STATEMENT
OF ADDITIONAL INFORMATION
February 1
, 201 9
A
series of the
Starboard
Investment Trust
116
South Franklin Street
Post
Office Box 69
Rocky
Mount, North Carolina 27802-0069
Telephone
1-800-773-3863
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This
Statement of Additional Information is meant to be read in conjunction with the
Prospectus for The Sector Rotation Fund, dated February 1 , 201 9 , and is
incorporated by reference in its entirety into the Prospectus. Because
this Statement of Additional Information is not itself a Prospectus, no
investment in shares of The Sector Rotation Fund should be made solely upon the
information contained herein. Copies of The Sector Rotation Fund Prospectus,
annual report, and/or semi-annual report may be obtained at no charge by writing
or calling The Sector Rotation Fund at the address or phone number shown above.
Capitalized terms used but not defined herein have the same meanings as in The
Sector Rotation Fund Prospectus.
Starboard
Investment Trust (“Trust”) was organized on May 13, 2009 , as a Delaware
statutory trust and is registered with the U.S. Securities and Exchange
Commission (“SEC”) as an open-end management investment company. The Sector
Rotation Fund (the “Fund”) is a separate, diversified series of the Trust.
Pursuant to a reorganization that took place on June 27, 2011, the Fund is the
successor by merger to a series of the World Funds Trust (“Predecessor Fund”), a
Delaware statutory trust. The Predecessor Fund had the same investment
objectives and strategies and substantially the same investment policies as the
Fund. The Predecessor Fund commenced operations in December 30, 2009. The
Fund’s investment advisor is Grimaldi Portfolio Solutions, Inc. (previously
Navigator Money Management, Inc.) (the “Advisor”).
This
Statement of Additional Information (“SAI”) describes the financial history,
management and operation of the Fund, as well as the Fund’s investment objective
and policies. It should be read in conjunction with the Fund’s current
prospectus, dated the same date as this SAI, as supplemented from time to time
(the “Prospectus”).
Investments
in the Fund are not:
|
· |
Deposits
or obligations of any bank; |
|
· |
Guaranteed
or endorsed by any bank; or |
|
· |
Federally
insured or guaranteed by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other federal
agency. |
The
Prospectus describes the Fund’s investment objective and principal investment
strategy, as well as the principal investment risks of the Fund. All
investments in securities and other financial instruments involve a risk of
financial loss. No assurance can be given that the Fund’s investment program
will be successful. Investors should carefully review the descriptions of the
Fund’s investments and their risks described in the Fund’s Prospectus and this
SAI.
The
following descriptions and policies supplement the descriptions in the Fund’s
Prospectus , and include descriptions of certain types of investments that may
be made by the Fund but are not principal investment strategies of the Fund.
Unless otherwise noted, the investments described below may be made by the Fund
directly or indirectly through its investments in other investment companies.
Attached to this SAI is Appendix A, which contains descriptions of the rating
symbols used by nationally recognized statistical rating organizations for
securities in which the Fund may invest. Appendix B contains a copy of the
Advisor’s Proxy Voting Policy and Procedures.
General
Investment Risks. All investments in securities and other financial
instruments involve a risk of financial loss. No assurance can be given
that the Fund’s investment program will be successful. Investors should
carefully review the descriptions of the Fund’s investments and their risks
described in the Fund’s prospectus
and this Statement of Additional Information.
Investment
Companies. The Fund will invest in securities of other investment
companies, including, without limitation, money market funds and exchange traded
funds (“ETFs”). The Fund expects to rely on Rule 12d1-1 under the
Investment Company Act of 1940, as amended (the “1940 Act”) , when purchasing
shares of a money market fund. Under Rule 12d1-1, the Fund may generally
invest without limitation in money market funds as long as the Fund pay no sales
charge, as defined in rule 2830(b)(8) of the Conduct Rules of the Financial
Industry Regulatory Authority (“FINRA”), or service fee, as defined in Rule
2830(b)(9) of the Conduct Rules of FINRA, charged in connection with the
purchase, sale, or redemption of securities issued by the money market fund; or
the Advisor waives its management fee in an amount necessary to offset any sales
charge or service fee. The Fund will also purchase shares of other
investment companies that are not money market funds. The Fund’s
investments in such securities involve certain additional expenses and certain
tax results, which would not be present in a direct investment in the underlying
fund. Pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund will be
prevented from: (i) purchasing more than 3% of an investment company’s
outstanding shares; (ii) investing more than 5% of the Fund’s assets in any
single such investment company, and (iii) investing more than 10% of the Fund’s
assets in investment companies overall; unless: (a) the underlying
investment company and/or the applicable Fund has received an order for
exemptive relief from such limitations from the SEC; and (b) the underlying
investment company and the Fund take appropriate steps to comply with any
conditions in such order. In addition, the Fund is subject to Section
12(d)(1)(C), which provides that the Fund may not acquire shares of a closed-end
fund if, immediately after such acquisition, the Fund and other investment
companies having the same adviser as the Fund would hold more than 10% of the
closed-end fund’s total outstanding voting stock. However, Section 12(d)(1)(F)
of the 1940 Act provides that the limitations of paragraph 12(d)(1) shall not
apply to securities purchased or otherwise acquired by the Fund if immediately
after such purchase or acquisition not more than 3% of the total outstanding
shares of such investment company is owned by the Fund and all affiliated
persons of the Fund. Investments by the Fund in other investment companies
entail a number of risks unique to a fund of funds structure. These risks
include the following:
Multiple
Layers of Fees. By investing in other investment companies
indirectly through the Fund, prospective investors will directly bear the fees
and expenses of the Fund’s Advisor and indirectly bear the fees and expenses of
other investment companies and other investment companies’ managers as
well. As such, this multiple or duplicative layer of fees will increase
the cost of investments in the Fund.
