances.
The Fund is required to withhold 28% of taxable dividends, capital gains distributions and
redemptions paid to shareholders who have not provided the Fund with their certified taxpayer
identification number in compliance with IRS rules. To avoid this, make sure you provide your
correct Tax Identification Number (Social Security Number for most investors) on your account
application.
18
FUND MANAGEMENT
THE INVESTMENT ADVISER
The Fund’s investment adviser is EM Capital Management, LLC (www.emcapitalmanagement.com), located
in the United States at 920 Country Club Drive, Suite 1-E, Moraga, California94556. EM Capital
Management, LLC also has offices in New Delhi, India, located at 15 Birbal Road, Jangpura
Extension, New Delhi, 110014, India, through its domestic affiliate, EM Capital India Advisory
Private, Limited. The investment adviser manages the Fund’s investments and provides the Fund with
operating facilities under the direction of the Board of Trustees.
Mr. G. W. Bajpai, former Chairman of the Securities Exchange Board of India, serves as
Non-Executive Chairman of EM Capital Management, LLC. Mr. Bajpai also is a former Chairman of Life
Insurance Corporation of India, India’s largest insurance company. The Senior Officers of EM
Capital Management, LLC, Dhruba Gupta and Seth R. Freeman, serve as Co-Portfolio Managers. Their
titles and brief biographies appear in the “Portfolio Managers” section below.
As compensation for its advisory and management services to the Fund, the investment adviser
receives an annual fee that is computed and accrued daily and payable monthly. The investment
advisory fee paid by the Fund on an annual basis based on the net assets of the Fund is as follows:
1.20% of the first $500 million; 0.90% of the next $500 million; 0.80% of the next $500 million;
0.70% of the next $500 million; 0.65% of the next $1 billion; and 0.60% of the net assets over $3
billion. The investment adviser may, from time to time, waive some or all of the investment
advisory fee payable to it.
Information regarding the factors considered by the Board of Trustees of the Fund in connection
with their approval of the Investment Advisory Agreement with respect to the Fund is provided in
the Fund’s Annual Report to Shareholders for the fiscal period ended December 31, 2007.
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the Fund and are primarily responsible
for the day-to-day management of the Fund’s portfolio:
DHRUBA GUPTA, CA. Mr. Gupta has served as Co-Portfolio Manager for the Fund since July 2007. Mr.
Gupta is the Chief Executive Officer of EM Capital India Advisory Private, Limited located in New
Delhi, India and he is a co-founder of EM Capital Management, LLC. Mr. Gupta provides local market
research and analysis and is responsible for managing the Adviser’s day-to-day operations in India.
Prior to becoming one of the founders of the Adviser, Mr. Gupta served as Special Advisor to the
Chairman of IFCI Bank, a large Indian economic development bank from
April, 2002 to April, 2004. Mr. Gupta has also
previously consulted on India policy, infrastructure and investment strategies to both foreign and
India corporations as well as the Organization for Economic Co-Operation and Development (the
“OECD”). Prior to returning to India, Mr. Gupta served as Deputy Treasurer of the International
Monetary Fund (the “IMF”) for the last seven years of his 29-year career with the IMF. Mr. Gupta is
a Chartered Accountant and holds a BS in Economics for the London School of Economics and an M.
Phil. in Economics from George Washington University. Mr. Gupta is a resident of New Delhi and
Virginia.
SETH R. FREEMAN. Mr. Freeman has served as Co-Portfolio Manager of the Fund since July 2007. Mr.
Freeman is the Chief Executive Officer and a co-founder of EM Capital Management, LLC and he is
based in the Adviser’s California office. Mr. Freeman is also the Chief Executive Officer and
founder of EM Capital, Inc., an international financial and investment advisory firm specializing
in emerging markets focused on India and Latin America, a position he
has held since 2003. From
1996 to 1997, Mr. Freeman served as Senior Emerging Markets consultant to Barr Rosenberg Investment
Management. Mr. Freeman holds an MBA in International Management from Thunderbird, the American
Graduate School of International Management and a BA in Management from St. Mary’s College of
California. Mr. Freeman is a Certified Insolvency and Restructuring Advisor (CIRA).
19
The Statement of Additional Information has more detailed information about the Adviser and the
other service providers as well as additional information about the portfolio managers’
compensation arrangements, other accounts managed, as applicable, and ownership of securities of
the Fund.
THE DISTRIBUTOR AND ADMINISTRATOR
Foreside Distribution Services, L.P. is the Fund’s distributor located at 100 Summer Street,
Boston, MA02110. Citi Fund Services Ohio, Inc. is the Fund’s administrator located at 3435
Stelzer Road, Columbus, OH43219.
CAPITAL STRUCTURE. The Coventry Funds Trust was organized as a Massachusetts business trust in 1994
and overall responsibility for the management of the Fund is vested in the Board of Trustees.
Shareholders are entitled to one vote for each full share held and a proportionate fractional vote
for any fractional shares held and will vote in the aggregate and not by series except as otherwise
expressly required by law.
DISCLOSURE OF FUND PORTFOLIO HOLDINGS
A complete list of the Fund’s portfolio holdings is publicly available on a quarterly basis through
filings made with the SEC on Forms N-CSR and N-Q. A description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio securities is provided in the
Statement of Additional Information (SAI).
20
FINANCIAL HIGHLIGHTS
The financial highlights table sets forth the per share operating performance data for a share of
capital stock outstanding, total return, ratios to average net assets and other supplemental data
for the period indicated.
The
financial highlights table is intended to help you understand the Fund’s financial performance
for the past five years (or if shorter, the period of the Fund’s operation). Certain information
reflects financial results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been audited by Ernst &
Young, LLP, whose report, along with the Fund’s financial statements, are included in the annual
report, which is available upon request.
During the period, certain fees were contractually reduced and/or reimbursed. If such fee
reductions and/or reimbursements had not occurred, the ratio would have been as indicated.
(e)
Annualized for periods less than one year.
21
EM Capital India Gateway Fund
Notice of Privacy Policy & Practices
EM Capital India Gateway Fund recognizes and respects the privacy expectations of our
customers1. We provide this notice to you so that you will know what kinds of
information we collect about our customers and the circumstances in which that information may be
disclosed to third parties who are not affiliated with the EM Capital India Gateway Fund.
Collection of Customer Information
We collect nonpublic personal information about customers from the following sources:
•
Account Applications and other forms, which may include a customer’s name, address,
social security number, and information about a customer’s investment goals and risk
tolerance.
•
Account History, including information about the transactions and balances in a
customer’s accounts; and
•
Correspondence, written, telephonic or electronic between a customer and the EM
Capital India Gateway Fund or service providers to the EM Capital India Gateway Fund.
Disclosure of Customer Information
We may disclose all of the information described above to certain third parties who are not
affiliated with the EM Capital India Gateway Fund under one or more of these circumstances:
•
As Authorized — if you request or authorize the disclosure of the information.
•
As Permitted by Law — for example, sharing information with companies who maintain
or service customer accounts for the EM Capital India Gateway Fund is permitted and is
essential for us to provide shareholders with necessary or useful services with respect
to their accounts.
•
Under Joint Agreements — we may also share information with companies that perform
marketing services on our behalf or to other financial institutions with whom we have
joint marketing agreements.
Security of Customer Information
We require service providers of the EM Capital India Gateway Fund:
•
to maintain policies and procedures designed to assure only appropriate access to,
and the use of information about customers of the EM Capital India Gateway Fund.
•
to maintain physical, electronic and procedural safety standards that comply with
federal standards to guard non public personal information of customers of the EM
Capital India Gateway Fund.
We will adhere to the policies and practices described in this notice regardless of whether
you are a current or former shareholder of the EM Capital India Gateway Fund.
THIS IS NOT PART OF THE PROSPECTUS
1
For purposes of this notice, the terms “customer” or
“customers” includes both shareholders of the EM Capital India Gateway Fund and
individuals who provide nonpublic personal information to the EM Capital India
Gateway Fund, but do not invest in the EM Capital India Gateway Fund.
For more information about the Fund, the following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund’s annual and semi-annual reports to shareholders contain additional information on the
Fund’s investments. In the annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund’s performance during its last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its operations and investment
policies. It is incorporated by reference and is legally considered a part of this prospectus.
YOU CAN RECEIVE FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING A BROKER THAT SELLS THE
FUND. YOU MAY ALSO VISIT THE FUND’S WEBSITE AT HTTP://WWW.EMCAPITALMANAGEMENT.COM TO OBTAIN FREE
COPIES OF REPORTS AND THE SAI.
You can review the Fund’s reports and the SAI at the Public Reference Room of the Securities and
Exchange Commission. You can get text-only copies:
•
For a duplicating fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-202-942-8090, or by electronic request by e-mailing
the SEC at the following address: publicinfo@sec.gov.
•
Free from the EDGAR Database on the Commission’s Website at http://www.sec.gov.
This Statement of Additional Information is not a prospectus but should be read in conjunction with
the prospectus for the EM Capital India Gateway Fund (the “Fund”) dated the same date as the date
hereof (the “Prospectus”). The Fund is a separate investment series of The Coventry Funds Trust
(the “Trust”), an open-end management investment company. This Statement of Additional Information
incorporates the Fund’s financial statements and related notes and auditor’s reports from the
Fund’s annual report for the fiscal year ended December 31, 2007, and is incorporated in its
entirety into the Prospectus. Copies of the Prospectus may be obtained by writing the EM Capital
India Gateway Fund, at 3435 Stelzer Road, Columbus, Ohio43219, or by telephoning toll free
1-866-611-4967.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING SERVICES
34
DISTRIBUTOR
34
CUSTODIAN
37
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
38
LEGAL COUNSEL
38
ADDITIONAL INFORMATION
38
DESCRIPTION OF SHARES
38
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
39
ADDITIONAL TAX INFORMATION
40
PERFORMANCE CALCULATIONS
46
PERFORMANCE COMPARISONS
50
PRINCIPAL SHAREHOLDERS
51
PROXY VOTING
52
DISCLOSURE OF FUND PORTFOLIO HOLDINGS
52
MISCELLANEOUS
53
FINANCIAL STATEMENTS
54
2
STATEMENT OF ADDITIONAL INFORMATION
EM CAPITAL INDIA GATEWAY FUND
AN INVESTMENT PORTFOLIO OF THE COVENTRY FUNDS TRUST
The Coventry Funds Trust (the “Trust”) is an open-end management investment company which
currently offers its shares in separate investment series. This Statement of Additional Information
deals with one such investment series, the EM Capital India Gateway Fund (the “Fund”). Much of the
information contained in this Statement of Additional Information expands upon subjects discussed
in the Prospectus. Capitalized terms not defined herein are defined in the Prospectus. No
investment in shares (“Shares” or a “Share”) of the Fund should be made without first reading the
Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objective and policies of the Fund as set
forth in the Prospectus. The Board of Trustees of the Fund may change the Fund’s investment
objective without a shareholder vote upon a 60-day written notice. The Fund will invest in the
following portfolio instruments either directly or through one or more special purpose vehicles.
Foreign (Non-U.S.) Securities. The Fund invests, under normal circumstances, at least 80% of
its net assets plus the amount of any borrowings for investment purposes in publicly-traded common
stocks, preferred stocks and convertible stocks of Indian companies listed on Indian stock
exchanges and India-related companies listed on global stock exchanges. India-related companies are
those companies that derive 50% or more of their revenues or profits from operations in India.
Investing in securities issued by foreign companies, such as Indian and India-related companies,
involves inherent risks that are different from those of domestic issuers, including political or
economic instability of the issuer, diplomatic developments which could affect U.S. investments in
those countries, changes in foreign currency and exchange rates and the possibility of adverse
changes in exchange control regulations. Costs are incurred in connection with conversions between
various currencies. In addition, foreign brokerage commissions are generally higher than in the
U.S., and foreign securities markets may be not as large or liquid as in the U.S. Investments in
foreign countries could be affected by other factors not present in the U.S., including
expropriation, confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations which could extend settlement periods.
3
The Fund may invest in companies located in developing countries, such as India, which present
greater risks than investing in foreign issuers based in more developed markets in general. A
number of developing countries, including India, restrict foreign investments in stocks.
Repatriation of investment income, capital and the proceeds of sales by foreign investors may be
more difficult, and may require governmental registration and/or approval in some developing
countries. A number of currencies of developing countries have experienced significant declines
against the U.S. dollar in recent years, and devaluation may occur subsequent to investments in
these currencies by the Fund. Many of the developing countries securities markets are relatively
small, have low trading volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility.
Depositary Receipts. The Fund may also invest in American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs) and European Depositary Receipts (EDRs). ADRs are receipts issued by an
American bank or trust company evidencing ownership of underlying securities issued by a foreign
issuer. Generally, ADRs in registered form are dollar denominated securities designed for use in
the U.S. securities markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or trust company
depositary of an unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting rights. EDRs are receipts
issued by a European financial institution evidencing an arrangement similar to that of ADRs. EDRs,
in bearer form, are designed for use in the European securities markets. GDRs are depositary
receipts issued on a global basis and are typically offered through global banking institutions and
their branches.
Participatory Notes. Participatory notes are financial instruments that are issued by major
international investment firms which represent interests in securities of Indian issuers.
Participatory notes allow the purchaser to receive exposure to Indian investment performance
without directly acquiring the securities of Indian issuers. Participatory notes are currently
regulated, in some respects, by Indian securities authorities, but they may become subject to
additional investment limitations imposed by the Government of India in order to limit their use by
Indian citizens and non-Indian entities.
Common Stocks. The Fund may invest in common stocks, which include the common stock of any
class or series of corporations or any similar equity interest, such as a trust or partnership
interest. These investments may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company’s capital structure. The Fund may also
invest in warrants and rights related to common stocks.
Convertible Securities. The Fund may invest in convertible securities, including debt
securities or preferred stock that may be converted into common stock or that carry the right to
purchase common stock. Convertible securities entitle the holder to
4
exchange the securities for a specified number of shares of common stock, usually of the same
company, at specified prices within a certain period of time. They also entitle the holder to
receive interest or dividends until the holder elects to exercise the conversion privilege.
The terms of any convertible security determine its ranking in a company’s capital structure.
In the case of subordinated convertible debentures, the holder’s claims on assets and earnings are
generally subordinate to the claims of other creditors, and senior to the claims of preferred and
common stockholders. In the case of convertible preferred stock, the holder’s claims on assets and
earnings are subordinate to the claims of all creditors and are senior to the claims of common
stockholders. As a result of their ranking in a company’s capitalization, convertible securities
that are rated by nationally recognized statistical rating organizations are generally rated below
other obligations of the company and many convertible securities are not rated. The Fund does not
have any rating criteria applicable to its investments in any securities, convertible or otherwise.
Preferred Stock. The Fund may invest in preferred stock. Preferred stock, unlike common stock,
offers a stated dividend rate payable from the issuer’s earnings. Preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of the preferred stocks to
decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline. The Fund may purchase
preferred stock of companies which have also issued other classes of preferred stock or debt
obligations that may take priority as to payment of dividends over the preferred stock held by the
Fund.
Warrants. The Fund may invest in warrants. The Fund may purchase warrants issued by domestic
and foreign companies to purchase newly created equity securities consisting of common and
preferred stock. Warrants are securities that give the holder the right, but not the obligation to
purchase equity issues of the company issuing the warrants, or a related company, at a fixed price
either on a date certain or during a set period. The equity security underlying a warrant is
authorized at the time the warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or loss than an equivalent
investment in the underlying security, and, thus, can be a speculative investment. At the time of
issue, the cost of a warrant is substantially less than the cost of the underlying security itself,
and price movements in the underlying security are generally magnified in the price movements of
the warrant on percentage basis. This leveraging effect enables the investor to gain exposure to
the underlying security with a relatively low capital investment. This leveraging increases an
investor’s risk, however, in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition, the price of a
warrant tends to be more volatile than, and may not correlate exactly to, the price of the
5
underlying security. If the market price of the underlying security is below the exercise price of
the warrant on its expiration date, the warrant will generally expire without value. The value of a
warrant may decline because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of the underlying
security, or any combination thereof. Warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
Foreign Currency Transactions. The Fund may engage in foreign currency transactions, including
foreign currency forward contracts, options, swaps and other strategic transactions in connection
with its investments in securities of non-U.S. companies. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or through forward contracts to purchase or sell foreign
currencies.
The Fund may enter into forward foreign currency exchange contracts (forward contracts) in
order to protect against possible losses on foreign investments resulting from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price on a future date which is
individually negotiated and privately traded by currency traders and their customers. A forward
contract generally has a deposit requirement, and no commissions are charged at any stage for
trades. Although foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (spread) between the price at which they are buying and selling
various currencies. However, forward contracts may limit the potential gains which could result
from a positive change in such currency relationships.
The Fund may purchase and write put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. As with other kinds of
options, however, the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount, of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring loses. The purchase of
an option on foreign currency may constitute an effective hedge against fluctuation in exchange
rates although, in the event of rate movements adverse to the Fund’s position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. See generally the discussion below
on “Options.”
The Fund may enter into interest rate swaps on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities, and will usually enter into
interest rate swaps on a net basis (i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two payments). The net amount
of the excess, if any, of a Fund’s obligations over its entitlement with respect to each interest
rate swap will be calculated on a daily basis
6
and an amount of cash or other liquid assets (marked to market daily) having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated account by the Fund’s
custodian. If the Fund enters into an interest rate swap on other than a net basis, it would
maintain a segregated account in the full amount accrued on a daily basis of its obligations with
respect to the swap. The Fund will not enter into any interest rate swap transactions unless the
unsecured senior debt or the claims-paying ability of the other party thereto is rated in one of
the three highest rating categories of at least one nationally recognized statistical rating
organization (“NRSRO”) at the time of entering into such transaction. The Fund’s Adviser will
monitor the creditworthiness of all counterparties on an ongoing basis. If there is a default by
the other party to such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund, subject to the segregation requirement described
above. These transactions may in some instances involve the delivery of securities or other
underlying assets by a Fund or its counterparty to collateralize obligations under the swap. Under
the documentation currently used in those markets, the risk of loss with respect to interest rate
swaps is limited to the net amount of the payments that a Fund is contractually obligated to make.
If the other party to an interest rate swap that is not collateralized defaults, the Fund would
risk the loss of the net amount of the payments that it contractually is entitled to receive.
Futures Contracts. The Fund may invest in futures contracts and options thereon (stock index
futures contracts or interest rate futures or options) to hedge or manage risks associated with the
Fund’s securities investments. Although techniques other than sales and purchases of futures
contracts could be used to reduce the Fund’s exposure, the Fund may be able to hedge its exposure
more effectively and perhaps at a lower cost through using futures contracts.
A stock index futures contract is an agreement in which one party agrees to take or make
delivery of an amount of cash equal to a specified dollar amount times the difference between the
index value (which assigns relative values to the common stocks included in the index) at the close
of the last trading day of the contract and the price at which the agreement is originally made. No
physical delivery of the underlying stock in the index is contemplated.
To enter into a futures contract, an amount of cash and cash equivalents, equal to the initial
deposit requirement of the futures contract, is deposited in a segregated account with the Fund’s
Custodian and/or in a margin account with a broker to collateralize the position. Brokerage fees
are also incurred when a futures contract is purchased or sold.
Although futures contracts typically require future delivery of and payment for financial
instruments, the futures contracts are usually closed out before the delivery date.
7
Closing out an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the
identical type of financial instrument and the same delivery date. If the offsetting purchase price
is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a
loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be
included in these calculations. There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular futures contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract.
As an example of an offsetting transaction in which the financial instrument is not delivered,
the contractual obligations arising from the sale of one contract of September Treasury Bills on an
exchange may be fulfilled at any time before delivery of the contract is required (e.g., on a
specified date in September, the “delivery month”) by the purchase of one contract of September
Treasury Bills on the same exchange. In such instance the difference between the price at which the
futures contract was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Positions in futures contracts may be closed out only on an exchange that provides a secondary
market for such futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not be possible to
close a futures position. In the event of adverse price movements, the Fund would continue to be
required to make daily cash payments to maintain its required margin. In such situations, if the
Fund had insufficient cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, the Fund might be
required to make delivery of the instruments underlying futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on the Fund’s ability to
hedge or manage risks effectively.
The Fund will not enter into any futures contracts and related options for purposes other than
bona fide hedging transactions within the meaning of Commodity Futures Trading Commission (“CFTC”)
regulations if such non-hedging positions would exceed the limitations established in CFTC
regulations. Currently, non-hedging transactions are subject to either of two alternative
limitations. Under one alternative, the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options may not exceed 5% of the fair market value
of the Fund’s net assets (after taking into account unrealized profits and unrealized losses on any
such contracts). Under the other alternative, which has been established by the CFTC on a temporary
basis, the aggregate net notional value of non-hedging futures contracts and related options may
not exceed the liquidation value of the Fund’s portfolio (after taking into account unrealized
profits and unrealized losses on any such contracts).
8
The Fund will not enter into futures contracts for speculation and will only enter into
futures contracts which are traded on national futures exchanges and are standardized as to
maturity date and underlying financial instrument. The principal futures exchanges in the United
States are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. Futures
exchanges and trading are regulated under the Commodity Exchange Act by the CFTC. Futures are also
traded in various overseas markets.
The Fund may enter into real estate related futures contracts as a hedge against changes in
prevailing levels of real estate stock values in order to establish more definitely the effective
return on securities held or intended to be acquired by the Fund. The Fund’s hedging may include
sales of futures as an offset against the effect of expected declines in real estate stock values,
and purchases of futures in anticipation of purchasing underlying index stocks prior to the
availability of sufficient assets to purchase such stocks or to offset potential increases in the
prices of such stocks. When selling options or futures contracts, the Fund will segregate cash and
liquid securities to cover any related liability.
The Fund may enter into stock index futures contracts. A stock index contract such as the S&P
500 Stock Index Contract, for example, is an agreement to take or make delivery at a specified
future date of an amount of cash equal to $250 multiplied by the difference between the value of
the stock index at purchase and at the close of the last trading day of the contract. In order to
close long positions in the stock index contracts prior to their settlement date, the Fund will
enter into offsetting sales of stock index contracts.
Using stock index contracts in anticipation of market transactions involves certain risks.
Although the Fund may intend to purchase or sell stock index contracts only if there is an active
market for such contracts, no assurance can be given that a liquid market will exist for the
contracts at any particular time. In addition, the price of stock index contracts may not correlate
perfectly with the movement in the stock index due to certain market distortions. Due to the
possibility of price distortions in the futures market and because of the imperfect correlation
between movements in the stock index and movements in the price of stock index contracts, a correct
forecast of general market trends may not result in a successful anticipatory hedging transaction.
Persons who trade in futures contracts may be broadly classified as “hedgers” and
“speculators.” Hedgers, such as the Fund, whose business activity involves investment or other
commitments in debt securities, equity securities, or other obligations, use the futures markets
primarily to offset unfavorable changes in value that may occur because of fluctuations in the
value of the securities and obligations held or expected to be acquired by them or fluctuations in
the value of the currency in which the securities or obligations are denominated. Debtors and other
obligors may also hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument underlying the futures
contract,
9
but, unlike the hedger, hopes to profit from fluctuations in prevailing interest rates or
securities prices.
The Fund’s futures transactions will be entered into for traditional hedging purposes; that
is, futures contracts will be sold to protect against a decline in the price of securities that the
Fund owns, or futures contracts will be purchased to protect the Fund against an increase in the
price of securities it has a fixed commitment or expectation to purchase.
“Margin” with respect to futures and futures contracts is the amount of funds that must be
deposited by the Fund with a broker in order to initiate futures trading and to maintain the Fund’s
open positions in futures contracts. A margin deposit (“initial margin”) is intended to assure the
Fund’s performance of the futures contract. The margin required for a particular futures contract
is set by the exchange on which the contract is traded, and may be significantly modified from time
to time by the exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margins that may range upward from less than 5% of the value of the contract
being traded.
If the price of an open futures contract changes (by increase in the case of a sale or by
decrease in the case of a purchase) so that the loss on the futures contract reaches a point at
which the margin on deposit does not satisfy margin requirements, the broker will require an
increase in the margin deposit (“margin variation”). However, if the value of a position increases
because of favorable price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will pay the excess to the Fund. In computing daily net asset values,
the Fund will mark to market the current value of its open futures contracts. The Fund expects to
earn interest income on its margin deposits.
The prices of futures contracts are volatile and are influenced, among other things, by actual
and anticipated changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events. At best, the correlation
between changes in prices of futures contracts and of the securities being hedged can be only
approximate. The degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for securities or currencies, including
technical influences in futures trading; and differences between the financial instruments being
hedged and the instruments underlying the standard futures contracts available for trading, with
respect to interest rate levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves an extremely high degree
of leverage. As a result, a relatively small price movement in a futures contract may result in
immediate and substantial loss or gain to the investor. For
10
example, if at the time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the account were then
closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if
the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient assets to satisfy its obligations
under a futures contract, the Fund segregates and commits to back the futures contract with cash or
liquid securities equal in value to the current value of the underlying instrument less the margin
deposit.
Most United States futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from the previous day’s settlement price
at the end of a trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures contract prices
have occasionally moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
Successful use of futures by the Fund is subject to the Adviser’s ability to predict movements
correctly in the direction of the market. There is typically an imperfect correlation between
movements in the price of the future and movements in the price of the securities that are the
subject of the hedge. In addition, the price of futures may not correlate perfectly with movement
in the cash market due to certain market distortions. Due to the possibility of price distortion in
the futures market and because of the imperfect correlation between the movements in the cash
market and movements in the price of futures, a correct forecast of general market trends or
interest rate movements by the Adviser may still not result in a successful hedging transaction
over a short time frame.
The trading of futures contracts is also subject to the risk of trading halts, suspension,
exchange or clearing house equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other disruption of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess variation margin
payments.
Call Options. The Fund may write (sell) “covered” call options and purchase options to close
out options previously written by it. Such options must be listed on a National Securities Exchange
and issued by the Options Clearing Corporation. The
11
purpose of writing covered call options is to generate additional premium income for the Fund. This
premium income will serve to enhance the Fund’s total return and will reduce the effect of any
price decline of the security involved in the option. Covered call options will generally be
written on securities which, in the opinion of the Adviser, are not expected to make any major
price moves in the near future but which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the “right to purchase” a security at a specified price
(the exercise price) at any time until a certain date (the expiration date). So long as the
obligation of the writer of a call option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase transaction by
repurchasing an option identical to that previously sold. To secure his obligation to deliver the
underlying security in the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options Clearing
Corporation. The Fund will write only covered call options and will normally not write a covered
call option if, as a result, the aggregate market value of all portfolio securities covering all
call options would exceed 25% of the market value of its net assets.
Fund securities on which call options may be written will be purchased solely on the basis of
investment considerations consistent with the Fund’s investment objective. The writing of covered
call options is a conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not do), but capable of
enhancing the Fund’s total return. When writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price increase in the underlying security above
the exercise price, but retains the risk of loss should the price of the security decline. Unlike
one who owns securities not subject to an option, the Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer. If a call option which the Fund has written
expires, the Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the option period. If the
call option is exercised, the Fund will realize a gain or loss from the sale of the underlying
security. The security covering the call will be maintained in a segregated account of the Fund’s
Custodian.
The Trust, on behalf of the Fund, has filed with the National Futures Association, a notice
claiming an exemption from the definition of the term “commodity pool operator” under the Commodity
Exchange Act, as amended, and the rules of the Commodity Futures Trading Commission promulgated
thereunder, with respect to the Fund’s operations. Accordingly, the Fund is not subject to
registration or regulation as a commodity pool operator.