Lack of
Transparency. The Advisor will not be able to monitor the
investment activities of the other investment companies on a continuous basis
and the other investment companies may use investment strategies that differ
from its past practices and are not fully disclosed to the Advisor and that
involve risks that are not anticipated by the Advisor. The Fund has no
control over the risks taken by the underlying investment companies in which
they invest.
Valuation
of Investment Companies. Although the Advisor will attempt to
review the valuation procedures used by other investment companies’ managers,
the Advisor will have little or no means of independently verifying valuations
of the Fund’s investments in investment companies and valuations of the
underlying securities held by other investment companies. As such, the
Advisor will rely significantly on valuations of other investment companies and
the securities underlying other investment companies that are reported by other
investment companies’ managers. In the event that such valuations prove to
be inaccurate, the net asset value (“NAV”) of the Fund could be adversely impacted and an investor could incur
a loss of investment in the Fund.
Illiquidity
of Investments b
y
and In Other Investment Companies. Other investment companies
may invest in securities that are not registered, are subject to legal or other
restrictions on transfer, or for which no liquid market exists. The market
prices, if any, for such securities tend to be volatile and restricted
securities may sell at prices that are lower than similar securities that are
not subject to legal restrictions on resale. Further, the Fund may not be
able to redeem their interests in other investment companies’ securities that it
has purchased in a timely manner. If adverse market conditions were to
develop during any period in which the Fund is unable to redeem interests in
other investment companies, the Fund may suffer losses as a result of this
illiquidity. As such, the lack of liquidity and volatility of restricted
securities held by other investment companies could adversely affect the value
of the other investment companies. Any such losses could adversely affect
the value of the Fund’s investments and an investor could incur a loss of
investment in the Fund.
Lack of
Control. Although the Fund and the Advisor will evaluate
regularly other investment companies to determine whether their investment
programs are consistent with the Fund’s investment objective, the Sub-Advisor
will not have any control over the investments made by other investment
companies. Even though other investment companies are subject to certain
constraints, the investment advisor to each such investment company may change
aspects of their investment strategies at any time. The Sub-Advisor will
not have the ability to control or influence the composition of the investment
portfolio of other investment companies.
Lack of
Diversification. There is no requirement that the underlying
investments held by other investment companies be diversified. As such, other
investment companies’ managers may target or concentrate other investment
companies’ investments in specific markets, sectors, or types of
securities. As a result, investments made by other investment companies
are subject to greater volatility as a result of this concentration than if the
other investment companies had non-concentrated and diversified portfolios of
investments. Thus, the Fund’s portfolios (and by extension the value of an
investment in the Fund) may therefore be subject to greater risk than the
portfolio of a similar fund with investments in diversified investment
companies.
Use of
Leverage. The other investment companies may utilize leverage
(i.e., borrowing) to acquire their underlying portfolio investments. When
other investment companies borrow money or otherwise leverage their portfolio of
investments, doing so may exaggerate changes in the NAV of the shares of the
other investment companies and in the return on the other investment companies’
investments. Borrowing will also cost other investment companies interest
expense and other fees. As such, the value of the Fund’s investments in
other investment companies may be more volatile and all other risks (including
the risk of loss of an investment in other investment companies) tend to be
compounded or magnified. As a result, any losses suffered by other
investment companies as a result of their use of leverage could adversely affect
the value of the Fund’s investments and an investor could incur a loss of
investment in the Fund.
Exchange
Traded Funds. ETFs are traded on a securities exchange based on
their market value. An investment in an ETF generally presents the same
primary risks as an investment in a conventional registered investment company
(i.e., one that is not exchange traded). In addition, all ETFs will have
costs and expenses that will be passed on to the Fund , which will in turn
increase the Fund’s expenses. ETFs are also subject to the following risks
that often do not apply to conventional investment companies: (i) the market
price of the ETF’s shares may trade at a discount to the ETF’s NAV, and as a
result, ETFs may experience more price volatility than other types of portfolio
investments and which could negatively impact the Fund’s NAV; (ii) an active
trading market for an ETF’s shares may not develop or be maintained at a
sufficient volume; (iii) trading of an ETF’s shares may be halted if the listing
exchange deems such action appropriate; and (iv) ETF shares may be delisted from
the exchange on which they trade, or “circuit breakers” (which are tied to large
decreases in stock prices used by the exchange) may temporarily halt trading in
the ETF’s stock. ETFs are also subject to the risks of the underlying
securities the ETF holds . Finally, there may be legal limitations and
other conditions imposed by SEC rules on the amount of the ETF shares that the
Fund may acquire.
Equity
Securities . The equity portion of the Fund’s portfolio may be
comprised of common stocks traded on domestic securities exchanges or on the
over