12
The premium received is the market value of an option. The premium the Fund will receive from
writing a call option will reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the historical price
volatility of the underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Adviser, in determining whether a particular call option
should be written on a particular security, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for such option. The premium
received by the Fund for writing covered call options will be recorded as a liability in the Fund’s
statement of assets and liabilities. This liability will be adjusted daily to the option’s current
market value, which will be the latest sale price at the time at which the net asset value per
share of the Fund is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The liability will be extinguished upon expiration of the option, the
purchase of an identical option in a closing transaction, or delivery of the underlying security
upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an outstanding call
option, to prevent an underlying security from being called, or to permit the sale of the
underlying security. Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security with either a different exercise price or expiration
date or both. If the Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or concurrently with,
the sale of the security. There is, of course, no assurance that the Fund will be able to effect
such closing transactions at a favorable price. If the Fund cannot enter into such a transaction,
it may be required to hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. The Fund will pay transaction costs in connection
with the writing of options to close out previously written options. Such transaction costs are
normally higher than those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of less than nine months
from the date written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the time the options are written. From time
to time, the Fund may purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security from its portfolio. In
such cases, additional costs will be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect increases in the market price
of the underlying security, any loss resulting from the repurchase of a call option is likely to be
offset in whole or in part by appreciation of the underlying security owned by the Fund.
13
Writing Covered Put Options. The Fund may write covered put options (as defined below). A put
option gives the purchaser of the option the right to sell, and the writer (seller) has the
obligation to buy, the underlying security at the exercise price during the option period. So long
as the obligation of the writer continues, the writer may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to make payment of the
exercise price against delivery of the underlying security. The operation of put options in other
respects, including their related risks and rewards, is substantially identical to that of call
options.
The Fund may write put options only on a covered basis, which means that the Fund would
maintain in a segregated account cash and liquid securities in an amount not less than the exercise
price at all times while the put option is outstanding. (The rules of the Options Clearing
Corporation currently require that such assets be deposited in escrow to secure payment of the
exercise price.) The Fund would generally write covered put options in circumstances where the
Adviser wishes to purchase the underlying security for the Fund’s portfolio at a price lower than
the current market price of the security. In such event, the Fund would write a put option at an
exercise price which, reduced by the premium received on the option, reflects the lower price it is
willing to pay. Since the Fund would also receive interest on debt securities maintained to cover
the exercise price of the option, this technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the market price of the
underlying security would decline below the exercise price less the premiums received.
Purchasing Put Options. The Fund may purchase put options. As the holder of a put option, the
Fund has the right to sell the underlying security at the exercise price at any time during the
option period. The Fund may enter into closing sale transactions with respect to such options,
exercise them, or permit them to expire. The Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its securities or currencies. An
example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security (a “protective put”) owned as a
defensive technique in order to protect against an anticipated decline in the value of the
security. Such hedge protection is provided only during the life of the put option when the Fund,
as the holder of the put option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security’s market price. For example, a put option may
be purchased in order to protect unrealized appreciation of a security where the Adviser deems it
desirable to continue to hold the security because of tax considerations. The premium paid for the
put option and any transaction costs would reduce any capital gain otherwise available for
distribution when the security is eventually sold.
The Fund may also purchase put options at a time when the Fund does not own the underlying
security. By purchasing put options on a security it does not own, the Fund seeks to benefit from a
decline in the market price of the underlying security. If the
14
put option is not sold when it has remaining value, and if the market price of the underlying
security remains equal to or greater than the exercise price during the life of the put option, the
Fund will lose its entire investment in the put option. In order for the purchase of a put option
to be profitable, the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
The Fund will commit no more than 5% of its assets to premiums when purchasing put options.
The premium paid by the Fund when purchasing a put option will be recorded as an asset in the
Fund’s statement of assets and liabilities. This asset will be adjusted daily to the option’s
current market value, which will be the latest sale price at the time at which the Fund’s net asset
value per share is computed (close of trading on the New York Stock Exchange), or, in the absence
of such sale, the latest bid price. The asset will be extinguished upon expiration of the option,
the selling (writing) of an identical option in a closing transaction, or the delivery of the
underlying security upon the exercise of the option.
Purchasing Call Options. The Fund may purchase call options. As the holder of a call option,
the Fund has the right to purchase the underlying security at the exercise price at any time during
the option period. The Fund may enter into closing sale transactions with respect to such options,
exercise them, or permit them to expire. The Fund may purchase call options for the purpose of
increasing its current return or avoiding tax consequences which could reduce its current return.
The Fund may also purchase call options in order to acquire the underlying securities. Examples of
such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring the underlying
securities for its portfolio. Utilized in this fashion, the purchase of call options enables the
Fund involved to acquire the securities at the exercise price of the call option plus the premium
paid. At times the net cost of acquiring securities in this manner may be less than the cost of
acquiring the securities directly. This technique may also be useful to the Fund in purchasing a
large block of securities that would be more difficult to acquire by direct market purchases. So
long as it holds such a call option rather than the underlying security itself, the Fund is
partially protected from any unexpected decline in the market price of the underlying security and
in such event could allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
The Fund will commit no more than 5% of its assets to premiums when purchasing call options.
The Fund may also purchase call options on underlying securities it owns in order to protect
unrealized gains on call options previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to realize such gains through a closing
purchase transaction. Call options may also be purchased at times to avoid realizing losses that
would result in a reduction of the Fund’s current return. For example, where the Fund has written a
call option on an underlying security having a current market value below the price at which such
15
security was purchased by the Fund, an increase in the market price could result in the exercise of
the call option written by the Fund and the realization of a loss on the underlying security with
the same exercise price and expiration date as the option previously written.
Options on Futures Contracts. Options on futures contracts are similar to options on fixed
income or equity securities or options on currencies, except that options on futures contracts give
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), rather than
to purchase or sell the futures contract, at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer’s futures margin account which represents the amount by which the market
price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract. If an option is exercised
on the last trading day prior to the expiration date of the option, the settlement will be made
entirely in cash equal to the difference on the expiration date between the exercise price of the
option and the closing level of the securities upon which the futures contracts are based.
Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss
of the premium paid.
As an alternative to purchasing call and put options on futures, the Fund may purchase call
and put options on the underlying securities. Such options would be used in a manner identical to
the use of options on futures contracts. To reduce or eliminate the leverage then employed by the
Fund or to reduce or eliminate the hedge position then currently held by the Fund, the Fund may
seek to close out an option position by selling an option covering the same securities or contract
and having the same exercise price and expiration date.
Restricted and Illiquid Securities. Restricted securities are subject to restrictions on
resale under federal securities law. Under criteria established by the Fund’s Trustees, certain
restricted securities are determined to be liquid. To the extent that restricted securities are not
determined to be liquid, the Fund will limit its purchase, together with other illiquid securities
including non-negotiable time deposits, and repurchase agreements providing for settlement or
maturity in more than seven days after notice, to no more than 15% of its net assets.
Restricted securities in which the Fund may invest may include commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal securities law, and is
generally sold to institutional investors, such as the Fund, who agree that they are purchasing the
paper for investment purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Fund through or with the assistance of the issuer or
investment
16
dealers who make a market in Section 4(2) commercial paper, thus providing liquidity. The Adviser
believes that Section 4(2) commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees of the Fund are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as determined by the Adviser,
as liquid and not subject to the investment limitations applicable to illiquid securities.
Bank Obligations. The Fund may invest in bank obligations such as bankers’ acceptances,
certificates of deposit, and demand and time deposits.
Bankers’ acceptances are negotiable drafts or bills of exchange typically drawn by an importer
or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on maturity. Bankers’
acceptances invested in by the Fund will be those guaranteed by domestic and foreign banks having,
at the time of investment, capital, surplus, and undivided profits in excess of $100,000,000 (as of
the date of their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against funds deposited in a
commercial bank or a savings and loan association for a definite period of time and earning a
specified return. Certificates of deposit and demand and time deposits will be those of domestic
banks and savings and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of $100,000,000 (as of the date
of its most recently published financial statements), or (b) the principal amount of the instrument
is insured in full by the Federal Deposit Insurance Corporation.
Commercial Paper. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
The Fund may purchase commercial paper consisting of issues rated at the time of purchase by
one or more appropriate nationally recognized statistical rating organizations (“NRSRO”) (e.g.,
Standard & Poor’s Corporation and Moody’s Investors Service, Inc.). The Fund may also invest in
commercial paper that is not rated but that is determined by the Adviser to be of comparable
quality to instruments that are so rated by an NRSRO that is neither controlling, controlled by, or
under common control with the issuer of, or any issuer, guarantor, or provider of credit support
for, the instruments.
U.S. Government Obligations. The Fund may invest in obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the agency’s
obligations; and still others are supported only by
17
the credit of the instrumentality. No assurance can be given that the U.S. Government would provide
financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated
to do so by law.
Variable and Floating Rate Securities. The Fund may acquire variable and floating rate
securities, subject to the Fund’s investment objectives, policies and restrictions. A variable rate
security is one whose terms provide for the adjustment of its interest rate on set dates and which,
upon such adjustment, can reasonably be expected to have a market value that approximates its par
value. A floating rate security is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can reasonably be expected to
have a market value that approximates its par value. Such securities are frequently not rated by
credit rating agencies; however, unrated variable and floating rate securities purchased by the
Fund will be determined by the Adviser to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund’s investment policies. In making such
determinations, the Adviser will consider the earning power, cash flow and other liquidity ratios
of the issuers of such notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate security purchased by the
Fund, the Fund may resell the security at any time to a third party. The absence of an active
secondary market, however, could make it difficult for the Fund to dispose of a variable or
floating rate security in the event the issuer of the security defaulted on its payment obligations
and the Fund could, as a result or for other reasons, suffer a loss to the extent of the default.
To the extent that there exists no readily available market for such security and the Fund is not
entitled to receive the principal amount of a note within seven days, such a security will be
treated as an illiquid security for purposes of calculation of the Fund’s limitation on investments
in illiquid securities, as set forth in the Fund’s investment restrictions. Variable or floating
rate securities may be secured by bank letters of credit.
When-Issued Securities. The Funds may purchase securities on a “when-issued” basis (i.e., for
delivery beyond the normal settlement date at a stated price or yield). When the Fund agrees to
purchase securities on a “when-issued” basis, the Fund’s custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate account.
Normally, the Fund’s custodian will set aside portfolio securities to satisfy the purchase
commitment, and in such a case, the Fund may be required subsequently to place additional assets in
the separate account in order to assure that the value of the account remains equal to the amount
of the Fund’s commitment. It may be expected that the Fund’s net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase commitments than when it sets
aside cash. In addition, because the Fund will set aside cash or liquid portfolio securities to
satisfy its purchase commitments in the manner described above, the Fund’s liquidity and the
ability of the Adviser to manage it might be affected in the event its commitments to purchase
“when-issued” securities ever exceeded 25% of the value of its total assets.
18
Under normal market conditions, however, the Fund’s commitment to purchase “when-issued” or
“delayed-delivery” securities will not exceed 25% of the value of its total assets.
When the Fund engages in “when-issued” transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in the Fund’s incurring a loss or missing the
opportunity to obtain a price considered to be advantageous. The Fund will engage in “when-issued”
delivery transactions only for the purpose of acquiring portfolio securities consistent with the
Fund’s investment objectives and policies and not for investment leverage.
Repurchase Agreements. Securities held by the Fund may be subject to repurchase agreements.
Under the terms of a repurchase agreement, the Fund would acquire securities from banks and
registered broker-dealers which the Adviser deems creditworthy under guidelines approved by the
Trust’s Board of Trustees, subject to the seller’s agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price would generally equal the price paid by
the Fund plus interest negotiated on the basis of current short-term rates, which may be more or
less than the rate on the underlying portfolio securities. The seller under a repurchase agreement
will be required to maintain continually the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest). This requirement will be
continually monitored by the Adviser. If the seller were to default on its repurchase obligation or
become insolvent, the Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Fund would be entitled,
as against a claim by such seller or its receiver or trustee in bankruptcy, to retain the
underlying securities, although the Board of Trustees of the Trust believes that, under the regular
procedures normally in effect for custody of the Fund’s securities subject to repurchase agreements
and under federal laws, a court of competent jurisdiction would rule in favor of the Trust if
presented with the question. Securities subject to repurchase agreements will be held by the Fund’s
custodian or another qualified custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by the Fund under the 1940 Act.
Reverse Repurchase Agreements. The Fund may borrow funds by entering into reverse repurchase
agreements in accordance with the Fund’s investment restrictions. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price. The Fund intends
to enter into reverse repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time the Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account assets such as U.S.
Government securities or other liquid securities consistent with the Fund’s investment restrictions
having a value equal to the repurchase price (including accrued
19
interest), and will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the price at which the Fund is obligated
to repurchase the securities. Reverse repurchase agreements are considered to be borrowings by the
Fund under the 1940 Act.
Securities of Other Investment Companies. The Fund may invest in securities issued by other
investment companies in accordance with applicable provisions of the 1940 Act. Other investment
companies, for these purposes, are deemed to include certain types of exchange traded funds
(“ETFs”) and may include ETFs that trade on foreign stock exchanges, including Indian stock
exchanges. The statutory limitations of the 1940 Act with respect to the investment by the Fund in
the securities of other investment companies, including ETFs, absent reliance on applicable
exemptive relief, provides that the Fund may invest in other investment companies so that, as
determined immediately after a securities purchase is made: (a) not more than 5% of the value of
its total assets will be invested in the securities of any one investment company; (b) not more
than 10% of the value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund, except as such securities may be acquired as part
of a merger, consolidation or acquisition of assets and further, except as may be permitted by
Section 12 of the 1940 Act or except as may be permitted by the Securities and Exchange Commission.
As a shareholder of another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of that company’s expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Fund bears directly in connection with its
own operations.
Lending of Portfolio Securities. In order generate additional income, the Fund may, from time
to time, lend portfolio securities to broker-dealers, banks or institutional borrowers of
securities pursuant to written guidelines approved by the Board of Trustees. The Fund must receive
at least 100% collateral, or more, in the form of cash or government securities. The collateral
must be valued daily, and should the market value of the loaded securities increase, the borrower
must furnish additional collateral to the lender. During the time portfolio securities are on loan,
the borrower pays the lender any dividends or interest paid on such securities. Loans are subject
to termination by the lender or the borrower at any time. The Fund does not have the right to vote
securities on loan, but the Fund may terminate a loan and regain the right to vote if it deems it
advisable to do so. In the event that the borrower defaults on its obligation to the Fund, the Fund
could experience delays in recovering the securities and could possible losses. The Fund will only
enter into loan arrangements with broker-dealers, banks or other institutions and entities
determined to be creditworthy under guidelines established by the Board of Trustees that permit the
Fund to loan up to 33 1/3% of the value of its total assets.
20
MATTERS WITH RESPECT TO INVESTMENT IN INDIA
Foreign investment in the securities of issuers in India is usually restricted or controlled
to some degree. For example, “Foreign Institutional Investors” (“FIIs”) may predominately invest in
exchange-traded securities (and securities to be listed, or those approved on the over-the-counter
exchange of India) subject to the conditions specified in the guidelines for Direct Foreign
Investment by FIIs in India, (the “Guidelines”) published in a Press Note dated September 14, 1992,
issued by the Government of India, Ministry of Finance, Investment Division. FIIs have to apply for
registration to the Securities and Exchange Board of India (“SEBI”) and to the Reserve Bank of
India for permission to trade in Indian securities. The Guidelines require SEBI to take into
account the track record of the FII, its professional competence, financial soundness, experience
and other relevant criteria. SEBI must also be satisfied that suitable custodial arrangements are
in place for the Indian securities. The Fund currently invests through an FII established in
Mauritius that has received applicable registration approvals from the SEBI. FIIs are required to
observe certain investment restrictions, including an ownership ceiling on the total issued share
capital of any one company. In addition, the shareholdings of all registered FIIs, together with
the shareholdings of non-resident Indian individuals and foreign corporate bodies substantially
owned by non-resident Indians, may generally not exceed 40% of the issued share capital of most
companies. Only registered FIIs and non-Indian mutual funds that comply with certain statutory
conditions may make direct portfolio investments in exchange-traded Indian securities.
There can be no assurance that these investment control regimes will not change in a way that
makes it more difficult or impossible for the Fund to implement its investment objective or
repatriate its income, gains and initial capital from these countries.
A high proportion of the shares of many Indian issuers are held by a limited number of persons
or entities, which may limit the number of shares available for investment. In addition, a limited
number of issuers represent a disproportionately large percentage of market capitalization and
trading value. The limited liquidity of the Indian securities markets may affect the Fund’s ability
to acquire or dispose of securities at the price and time that it wishes to do so.
There are currently 19 recognized stock exchanges in India, including the Over the Counter
Exchange of India. Most stock exchanges are governed by regulatory boards. The Stock Exchange,
Mumbai, (the “BSE”) and the National Stock Exchange of India Limited (the “NSE”) have nationwide
trading terminals and, taken together, are the principal Indian stock exchanges in terms of the
number of listed companies, market capitalization and trading volume. The securities market in
India is substantially smaller, less liquid and significantly more volatile than the securities
market in the United States. The relatively small market capitalizations of, and trading values on,
the BSE and NSE may cause the Fund’s investments in securities listed on these exchanges to be
21
comparatively less liquid and subject to greater price volatility than comparable U.S. investments.
Indian stock exchanges, including the BSE and the NSE, have in the past experienced
substantial fluctuations in the prices of their listed securities. They have also experienced
problems such as temporary exchange closures, broker defaults, settlement delays and broker strikes
that, if they occur again in the future, could affect the market price and liquidity of the Indian
securities in which the Fund invests. In addition, the governing bodies of the various Indian stock
exchanges have from time to time imposed restrictions on trading in certain securities, limitations
on price movements and margin requirements. Disputes have also occurred from time to time among
listed companies, the stock exchanges and other regulatory bodies, and in some cases those disputes
have had a negative effect on overall market sentiment. Recently, there have been delays and errors
in share allotments relating to initial public offerings, which in turn affect overall market
sentiment and lead to fluctuations in the market prices of the securities of those companies and
others in which the Fund may invest.
In addition to their smaller size, lesser liquidity and greater volatility, Indian securities
markets are less developed than U.S. securities markets. Disclosure and regulatory standards are in
many respects less stringent than U.S. standards. Indian issuers are subject to accounting,
auditing and financial standards and requirements that differ, in some cases significantly, from
those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Indian issuer may not reflect its financial position or results of operations in
the way they would be reflected had such financial statements been prepared in accordance with U.S.
generally accepted accounting principles. There is substantially less publicly available
information about Indian issuers than there is about U.S. issuers.
Legal principles relating to corporate affairs and the validity of corporate procedures,
directors’ fiduciary duties and liabilities and shareholders’ rights may differ from those that may
apply in other jurisdictions. Shareholders’ rights under Indian laws may not be as extensive as
those that exist under the laws of the United States. The Fund may therefore have more difficulty
asserting its rights as a shareholder of an Indian company in which it invests than it would as a
shareholder of a comparable American company.
The value of the Fund’s assets may be adversely affected by political, economic, social and
other factors, changes in Indian law or regulations and the status of India’s relations with other
countries. In addition, the economy of India may differ favorably or unfavorable from the U.S.
economy in such respects as the rate of growth of gross domestic product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments positions. The Indian
government has exercised and continues to exercise significant influence over many aspects of the
economy, and the number of public sector enterprises in India is substantial. Accordingly, Indian
government actions in the future could have a significant effect on the Indian economy,
22
which could affect private sector companies and the Fund, market conditions, and prices and yields
of securities held by the Fund.
There exists the possibility of nationalization, expropriation or confiscatory taxation,
political changes, government regulation, social instability or diplomatic developments (including
war or terrorist attacks) which could affect adversely the economy of India or the value of the
Fund’s investments.
The Indian population is comprised of diverse religious, linguistic and ethnic groups and
religious and border disputes continue to pose problems for India. From time to time, India has
experienced internal disputes between religious groups within the country. In addition, India has
faced, and continues to face, military hostilities with neighboring countries and regional
countries. These events could adversely influence the Indian economy and, as a result, negatively
affect the Fund’s investments.
INVESTMENT RESTRICTIONS
The Fund’s investment objective is a non-fundamental policy and may be changed without a vote
of the holders of a majority of the Fund’s outstanding Shares. The following investment
restrictions may be changed with respect to a the Fund only by a vote of the majority of the
outstanding Shares of the Fund (as defined under “ADDITIONAL INFORMATION — Vote of a Majority of
the Outstanding Shares”).
The Fund may not:
1. Purchase any securities which would cause more than 25% of the Fund’s total assets at the
time of purchase to be invested in securities of one or more issuers conducting their principal
business activities in the same industry; provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by such obligations; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are primarily related to
financing the activities of their parents; and (c) utilities will be divided according to their
services. For example, gas, gas transmission, electric and gas, electric, and telephone will each
be considered a separate industry.
2. Borrow money or issue senior securities except as and to the extent permitted by the 1940
Act or any rule, order or interpretation thereunder;
3. Make loans, except that the Fund may purchase or hold debt instruments and lend portfolio
securities in accordance with its investment objective and policies, make time deposits with
financial institutions, and enter into repurchase agreements;
23
4. Purchase securities on margin, except for use of short-term credit necessary for clearance
of purchases of portfolio securities and except as may be necessary to make margin payments in
connection with derivative securities transactions;
5. Underwrite the securities issued by other persons, except to the extent that the Fund may
be deemed to be an underwriter under certain securities laws in the disposition of “restricted
securities;”
6. Purchase or sell real estate (although investments in marketable securities of companies
engaged in such activities and securities secured by real estate or interests therein are not
prohibited by this restriction); and
7. Purchase or sell commodities or commodities contracts, except to the extent disclosed in
the current Prospectus of the Fund.
If any percentage restriction or requirement described above is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a change in asset value
will not constitute a violation of such restriction or requirement. However, should a change in net
asset value or other external events cause the Fund’s investments in illiquid securities,
repurchase agreements with maturities in excess of seven days and other instruments in the Fund
which are not readily marketable to exceed the limit set forth in the Fund’s Prospectus for its
investment in illiquid securities, the Fund will act to cause the aggregate amount of such
securities to come within such limit as soon as reasonably practicable. In such an event, however,
the Fund would not be required to liquidate any portfolio securities where the Fund would suffer a
loss on the sale of such securities.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the lesser of the Fund’s
purchases or sales of portfolio securities for the year by the monthly average value of the
portfolio securities. The calculation excludes all securities whose remaining maturities at the
time of acquisition were one year or less.
The portfolio turnover rate may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemptions of Shares. High portfolio
turnover rates will generally result in higher transaction costs, including brokerage commissions,
to the Fund and may result in additional tax consequences to the Fund’s Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of the Fund is determined and the Shares
of the Fund are priced as of the Valuation Time on each Business Day of the
24
Fund. A “Business Day” of the Fund is a day on which the New York Stock Exchange is open for
trading and any other day (other than a day on which no Shares of the Fund are tendered for
redemption and no order to purchase any Shares of the Fund is received) during which there is
sufficient trading in portfolio instruments that the Fund’s net asset value per share might be
materially affected. The New York Stock Exchange will not open in observance of the following
holidays: New Year’s Day, Martin Luther King, Jr.’s Day, President’s Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas. The Fund does not expect to
determine the net asset value of its shares on any day when the Exchange is not open for trading,
even if there is sufficient trading in portfolio securities on such days to materially affect the
net asset value per share.
Portfolio securities for which market quotations are readily available are valued based upon
their current available bid prices in the principal market (closing sales prices if the principal
market is an exchange) in which such securities are normally traded. Unlisted securities for which
market quotations are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including restricted
securities and securities purchased in private transactions, are valued at their fair value in the
Adviser’s best judgment under procedures established by, and under the supervision of, the Trust’s
Board of Trustees.
Among the factors that will be considered, if they apply, in valuing portfolio securities held
by the Fund are the existence of restrictions upon the sale of the security by the Fund, the
absence of a market for the security, the extent of any discount in acquiring the security, the
estimated time during which the security will not be freely marketable, the expenses of registering
or otherwise qualifying the security for public sale, underwriting commissions if underwriting
would be required to effect a sale, the current yields on comparable securities for debt
obligations traded independently of any equity equivalent, changes in the financial condition and
prospects of the issuer, and any other factors affecting fair value. In making valuations, opinions
of counsel may be relied upon as to whether or not securities are restricted securities and as to
the legal requirements for public sale.
The Trust may use a pricing service to value certain portfolio securities where the prices
provided are believed to reflect the fair market value of such securities. A pricing service would
normally consider such factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would not rely exclusively
on quoted prices. Certain instruments, for which pricing services used for the Fund do not provide
prices, may be valued by the Trust using methodologies similar to those used by pricing services,
where such methodologies are believed to reflect fair value of the subject security. The methods
used by the pricing service and the Trust and the valuations so established will be reviewed by the
Trust under the general supervision of the Trust’s Board of Trustees. Several pricing services are
available, one or more of which may be used by the Adviser from time to time.
25
Investments in securities for which market quotations are readily available are valued based
upon their current available prices in the principal market in which such securities are normally
traded. Unlisted securities for which market quotations are readily available are valued at such
market value. Securities and other assets for which quotations are not readily available are valued
at their fair value as determined in good faith under consistently applied procedures established
by and under the general supervision of the Trustees of the Trust. Short-term securities (i.e.,
with maturities of 60 days or less) are valued at either amortized cost or original cost plus
accrued interest, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by Foreside Distribution Services, L.P. (the
“Distributor” or “Foreside”), and Foreside has agreed to use appropriate efforts to solicit all
purchase orders. In addition to purchasing Shares directly from the Distributor, Shares may be
purchased through procedures established by the Distributor in connection with the requirements of
accounts at the Adviser or the Adviser’s affiliated entities (collectively, “Entities”). Customers
purchasing Shares of the Fund may include officers, directors, or employees of the Adviser or the
Entities.
The Trust may suspend the right of redemption or postpone the date of payment for Shares
during any period when (a) trading on the New York Stock Exchange (the “NYSE”) is restricted by
applicable rules and regulations of the Commission, (b) the NYSE is closed for other than customary
weekend and holiday closings, (c) the Commission has by order permitted such suspension, or (d) an
emergency exists as a result of which (i) disposal by the Trust of securities owned by it is not
reasonably practical, or (ii) it is not reasonably practical for the Trust to determine the fair
value of its net assets.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Overall responsibility for management of the Trust rests with its Board of Trustees, who are
elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise
actively its day-to-day operations.
The names of the Trustees and officers of the Trust, their addresses, ages and principal
occupations during the past five years are provided in the tables below. Trustees that are deemed
“interested persons,” as defined in the 1940 Act, are listed as “Interested Trustees” in the table.
Trustees who are not interested persons are referred to as “Independent Trustees.”
Principal of King
Dodson Armstrong Financial Advisors, Inc. — August, 2003 to present;
Director of Financial Planning, Hamilton Capital Management —April, 2000 to
August, 2003
Chancellor
Emeritus, University of North Carolina at Charlotte —August, 2005 to
present; Chancellor, University of North Carolina at
Charlotte — July, 1989 to July, 2005
11
The Coventry Group
Michael Van Buskirk
3435 Stelzer Road Columbus, OH 43219
Date of Birth:
2/22/1947
Trustee and
Chairman of the
Board
Indefinite;
4/97 to present
Chief Executive
Officer, Ohio
Bankers Assoc.
(Industry Trade
Association) —
May, 1991 to
present
11
The Coventry Group
Maurice Stark
7662 Cloister Drive Columbus, OH43235
Date of Birth:
9/23/1935
Trustee
Indefinite;
3/04 to present
Consultant,
(part-time)
Battelle Memorial
Institute —
January, 1995 to
present
11
The Coventry Group
*
Trustees hold their position until their resignation or removal.
**
The “Fund Complex” consists of the Trust and The Coventry Group.
Employee of Citi Fund
Services Ohio, Inc.
(formerly BISYS Fund
Services Ohio, Inc)
(October, 1993 to
present)
Eric Phipps**
3435 Stelzer Road Columbus, OH43219
Date of Birth 6/20/1971
Anti-Money
Laundering Officer
and Chief Compliance
Officer
Indefinite;
November, 2006 to present
Employee of Citi Fund
Services Ohio, Inc.
(formerly BISYS Fund
Services Ohio, Inc.)
(June, 2006 to
present); United
States Securities and
Exchange Commission
(October, 2004 to May,
2006); Director —
Compliance Services,
BISYS Fund Services
Ohio, Inc. (December,
1995 to October, 2004)
Senior Vice President,
Citi Fund Services
Ohio, Inc. (September,
2007 to present);
Assistant Vice
President, Citizens
Advisers, Inc., (May,
2002 to August, 2007)
Curtis Barnes
100 Summer Street Boston, MA02110
Date of Birth: 9/24/1953
Secretary
Indefinite;
May, 2007 to present
Vice President-Legal
Services, Citi Fund
Services Ohio, Inc.
(formerly BISYS Fund
Services Ohio, Inc.)
(May, 1995 to present)
*
Officers hold their positions until their resignation or removal.
**
Mr. Phipps serves as Chief Compliance Officer. His compensation is reviewed and approved by the
Board of Trustees and paid by Citi Fund Services Ohio, Inc. pursuant to a Compliance Services
Agreement between Citi Fund Services Ohio, Inc. and the Trust. The fee paid pursuant to the
Compliance Services Agreement by the Fund is not indicative of the total compensation received by
Mr. Phipps.
The officers of the Trust are “interested persons” (as defined in the 1940 Act) and receive no
compensation directly from the Fund for performing the duties of their offices.
BOARD COMMITTEES
Valuation Committee
The Board of Trustees has a Valuation Committee whose function is to monitor the valuation of
portfolio securities and other investments and, as required by the Trust’s valuation policies, when
the Board is not in session, it shall determine the fair value of portfolio holdings after
consideration of all relevant factors, which determinations shall be reported to the full Board.
The Valuation Committee consists of at least two Independent Trustees. The Valuation Committee did
not hold any meetings in the last fiscal year.
Audit Committee
The Board of Trustees has an Audit Committee, comprised of the Independent Trustees, whose
function is to oversee the financial reporting and internal controls of the Trust. The Audit
Committee: (i) recommends to the Board of Trustees the selection of an independent registered
public accounting firm; (ii) annually reviews the scope of the proposed audit, the audit procedures
to be utilized and the proposed audit fees; (iii) reviews the annual audit with the independent
registered public accounting firm; and (iv) reviews the adequacy and effectiveness of internal
controls and procedures. The Audit Committee held two meetings during the past fiscal year.
Nominating Committee
The Board of Trustees has a Nominating Committee that recommends nominations for membership on
the Board. The Committee evaluates candidates’ qualifications for Board membership and, with
respect to nominees for positions as Independent Trustees, their independence from the Fund’s
investment adviser and other principal services providers. The Committee meets as necessary to
identify and evaluate nominees for Trustee and to make its recommendations to the Board. The
28
Nominating Committee is composed of all of the Independent Trustees of the Trust. The Nominating
Committee does not consider nominees recommended by shareholders. During the last fiscal year, the
Nominating Committee did not hold any meetings.
OWNERSHIP OF SECURITIES
As of July 1, 2008, the Trust’s Trustees and officers, as a group, owned less than 1% of the
Fund’s outstanding Shares. For the year ended December 31, 2007, the dollar range of equity
securities owned beneficially by each Trustee in the Fund and in any registered investment
companies overseen by the Trustee within the same family of investment companies as the Fund is as
follows:
The Officers of the Trust (other than the Chief Compliance Officer) receive no compensation
directly from the Trust for performing the duties of their offices. Foreside may receive fees
pursuant to the Distribution and Shareholder Services Plan. Citi Fund Services Ohio, Inc. (“Citi”)
receives fees from the Fund for acting as administrator and transfer agent and for providing
certain fund accounting services. Messrs. Bunstine, Phipps, Barnes and Silva are employees of Citi.
Trustees of the Trust not affiliated with Citi receive from the Trust, effective as of April1, 2006, the following fees: a quarterly retainer fee of $2,000 per quarter; a regular meeting fee
of $3,000 per meeting; a special in-person meeting fee of $1,000; a telephonic meeting fee of $500
and a $500 per meeting fee for all other committee meetings. Trustees are also reimbursed for all
out-of-pocket expenses relating to attendance at such meetings.
For the fiscal year ended December 31, 2007 the Trustees received the following compensation
from the Trust and from certain other investment companies (if applicable) that have the same
investment advisor as the Fund or an investment advisor that is an affiliated person of the Trust’s
investment advisor:
The Fund Complex consists of the Trust and The Coventry Group
INVESTMENT ADVISER
Investment advisory services are provided to the Fund by EM Capital Management, LLC (the
“Adviser”), pursuant to an Investment Advisory Agreement dated as of March 1, 2007. Under the terms
of the Investment Advisory Agreement, the Adviser has agreed to provide investment advisory
services as described in the Prospectus of the Fund. For the services provided and expenses assumed
pursuant to the Investment Advisory Agreement, the Fund pays the Adviser a fee, computed daily and
paid monthly, at the annual rate of 1.20% of the Fund’s first $500 million in net assets; 0.90% of
the next $500 million in net assets; 0.80% of the next $500 million in net assets; 0.70% of the
next $500 million in net assets; 0.65% of the next $1 billion in net assets; and 0.60% of net
assets in excess of $3 billion. The Adviser may, from time to time, voluntarily reduce all or a
portion of its advisory fee with respect to the Fund.
The Adviser has contractually agreed, until April 30, 2009, pursuant to the terms of an
Expense Limitation Agreement, to waive fees and/or reimburse the Fund to the extent necessary to
maintain the Fund’s total fund operating expenses for Class A, Class C and Class I shares at 2.30%,
2.80% and 1.80%, respectively, provided that these limits do not apply to increases due to
brokerage costs, interest, taxes and dividends and extraordinary expenses. The Fund has agreed to
repay the Adviser for amounts that were waived or reimbursed by the Adviser pursuant to the Expense
Limitation Agreement for a period of up to three years after such waiver or reimbursement was made
to the extent that such payment does not cause the total fund operating expenses for a class of
shares of the Fund to exceed the above limits and the repayment is made within three years after
the Adviser incurred the expense.
Pursuant to the Investment Advisory Agreement and the Expense Limitation Agreement the Adviser
earned the following amounts during the fiscal year ended December 31, 2007:
Gross Investment
Investment Advisory
Fiscal
Advisory Fees
Fees Waived or
Net Investment
Year
Earned
Reimbursed
Advisory Fees Paid
2007
$
999
$
999
$
0
Unless sooner terminated, the Investment Advisory Agreement will continue in effect until
March 1, 2008, and year to year thereafter for successive annual periods if, as to the Fund, such
continuance is approved at least annually by the Trust’s Board of Trustees or by vote of a majority
of the outstanding Shares of the Fund, and a majority
30
of the Trustees who are not parties to the Investment Advisory Agreement or interested persons (as
defined in the 1940 Act) of any party to the Investment Advisory Agreement by votes cast in person
at a meeting called for such purpose. The Investment Advisory Agreement is terminable as to the
Fund at any time on 60 days’ written notice without penalty by the Trustees, by vote of a majority
of the outstanding Shares of the Fund, or by the Adviser. The Investment Advisory Agreement also
terminates automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection with the
performance of the Investment Advisory Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser in the performance
of its duties, or from reckless disregard by the Adviser of its duties and obligations thereunder.
PORTFOLIO MANAGER INFORMATION
Dhruba Gupta, CA and Seth R. Freeman, CIRA serve as co-portfolio managers. The following table
lists the number and types of other accounts managed by the portfolio managers and assets under
management in those accounts as of December 31, 2007:
OTHER
OTHER
REGISTERED
POOLED
TOTAL
INVESTMENT
ASSETS
INVESTMENT
ASSETS
ASSETS
ASSETS
PORTFOLIO
COMPANY
MANAGED
VEHICLE
MANAGED
OTHER
MANAGED
MANAGED
MANAGER
ACCOUNTS
($ MILLIONS)
ACCOUNTS1
($ MILLIONS)
ACCOUNTS
($ MILLIONS)
($ MILLIONS)
DHRUBA GUPTA
0
$
0
4
$
0
6
$
1.5
$
1.5
SETH R. FREEMAN
0
$
0
4
$
0
7
$
3.0
$
3.0
1
Three Feeder Funds in an Offshore Master/Feeder arrangement pay
advisory fees based on the performance of the fund
Portfolio managers at the Adviser may manage accounts for multiple clients. Portfolio managers
at the Adviser make investment decisions for each account based on the investment objectives and
policies and other relevant investment considerations applicable to that portfolio. The management
of multiple accounts may result in a portfolio manager devoting unequal time and attention to the
management of each account. Even where multiple accounts are managed by the same portfolio manager
within the same investment discipline, however, the Adviser may take action with respect to one
account that may differ from the timing or nature of action taken, with respect to another account.
Accordingly, the performance of each account managed by a portfolio manager will vary.
The compensation of the portfolio managers varies with the general success of the Adviser as a
firm. Each portfolio manager’s compensation consists of a fixed annual salary, plus additional
remuneration based on the overall performance of the Adviser for
31
the given time period. The portfolio manager’s compensation is not linked to any specific factors,
such as the Fund’s performance or asset level.
The Adviser has adopted and implemented policies and procedures, including brokerage and trade
allocation policies and procedures, which it believes address the potential conflicts associated
with managing multiple accounts for multiple clients.
The dollar range of equity securities beneficially owned by the Fund’s portfolio managers in
the Fund as of December 31, 2007, was as follows:
PORTFOLIO MANAGER
DOLLAR RANGE
DHRUBA GUPTA
None
SETH R. FREEMAN
$100,001 to $500,000
CODE OF ETHICS
The Trust, the Adviser and the Distributor have each adopted a Code of Ethics, pursuant to
Rule 17j-1 under the Investment Company Act of 1940, applicable to securities trading practices of
their respective personnel. Each Code permits covered personnel to trade in securities in which the
Fund may invest, subject to certain restrictions and reporting requirements.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser determines, subject to the general
supervision of the Board of Trustees of the Trust and in accordance with the Fund’s investment
objective and restrictions, which securities are to be purchased and sold by the Fund, and which
brokers are to be eligible to execute the Fund’s portfolio transactions.
Purchases and sales of portfolio securities with respect to fixed income securities usually
are principal transactions in which portfolio securities are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include the spread between the
bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage commissions.
Transactions in the over-the-counter market are generally principal transactions with dealers. With
respect to the over-the-counter market, the Fund, where possible, will deal directly with dealers
who make a market in the securities involved except in those circumstances where better price and
execution are available elsewhere.
Allocation of transactions, including their frequency, to various brokers and dealers is
determined by the Adviser in its best judgment and in a manner deemed fair and reasonable to
Shareholders. The primary consideration is prompt execution of
32
orders in an effective manner at the most favorable price. Subject to this consideration, brokers
and dealers who provide supplemental investment research to the Adviser may receive orders for
transactions on behalf of the Fund. The Adviser is authorized to pay a broker-dealer who provides
such brokerage and research services a commission for executing the Fund’s brokerage transactions
which is in excess of the amount of commission another broker would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services provided by such broker
viewed in terms of that particular transaction or in terms of all of the accounts over which it
exercises investment discretion. Any such research and other statistical and factual information
provided by brokers to the Fund or to the Adviser is considered to be in addition to and not in
lieu of services required to be performed by the Adviser under its agreement regarding management
of the Fund. The cost, value and specific application of such information are indeterminable and
hence are not practicably allocable among the Fund and other clients of the Adviser who may
indirectly benefit from the availability of such information. Similarly, the Fund may indirectly
benefit from information made available as a result of transactions effected for such other
clients.
Under the Investment Advisory Agreement the Adviser is permitted to pay higher brokerage
commissions for brokerage and research services in accordance with Section 28 (e) of the Securities
Exchange Act of 1934 (“Soft-Dollars”). In the event the Adviser does follow such a practice, it
will do so on a basis which is fair and equitable to the Fund.
While the Adviser generally seeks competitive commissions, the Fund may not necessarily pay
the lowest commission available on each brokerage transaction, for reasons discussed above.
During the fiscal year ended December 31, 2007, the Fund paid no brokerage commissions because
its sole investment is in shares of the EM Capital India Master Fund, Ltd., which the Fund buys
without an commission or brokerage charges.
Except as otherwise disclosed to the Shareholders of the Fund and as permitted by applicable
laws, rules and regulations, the Trust will not, on behalf of the Fund, execute portfolio
transactions through, acquire portfolio securities issued by, make savings deposits in, or enter
into repurchase or reverse repurchase agreements with the Adviser, Foreside, or their affiliates,
and will not give preference to the Adviser’s correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those for the other funds of the
Trust or any other investment company or account managed by the Adviser. Any such other fund,
investment company or account may also invest in the same securities as the Trust on behalf of the
Fund. When a purchase or sale of the same security is made at substantially the same time on behalf
of the Fund and another fund of the Trust, investment company or account, the transaction will be
averaged as
33
to price and available investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund and such other fund, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained by the Fund. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased
for other investment companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the Fund, the Adviser will
not inquire or take into consideration whether an issuer of securities proposed for purchase or
sale by the Trust is a customer of the Adviser, any of its parents or subsidiaries or affiliates
and, in dealing with its customers, the Adviser, its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are held by the Fund or any
other fund of the Trust.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING SERVICES
Citi serves as administrator(“Administrator”), transfer agent (“Transfer Agent”) and
accountant (“Accountant”) for the Fund pursuant to a Master Services Agreement dated as of April30, 2007 and amended as of December 10, 2007 (the “Master Services Agreement”). As Administrator,
Citi assists in supervising all operations of the Fund and has agreed to maintain office
facilities; furnish statistical and research data, clerical, certain bookkeeping services and
stationery and office supplies; prepare the periodic reports to the Commission on Form N-SAR or any
replacement forms therefor; compile data for, assist the Trust or its designee in the preparation
of all the Fund’s federal and state tax returns and required tax filings other than those required
to be made by the Fund’s custodian; prepare compliance filings pursuant to state securities laws
with the advice of the Trust’s counsel; assist to the extent requested by the Trust with the
Trust’s preparation of its Annual and Semi-Annual Reports to Shareholders and its Registration
Statement (on Form N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain the
financial accounts and records of the Fund, including calculation of daily expense accruals; and
generally assist in all aspects of the Fund’s operations. Prior to its acquisition by a subsidiary
of Citigroup Inc. on August 1, 2007, Citi was known as BISYS Fund Services Ohio, Inc.
Citi also serves as transfer agent for the Fund pursuant to the Master Services Agreement.
Pursuant to the Master Services Agreement, Citi, as the transfer agent, among other things,
performs the following services in connection with the Fund’s shareholders of record: maintenance
of shareholder records for the Fund’s shareholders of record; processing shareholder purchase and
redemption orders; processing transfers and exchanges of shares of the Fund on the shareholder
files and records; processing dividend payments and reinvestments; and assistance in the mailing of
shareholder reports and proxy solicitation materials.
34
In addition, Citi provides certain fund accounting services to the Fund pursuant to the Master
Services Agreement. Under the Master Services Agreement, Citi maintains the accounting books and
records for the Fund, including journals containing an itemized daily record of all purchases and
sales of portfolio securities, all receipts and disbursements of cash and all other debits and
credits, general and auxiliary ledgers reflecting all asset, liability, reserve, capital, income
and expense accounts, including interest accrued and interest received, and other required separate
ledger accounts; maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Fund, including calculation of the net asset value per share,
calculation of the dividend and capital gain distributions, if any, and of yield, reconciliation of
cash movements with the Fund’s custodian, affirmation to the Fund’s custodian of all portfolio
trades and cash settlements, verification and reconciliation with the Fund’s custodian of all daily
trade activity; provides certain reports; obtains dealer quotations, prices from a pricing service
or matrix prices on all portfolio securities in order to mark the portfolio to the market; and
prepares an interim balance sheet, statement of income and expense, and statement of changes in net
assets for the Fund.
Citi receives a fee from the Fund for its services provided under the Master Services
Agreement and expenses assumed pursuant to the Master Services Agreement that is calculated daily
and paid periodically based upon the amount of the Fund’s average daily net assets and it also
receives specific fees for individual services performed under the Agreement.
Pursuant to the Master Services Agreement, Citi, as the Fund’s Administrator, Transfer Agent
and Accountant earned the following amounts during the fiscal year ended December 31, 2007:
Fiscal
Year
Administrative Fees
Transfer Agent Fees
Fund Accountant Fees
2007
$
18,863
$
57,499
$
19,771
Unless sooner terminated as provided therein, the Master Services Agreement’s term expires on
July 27, 2010. The Master Services Agreement thereafter shall be renewed automatically for
successive one-year terms, unless written notice not to renew is given by the non-renewing party to
the other party. The Master Services Agreement is terminable with respect to the Fund only upon
mutual agreement of the parties to the Agreement and for cause (as defined in the Agreement) by the
party alleging cause, on not less than 60 days’ notice by the Trust’s Board of Trustees or by Citi.
The Agreement provides that Citi shall not be liable for any error of judgment or mistake of
law or any loss suffered by the Fund in connection with the matters to which the Master Services
Agreement relates, except a loss resulting from willful misfeasance, bad faith, or negligence in
the performance of its duties, or from the reckless disregard by Citi of its obligations and duties
thereunder.
35
DISTRIBUTOR
The Distributor, located at 100 Summer Street, Boston, MA02110, serves as the principal
underwriter for the Fund’s shares pursuant to a Distribution Agreement dated as of August 1, 2007.
From May 11, 2007 to July 31, 2007, BISYS Fund Services, Limited Partnership (“Prior Distributor”),
located at 3435 Stelzer Road, Columbus, Ohio43219, served as the principal underwriter of the
Fund’s shares pursuant to a prior agreement dated as of April 30, 2007. Unless otherwise
terminated, the Distribution Agreement will continue in effect for successive annual periods if, as
to the Trust, such continuance is approved at least annually (i) by the Trust’s Board of Trustees
or by the vote of a majority of the outstanding shares of the Trust, and (ii) by the vote of a
majority of the Trustees of the Trust who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The Distribution Agreement
may be terminated in the event of any assignment, as defined in the 1940 Act. The Distributor is
obligated to sell the Shares of the Fund on a best efforts basis only against purchase orders for
the shares. Shares of the Fund are offered to the public on a continuous basis.
The Distributor enters into selling agreements with intermediaries that solicit orders for the
sale of Shares, advertises and pays the costs of advertising, office space and the personnel
involved in such activities. The Distributor receives annual compensation of $25,000 plus certain
out of pocket expenses under the Distribution Agreement with the Fund.
For the fiscal year ended December 31, 2007, the Distributor and the Prior Distributor
received no underwriting commissions.
The Fund has adopted a Service and Distribution Plan for Class A and Class C Shares (the
“Plan”) pursuant to Rule 12b-1 under the 1940 Act under which the Class A and Class C Shares of the
Fund are authorized to pay the Distributor for payments it makes to banks, other institutions and
broker-dealers, and for expenses the Distributor and any of its affiliates or subsidiaries incur
(with all of the foregoing organizations being referred to as “Service Organizations”) for
providing administration, distribution or shareholder service assistance to the Fund relating to
Class A and Class C Shares. Payments to such Service Organizations may be made pursuant to
agreements entered into with the Distributor. The Plan authorizes the Fund to make payments to the
Distributor in an amount not to exceed, on an annual basis, 0.50% of the average daily net assets
of Class A Shares of the Fund and up to 1.00% of the average daily net assets of Class C Shares.
As required by Rule 12b-1, the Plan was approved by the initial Shareholders of the Fund and
by the Board of Trustees, including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation of the Plan (the
Independent Trustees). The Plan may be terminated as to the Fund by vote of a majority of the Independent Trustees, or by vote of a majority of
36
the outstanding Shares of the Fund. Any change in the Plan that would materially increase the
distribution cost to the Fund requires Shareholder approval. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been incurred. The Plan may
be amended by vote of the Trustees including a majority of the Independent Trustees, cast in person
at a meeting called for that purpose. For so long as the Plan is in effect, selection and
nomination of those Trustees who are not interested persons of the Trust shall be committed to the
discretion of such disinterested persons. All agreements with any person relating to the
implementation of the Plan may be terminated at any time on 60 days’ written notice without payment
of any penalty, by vote of a majority of the Independent Trustees or by a vote of the majority of
the outstanding Shares of the Fund. The Plan will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the vote of a majority
of the Independent Trustees, and (ii) by a vote of a majority of the entire Board of Trustees cast
in person at a meeting called for that purpose. The Board of Trustees has a duty to request and
evaluate such information as may be reasonably necessary for them to make an informed determination
of whether the Plan should be implemented or continued. In addition the Trustees in approving the
Plan must determine that there is a reasonable likelihood that the Plan will benefit the Fund and
its Shareholders.
The Board of Trustees of the Trust believes that the Plan is in the best interests of the Fund
since it encourages Fund growth and maintenance of Fund assets. As the Fund grows in size, certain
expenses, and therefore total expenses per Share, may be reduced and overall performance per Share
may be improved.
The Distributor may enter into, from time to time, Rule 12b-1 Agreements with selected dealers
pursuant to which such dealers will provide certain services in connection with the distribution of
the Fund’s Shares including, but not limited to, those discussed above.
For the fiscal year ending December 31, 2007, the Fund incurred $410 in 12b-1 fees of which
$298 was paid out and $112 is an account payable liability. The following table summarizes the
amounts actually paid out by the Fund relating to the following types of activities:
Activity
Amount
Allocation
Advertising/Marketing
$
0
0
%
Printing and Mailing Prospectus to potential investors
$
0
0
%
Compensation to Underwriter
$
151
51
%
Compensation to Broker-Dealers
$
147
49
%
Compensation to Sales Personnel
$
0
0
%
Interest, carrying, or other financing charges
$
0
0
%
Other
$
0
0
%
CUSTODIAN
37
Union Bank of California, N.A., 350 California Street, San Francisco, California94104 (the
“Custodian”), has been selected to serve as the Fund’s custodian. The Custodian’s responsibilities
include safeguarding and controlling the Fund’s cash and securities, handling the receipt and
delivery of securities, and collecting interest and dividends on the Fund’s investments. The
Custodian earned $4,991 in custody fees during the fiscal year ended December 31, 2007.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Briggs, Bunting & Dougherty, LLP, Two Penn Center Plaza, Suite 820, Philadelphia, PA19102-1732, the independent accountants for the Fund, will perform an annual audit of the Fund’s
financial statements and provides other related services. Reports of their activities are provided
to the Trust’s Board of Trustees.
LEGAL COUNSEL
Thompson Hine LLP, 10 W. Broad Street, Columbus, Ohio43215, serves as counsel to the Trust.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust that was organized on July 20, 1994. The Trust’s
Declaration of Trust is on file with the Secretary of State of the Commonwealth of Massachusetts
and was filed with the Secretary of the State on that date. The Declaration of Trust, as amended
and restated, authorizes the Board of Trustees to issue an unlimited number of Shares, which are
units of beneficial interest, without par value. The Trust currently has multiple series of Shares
which represent interests in each series of the Trust. The Trust’s Declaration of Trust authorizes
the Board of Trustees to divide or redivide any unissued shares of the Trust into one or more
additional series or classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such conversion or exchange rights
as the Board of Trustees may grant in its discretion. When issued for payment as described in the
Prospectus and this Statement of Additional Information (the “SAI”), the Trust’s Shares will be
fully paid and non-assessable by the Trust. In the event of a liquidation or dissolution of the
Trust, Shareholders of the Fund are entitled to receive the assets available for
distribution belonging to the Fund, and a proportionate
38
distribution, based upon the relative asset values of the respective series, of any general assets
not belonging to any particular series which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted to the holders
of the outstanding voting securities of an investment company such as the Trust shall not be deemed
to have been effectively acted upon unless approved by the holders of a majority of the outstanding
Shares of the Fund affected by the matter. For purposes of determining whether the approval of a
majority of the outstanding Shares of the Fund will be required in connection with a matter, the
Fund will be deemed to be affected by a matter unless it is clear that the interests of the Fund in
the matter are identical, or that the matter does not affect any interest of the Fund. Under Rule
18f-2, the approval of an investment advisory agreement or any change in investment policy would be
effectively acted upon with respect to a series only if approved by a majority of the outstanding
Shares of the Fund. However, Rule 18f-2 also provides that the ratification of independent
registered public accounting firm, the approval of principal underwriting contracts, and the
election of Trustees may be effectively acted upon by Shareholders of the Trust voting without
regard to series.
Under Massachusetts law, holders of units of interest in a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the Trust. However, the
Trust’s Declaration of Trust provides that Shareholders shall not by subject to any personal
liability for the obligations of the Trust. The Declaration of Trust provides for indemnification
out of Trust property of any shareholder held personally liable solely by reason of his or her
being or having been a Shareholder. The Declaration of Trust also provides that the Trust shall,
upon request, reimburse any Shareholder for all legal and other expenses reasonably incurred in the
defense of any claim made against the Shareholder for any act or obligation of the Trust, and shall
satisfy any judgment thereon. Thus, the risk of a Shareholder incurring financial loss on account
of Shareholder liability is limited to circumstances in which the Trust itself would be unable to
meet its obligations, and thus should be considered remote.
The Declaration of Trust states further that no Trustee, officer, or agent of the Trust shall
be personally liable in connection with the administration or preservation of the assets of the
Trust or the conduct of the Trust’s business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. The Declaration of
Trust also provides that all persons having any claim against the Trustees of the Trust shall look
solely to the assets of the Trust for payment.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectus and this SAI, a “vote of a majority of the outstanding Shares” of
the Trust of the Fund means the affirmative vote, at an annual or special meeting of Shareholders
duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or the
Fund present at a meeting at which the holders of more
39
than 50% of the votes attributable to Shareholders of record of the Trust of the Fund are represented in person
or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the
Trust or the Fund.
ADDITIONAL TAX INFORMATION
Set forth below is a discussion of certain U.S. federal income tax issues concerning the Fund
and the purchase, ownership, and disposition of Fund shares. This discussion does not purport to be
complete or to deal with all aspects of federal income taxation that may be relevant to
Shareholders in light of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all of which are
subject to change, which change may be retroactive. Prospective investors should consult their own
tax advisors with regard to the federal tax consequences of the purchase, ownership, or disposition
of Fund shares, as well as the tax consequences arising under the laws of any state, foreign
country, or other taxing jurisdiction.
The Fund is treated as a separate entity for federal income tax purposes and intends each year
to qualify and elect to be treated as a “regulated investment company” under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must, among other things: derive at
least 90% of its gross income from dividends, interest, payments with respect to securities loans,
and gains from the sale or other disposition of securities or foreign currencies, net income
derived from interests in one or more qualified publicly traded partnerships; or other income
derived with respect to its business of investing in such stock, securities, or currencies;
diversify its holdings so that, at the end of each quarter of the taxable year, (a) at least 50% of
the market value of the Fund’s assets is represented by cash, cash items, U.S. government
securities, securities of other regulated investment companies, and other securities, with such
other securities of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund’s total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), of two or more issuers which the Fund controls (as that term
is defined in the relevant provisions of the Code) and which are determined to be engaged in the
same or similar trades or businesses or related trades or businesses, or of one or more qualified
publicly traded partnerships; and, distribute to its Shareholders at least 90% of its investment
company taxable income for the year. In general, the Fund’s investment company taxable income will
be its taxable income subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment companies that do not
distribute in each calendar year (regardless of whether they otherwise have
40
a non-calendar taxable year) an amount equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If distributions during a
calendar year were less than the required amount, the Fund would be subject to a non-deductible
excise tax equal to 4% of the deficiency.
Although the Fund expects to qualify as a “regulated investment company” and thus to be
relieved of all or substantially all of its federal income tax liability, depending upon the extent
of its activities in states and localities in which its offices are maintained, in which its agents
or independent contractors are located, or in which it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities. In addition, if for
any taxable year the Fund does not qualify for the special tax treatment afforded regulated
investment companies, all of its taxable income will be subject to federal tax at regular corporate
rates (without any deduction for distributions to its Shareholders). In such event, dividend
distributions would be taxable to Shareholders to the extent of earnings and profits, and would be
eligible for the dividends received deduction for corporations.
It is expected that the Fund will distribute annually to Shareholders all or substantially all
of the Fund’s net ordinary income and net realized capital gains and that such distributed net
ordinary income and distributed net realized capital gains will be taxable income to Shareholders
for federal income tax purposes, even if paid in additional Shares of the Fund and not in cash.
The excess of net long-term capital gains over short-term capital losses realized and
distributed by the Fund and designated as capital gain dividends, whether paid in cash or
reinvested in Fund shares, will be taxable to Shareholders. Under current law, net long-term
capital gains and certain qualified dividend income of individual taxpayers is subject to a 15%
maximum U.S. federal income tax rate. The rate reductions do not apply to corporate taxpayers. The
Fund may separately designate distributions of any long-term capital gains or qualified dividends
earned by the Fund that would be eligible for the lower maximum rate. A shareholder would also have
to satisfy a more than 60-day holding period with respect to any distributions of qualified
dividends in order to obtain the benefit of the lower rate. Distributions resulting from the Fund’s
investments in bonds and other debt instruments will not generally qualify for the lower rates.
Note that distributions of earnings from dividends paid by “qualified foreign corporations” can
also qualify for the lower tax rates on qualifying dividends. Qualified foreign corporations are
corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an
established securities market in the U.S., and corporations eligible for the benefits of a
comprehensive income tax treaty with the United States which satisfy certain other requirements.
Passive foreign investment companies are not treated as “qualified foreign corporations.” Foreign
tax credits associated with dividends from “qualified foreign corporations” will be
limited to reflect the reduced U.S. tax on those dividends.
41
Any net capital loss realized by the Fund may be carried forward and will be available to
offset future net capital gains, if any, for a period of eight years to the extent provided by the
Treasury regulations. To the extent that this carryforward is used to offset future capital gains,
it is probable that these gains so offset will not be distributed to shareholders.
Subject to certain limitations, certain corporations are entitled to a 70% dividends received
deduction for distributions from certain domestic corporations. The Fund may designate the portion
of any distributions which may qualify for the 70% dividends received deduction. The amount so
designated may not exceed the amount received by the Fund for its taxable year that qualifies for
the dividends received deduction. Investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes (including income taxes withheld at
source). If more than 50% of the value of the Fund’s total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to pass through to its Shareholders the benefit of taking either a foreign tax
credit or a deduction for foreign taxes to the extent of each shareholder’s proportionate share of
foreign income taxes paid by the Fund. If the Fund makes this election, Shareholders will be
required to include in gross income their proportionate share of such foreign income taxes paid by
the Fund, and, subject to certain limitations, Shareholders may claim, for U.S. federal income tax
purposes, either a credit or deduction for such taxes.
Upon the sale or exchange of shares, a shareholder will realize a taxable gain or loss
depending upon the shareholder’s basis in the shares. Such a gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder’s hands, and will be
long-term capital gain or loss if the shares are held for more than one year. Net long-term
capital gains of individual taxpayers are taxable at reduced U.S. federal income tax rates. If your
tax basis in your shares exceeds the amount of proceeds you receive from a sale, exchange or
redemption of shares, you will recognize a taxable loss on the sale of shares of the Fund. Any loss
recognized on shares held for six months or less will be treated as long-term capital loss to the
extent of any long-term capital gain distributions that were received with respect to the shares.
Additionally, any loss realized on a sale, redemption or exchange of shares of the Fund may be
disallowed under “wash sale” rules to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to a dividend reinvestment in shares of the Fund. If
disallowed, the loss will be reflected in an adjustment to the tax basis of the shares required.
The Fund may be required by federal law to withhold and remit to the U.S. Treasury 28% of
taxable dividends, if any, and capital gain distributions to any Shareholder, and the proceeds of
redemption or the values of any exchanges of Shares of the Fund by the Shareholder, if such Shareholder (1) fails to furnish the Trust with a correct
taxpayer identification number, (2) under-reports dividend or interest income, or
42
(3) fails to certify to the Trust that he or she is not subject to such withholding. An individual’s taxpayer
identification number is his or her Social Security number.
Information as to the Federal income tax status of all distributions will be mailed annually
to each Shareholder.
Market Discount. If the Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption price over the purchase
price is “market discount”. If the amount of market discount is more than a de minimis amount, a
portion of such market discount must be included as ordinary income (not capital gain) by the Fund
in each taxable year in which the Fund owns an interest in such debt security and receives a
principal payment on it. In particular, the Fund will be required to allocate that principal
payment first to the portion of the market discount on the debt security that has accrued but has
not previously been includable in income. In general, the amount of market discount that must be
included for each period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not previously taken into
account) or (ii) the amount of the principal payment with respect to such period. Generally, market
discount accrues on a daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security’s maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding of interest. Gain
realized on the disposition of a market discount obligation must be recognized as ordinary interest
income (not capital gain) to the extent of the “accrued market discount.”
Original Issue Discount. Certain debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Very generally, original issue discount is
defined as the difference between the price at which a security was issued and its stated
redemption price at maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in a given year
generally is treated for federal income tax purposes as interest and, therefore, such income would
be subject to the distribution requirements applicable to regulated investment companies. Some debt
securities may be purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market discount for federal
income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts and certain options
(namely, non-equity options and dealer equity options) in which the Fund may invest may be “section
1256 contracts.” Gains (or losses) on these contracts generally are considered to be 60% long-term
and 40% short-term capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are “marked to market”
with the result that unrealized gains or losses are treated as though they were realized.
43
Transactions in options, futures and forward contracts undertaken by the Fund may result in
“straddles” for federal income tax purposes. The straddle rules may affect the character of gains
(or losses) realized by the Fund, and losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are realized. In addition,
certain carrying charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections that the Fund may
make with respect to its straddle positions may also affect the amount, character and timing of the
recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been promulgated, the
consequences of such transactions to the Fund are not entirely clear. The straddle rules may
increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary
income when distributed to Shareholders. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to Shareholders as
ordinary income or long-term capital gain may be increased or decreased substantially as compared
to a fund that did not engage in such transactions.
Constructive Sales. Certain Code provisions may affect the timing and character of gain if the
Fund engages in transactions that reduce or eliminate its risk of loss with respect to appreciated
financial positions. If the Fund enters into certain transactions in property while holding
substantially identical property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the constructive sale.
The character of gain from a constructive sale would depend upon the Fund’s holding period in the
property. Loss from a constructive sale would be recognized when the property was subsequently
disposed of, and its character would depend on the Fund’s holding period and the application of
various loss deferral provisions of the Code.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues income or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and certain forward
contracts denominated in a foreign currency, gains or losses attributable to fluctuations in the
value of the foreign currency between the acquisition and disposition of the position also are
treated as ordinary gain or loss. These gains and losses, referred to under the Code as “section
988” gains or losses, increase or decrease the amount of the Fund’s investment company taxable
income available to be distributed to its Shareholders as ordinary income. If section 988 losses
exceed other investment company taxable income during a taxable year, the Fund would not be able to
make any ordinary dividend distributions, or distributions made before the losses were
realized would be recharacterized as a
44
return of capital to Shareholders, rather than as an ordinary dividend, reducing each Shareholder’s basis in
his or her Fund shares.
Passive Foreign Investment Companies. The Fund may invest in shares of foreign corporations
that may be classified under the Code as passive foreign investment companies (“PFICs”). In
general, a foreign corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income is investment-type income. If
the Fund receives a so-called “excess distribution” with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during which the Fund held
the PFIC shares. The Fund will itself be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest factor will be added
to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. Under
an election that is available in some circumstances, the Fund would include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether distributions were
received from the PFIC in a given year. If this election is made, the special rules, discussed
above, relating to the taxation of excess distributions, would not apply. In addition, under
another available election the Fund’s PFIC shares at the end of each taxable year would be marked
to market, with the result that unrealized gains would be treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an actual disposition of
PFIC shares would be deductible as ordinary losses to the extent of any net mark-to-market gains
included in income in prior years.
Foreign Shareholders. Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign partnership (“foreign
shareholder”), depends on whether the income from the Fund is “effectively connected” with a U.S.
trade or business carried on by such shareholder. If the income from the Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends (including distributions of any net short-term capital gains) will generally be subject
to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Prior law provided that dividends paid by a fund to certain foreign shareholders were
exempt from U.S. withholding tax to the extent such dividends were attributable to qualified
interest or net short-term capital gains, provided that the fund elected to follow certain
procedures. However, this exemption expired on December 31, 2007 and is no longer effective.
Legislation has been proposed that may reinstate and extend this exemption from withholding
tax for one year, but it is unclear whether such proposed legislation will
45
be enacted. Note that the 15% rate of tax applicable to certain dividends (discussed above) does not
apply to dividends paid to foreign shareholders subject to U.S. withholding tax. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of
shares of the Fund, and distributions of net long-term capital gains that are designated as capital
gain dividends. If the income from the Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any
gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at
the rates applicable to U.S. citizens or domestic corporations.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable
tax treaty may be different from those described herein. Foreign shareholders are urged to consult
their own tax advisers with respect to the particular tax consequences to them of an investment in
the Fund, including the applicability of foreign taxes.
Investment Through Mauritius. The Fund will operate, in part, through the EM Capital India
Master Fund, Ltd., an entity formed in the Republic of Mauritius which is deemed to be a tax
resident of Mauritius and which will be treated as a disregarded entity for United States federal
tax purposes. This is being done in order to allow the Fund to take advantage of the currently
effective tax treaty that is in place between India and Mauritius. The Supreme Court of India has
previously upheld the validity of this tax treaty in response to a lower court challenge contesting
the treaty’s applicability to certain foreign entities. Any change in the provision of this treaty
or in its applicability to the Fund or the EM Capital India Master Fund, Ltd. could result in the
imposition of various taxes on the Fund by India, which could reduce the return to the Fund on its
investments.
PERFORMANCE CALCULATIONS
Yield and Total Return Calculations
Yield Calculations. Yields of the Fund will be computed by dividing the net investment income
per share (as described below) earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. The Fund’s net investment income per share
earned during the period is based on the average daily number of Shares outstanding during the
period entitled to receive dividends and includes dividends and interest earned during the period
minus expenses accrued for the period, net of reimbursements. This calculation can be expressed as
follows:
Yield = 2 (
a - b
cd
+ 1) to the 6th power - 1
46
Where:
a=dividends and interest earned during the period.
b=expenses accrued for the period (net of reimbursements).
c=the average daily number of Shares outstanding during the period that were entitled to
receive dividends.
d=maximum offering price per Share on the last day of the period.
For the purpose of determining net investment income earned during the period (variable “a” in
the formula), dividend income on equity securities held by the Fund is recognized by accruing 1/360
of the stated dividend rate of the security each day that the security is in the Fund. Interest
earned on any debt obligations held by the Fund is calculated by computing the yield to maturity of
each obligation held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of business on the last Business Day of each month, or, with respect
to obligations purchased during the month, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on the obligation for
each day of the subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or premium. The amortization
schedule will be adjusted monthly to reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value per share (variable “d”
in the formula). Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to be and is declared
as a dividend shortly thereafter.
During any given 30-day period, the Adviser or Administrator may voluntarily waive all or a
portion of its fees with respect to the Fund. Such waiver would cause the yield of the Fund to be
higher than it would otherwise be in the absence of such a waiver.
Total Return Calculations. Average annual total return is a measure of the change in value of
an investment in the Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in the Fund immediately rather than paid to the investor in cash.
Aggregate total return is calculated similarly to average annual total return except that the
return figure is aggregated over the relevant period instead of annualized.
47
The Fund computes its average annual total returns by determining the average annual
compounded rates of return during specified periods that equate the initial amount invested to the
ending redeemable value of such investment. This is done by dividing the ending redeemable value of
a hypothetical $1,000 initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
Average Annual Total Return = (
ERV
P
) 1/n - 1
Where:
ERV=
ending redeemable value at the end of the period covered by the computation of a
hypothetical $1,000 payment made at the beginning of the period.
p=hypothetical initial payment of $1,000.
n=period covered by the computation, expressed in terms of years.
The Fund computes its aggregate total returns by determining the aggregate compounded rates of
return during specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total return is as
follows:
Aggregate Total Return = (
ERV
P
) 1/n - 1
Where:
ERV=
ending redeemable value at the end of the period covered by the computation of a
hypothetical $1,000 payment made at the beginning of the period.
p=hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return assume the
reinvestment of all dividends and capital gain distributions on the reinvestment dates during the
period. The ending redeemable value (variable “ERV” in each formula) is determined by assuming
complete redemption of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
The Fund computes its average annual total return after taxes on distributions by determining
the average annual compounded rates of return during specified periods that equate the initial
amount invested to the ending redeemable value of such investment after taxes on fund distributions
but not after taxes on redemptions. This is
48
done by dividing the ending redeemable value after taxes on
fund distributions of a hypothetical $1,000 initial payment by $1,000 and raising the quotient to a power
equal to one divided by the number of years (or fractional portion thereof) covered by the computation and
subtracting one from the result. This calculation can be expressed as follows:
Average Annual Total Return After Taxes =
[
ATVD
P
to the 1/nth power -1]
(after taxes on distributions)
Where:
P=a hypothetical initial payment of $1,000.
n=number of years.
ATVD=ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or
10-year periods at the end of such periods after taxes on fund distributions but not after taxes on
redemption.
The Fund computes its average annual total return after taxes on distributions and redemptions
by determining the average annual compounded rates of return during specified periods that equate
the initial amount invested to the ending redeemable value of such investment after taxes on fund
distributions and redemptions. This is done by dividing the ending redeemable value after taxes on
fund distributions and redemptions of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or fractional portion thereof)
covered by the computation and subtracting one from the result. This calculation can be expressed
as follows:
Average Annual Total Return After Taxes=
[(
ATVDR
P
)
to the 1/nth power -1]
(after taxes on distributions and redemptions)
Where:
P=a hypothetical initial payment of $1,000.
n=number of years.
ATVDR=ending value of a hypothetical $1,000 payment made at the beginning
of the 1, 5, or 10-year periods at the end of such periods, after taxes on fund distributions and redemption.
After-tax returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown,
and after-tax returns shown are not relevant to investors who hold their Fund shares
49
through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
PERFORMANCE COMPARISONS
Investors may analyze the performance results of the Fund by comparing them to the performance
of other mutual funds or mutual fund portfolios with comparable investment objectives and policies
through various mutual fund or market indices such as those prepared by Dow Jones & Co., Inc. and
Standard & Poor’s Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds. Comparisons may also
be made to indices or data published in Money Magazine, Forbes, Barron’s, The Wall Street Journal,
Morningstar, Inc., Ibbotson Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A.
Today and local periodicals. In addition to performance information, general information about
these Funds that appears in a publication such as those mentioned above may be included in
advertisements, sales literature and reports to shareholders. The Fund may also include in
advertisements and reports to shareholders information discussing the performance of the Adviser in
comparison to other investment advisors and to other banking institutions.
From time to time, the Trust may include the following types of information in advertisements,
supplemental sales literature and reports to Shareholders: (1) discussions of general economic or
financial principles (such as the effects of inflation, the power of compounding and the benefits
of dollar cost averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio
holdings for one or more of the Funds within the Trust; (5) descriptions of investment strategies
for one or more of such Funds; (6) descriptions or comparisons of various investment products,
which may or may not include the Fund; (7) comparisons of investment products (including the Fund)
with relevant market or industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials describing the
experience of persons that have invested in one or more of the Funds. The Trust may also include
calculations, such as hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an express set of
assumptions and are not indicative of the performance of any Fund.
Current yields or total return will fluctuate from time to time and are not necessarily
representative of future results. Accordingly, the Fund’s yield or total return may not provide for
comparison with bank deposits or other investments that pay a fixed return for a stated period of
time. Yield and total return are functions of the Fund’s quality, composition and maturity, as well
as expenses allocated to the Fund. Fees imposed upon Customer accounts by the Adviser or its
affiliated or correspondent banks for cash management services will reduce the Fund’s effective
yield and total return to Customers.
50
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A principal shareholder is any person who owns (either of record or beneficially) 5% or more
of the outstanding shares of a Fund. A control person is one who owns, either directly or
indirectly, more than 25% of the voting securities of a Fund or acknowledges the existence of such
control. As a controlling shareholder, each of these persons could control the outcome of any
proposal submitted to the shareholders for approval, including changes to the Fund’s fundamental
policies or the terms of the management agreement with the Adviser. The following tables set forth
information concerning such persons that, to the knowledge of the Trust’s Board of Trustees, owned,
of record or beneficially, at least five percent of a Fund’s Shares as of July 1,2008:
Class A Shares
Percent of
Name and Address
Ownership
Nature of Ownership
Seth R. Freeman and M. Maureen Freeman
21 Broadmoor Street
Moraga, CA94556
42.29
%
Beneficial
Robert V. Trask and Mary L. Trask
3212 Falcon Point
Springfield, IL62711
19.52
%
Beneficial
TD Ameritrade Clearing, Inc.
1005 North Ameritrade Place
Bellevue, NE68005
12.46
%
Record
Francis W. Jump, Jr. and Joan Marie Jump
2007 Jump Family Trust
3615 Powell Drive Lafayette, CA94549
Seth R. Freeman and M. Maureen Freeman
21 Broadmoor Street Moraga, CA94556
100.00
%
Beneficial
51
PROXY VOTING
The Board of Trustees of the Trust has adopted a proxy voting policy and procedure (the “Trust
Policy”), pursuant to which the Trustees have delegated proxy voting responsibility to the Adviser
and adopted the Adviser’s proxy voting policies and procedures (the “Policy”) which are described
below. The Trustees will review the Fund’s proxy voting records from time to time and will annually
consider approving the Policy for the upcoming year. In the event that a conflict of interest
arises between the Fund’s Shareholders and the Adviser or any of its affiliates or any affiliate of
the Fund, the Adviser will generally refrain from voting the proxies related to the companies
giving rise to such conflict until it consults with the Board of Trustees. A Committee of the Board
with responsibility for proxy oversight will instruct the Adviser on the appropriate course of
action.
The Policy is designed to promote accountability of a company’s management to its shareholders
and to align the interests of management with those shareholders. The Adviser generally reviews
each matter on a case-by-case basis in order to make a determination of how to vote in a manner
that best serves the interests of Fund shareholders. The Adviser may abstain from voting from time
to time where it determines that the costs associated with voting a proxy outweigh the benefits
derived from exercising the right to vote. In addition, the Adviser will monitor situations that
may result in a conflict of interest between the Fund’s shareholders and the Adviser or any of its
affiliates or any affiliate of the Fund by maintaining a list of significant existing and
prospective corporate clients. Information on how the Fund voted proxies relating to portfolio
securities during the 12 month period ended June 30th of each year is available (1) without charge,
upon request, by calling 1-866-611-4967, and (2) on the Funds’ Form N-PX on the Securities and
Exchange Commission’s website at http://www.sec.gov.
DISCLOSURE OF FUND PORTFOLIO HOLDINGS
The Board of Trustees has adopted policies and procedures for the public and nonpublic
disclosure of the Fund’s portfolio securities. A complete list of the Fund’s portfolio holdings is
made publicly available on a quarterly basis through filings made with the SEC on Forms N-CSR and
N-Q. As a general matter, in order to protect the confidentiality of the Fund’s portfolio holdings,
no information concerning the portfolio holdings of the Fund may be disclosed to any unaffiliated
third party except: (1) to service providers that require such information in the course of
performing their duties (such as the Fund’s custodian, fund accountants, investment adviser,
administrator, independent registered public accounting firm, attorneys, officers and trustees and
each of their respective affiliates and advisors) and are subject to a duty of confidentiality; (2)
52
in marketing materials, provided that the information regarding the portfolio holdings contained
therein is at least fifteen days old; or (3) pursuant to certain enumerated
exceptions that serve a legitimate business purpose. These exceptions include: (1) disclosure of
portfolio holdings only after such information has been publicly disclosed, and (2) to third-party
vendors, such as Morningstar Investment Services, Inc. and Lipper Analytical Services that (a)
agree to not distribute the portfolio holdings or results of the analysis to third parties, other
departments or persons who are likely to use the information for purposes of purchasing or selling
the Fund before the portfolio holdings or results of the analysis become publicly available; and
(b) sign a written confidentiality agreement, or where the Board of Trustees has determined that
the polices of the recipient are adequate to protect the information that is disclosed. The
confidentiality agreement must provide, among other things, that the recipient of the portfolio
holdings information agrees to limit access to the portfolio information to its employees (and
agents) who, on a need to know basis, are (1) authorized to have access to the portfolio holdings
information and (2) subject to confidentiality obligations, including duties not to trade on
non-public information, no less restrictive than the confidentiality obligations contained in the
confidentiality agreement. Such disclosures must be authorized by the President or Chief Compliance
Officer of the Adviser and shall be reported periodically to the Board.
Neither the Fund nor the Adviser may enter into any arrangement providing for the disclosure
of non-public portfolio holding information for the receipt of compensation or benefit of any kind.
Any exceptions to the policies and procedures may only be made by the consent of a majority of the
Board of Trustees upon a determination that such disclosure serves a legitimate business purpose
and is in the best interests of the Fund. Any amendments to these policies and procedures must be
approved and adopted by the Board of Trustees. The Board may, on a case-by-case basis, impose
additional restrictions on the dissemination of portfolio holdings information beyond those found
in the policies and procedures, as necessary.
MISCELLANEOUS
Individual Trustees are elected by the Shareholders and, subject to removal by the vote of
two-thirds of the Board of Trustees, serve for a term lasting until the next meeting of
shareholders at which Trustees are elected. Such meetings are not required to be held at any
specific intervals. Individual Trustees may be removed by vote of the Shareholders voting not less
than a majority of the Shares then outstanding, cast in person or by proxy at any meeting called
for that purpose, or by a written declaration signed by Shareholders voting not less than
two-thirds of the Shares then outstanding.
The Trust is registered with the Securities and Exchange Commission as a management investment
company. Such registration does not involve supervision by the Securities and Exchange Commission
of the management or policies of the Trust.
53
The Prospectus and this SAI omit certain of the information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of
such information may be obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The Prospectus and this SAI are not an offering of the securities herein described in any
state in which such offering may not lawfully be made. No salesperson, dealer, or other person is
authorized to give any information or make any representation other than those contained in the
Prospectus and this SAI.
FINANCIAL STATEMENTS
Financial statements for the Trust with respect to the Fund, since commencement of its
operations through December 31, 2007, including notes thereto and the report thereon of Ernst &
Young LLP (the Fund’s independent registered public accounting firm) are incorporated by reference
from the Trust’s 2007 Annual Report filed on Form N-CSR. A copy of the report delivered with this
SAI should be retained for future reference.
(a)(2) Establishment and Designation of Series of Shares (The EM Capital India Gateway Fund)(4)
(b) By-Laws(2)
(c) Articles V and VI of the Registrant’s Amended and Restated Declaration of Trust define rights
of holders of Shares.
(d) Investment Advisory Agreement between Registrant and EM Capital Management, LLC (4)
(e)(1) Distribution Agreement between Registrant and Foreside Distributions Services, L.P. is filed
herewith
(f) Not Applicable
(g) Form of Custody Agreement between Registrant and Union Bank of California (4)
(h)(1) Amendment to Master Services Agreement between the Registrant and Citi Fund Services Ohio,
Inc. (formerly BISYS Fund Services Ohio, Inc.) is filed herewith
(h)(2) Master Services Agreement between the Registrant and BISYS Fund Services Ohio, Inc. (4)
(h)(3) Expense Limitation Agreement dated March 1, 2007 (4)
Filed with Post-Effective Amendment No. 9 filed April 28, 2000.
4.
Filed with Post-Effective Amendment No. 33 filed May 10, 2007.
ITEM 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25 INDEMNIFICATION
Reference is made to Article IV of the Registrant’s Amended and Restated Declaration of Trust
(Exhibit (a)(1)) which is incorporated by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to trustees, officers and controlling persons of the Registrant by the Registrant
pursuant to the Fund’s Declaration of Trust, its By Laws or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by trustees, officers or controlling persons of the Registrant in connection with
the successful defense of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issues.
ITEM 26 BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
(a) EM Capital Management, LLC is the investment adviser for the Fund. The business and other
connections of EM Capital Management, LLC are set forth in the Uniform Application for Investment
Adviser Registration (“Form ADV”) of EM Capital Management, LLC as currently filed with the SEC
which is incorporated by reference herein.
ITEM 27 PRINCIPAL UNDERWRITER
(a) Foreside Distribution Services, L.P. (“Foreside” or the “Distributor”) acts as principal
underwriter for the following investment companies;
American Independence Funds Trust
The Bjurman, Barry Funds
Capital One Funds
Commonwealth International Series Trust
The Coventry Group
Coventry Funds Trust
First Focus Funds, Inc.
HSBC Advisor Funds Trust
HSBC Investor Funds
Lou Holland Trust
Pacific Capital Funds (including CATS and Hawaiian Trust)
PNC Funds
RMR Series Trust
STI Classic Funds
STI Classic Variable Trust
The 3800 Fund
The Blue Fund Group
Vintage Mutual Funds, Inc.
Foreside is registered with the Securities and Exchange Commission as a broker-dealer and is a
member of the Financial Industry Regulatory Authority. Foeside’s main address is 100 Summer St.
15TH FLOOR, Boston, Massachusetts02110.
(b) Information about Directors and Officers of Foreside is as follows:
(a) In connection with the Fund, the accounts, books and other documents required to be maintained
by the Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of EM Capital Management, LLC, 920 Country Club Drive,
Suite 1-E, Moraga, California94556 (records relating to its function as investment adviser for the
Fund); Citi Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio43219 (records relating to
its functions as general manager, administrator, transfer agent and accountant), Foreside
Distribution Services, L.P. 3435 Stelzer Road, Columbus, OH43219 (records relating to its
functions as distributor) and Union Bank of California, N.A., 350 California Street, San Francisco,
California94104 (records relating to its function as custodian).
ITEM 29 MANAGEMENT SERVICES
Not Applicable.
ITEM 30 UNDERTAKINGS
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets all the requirements for effectiveness of this registration
statement under 485(b) under the Securities Act and has duly caused this Post-Effective Amendment
No. 34 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbus in the State of Ohio on the 14th day of July, 2008.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on the date indicated: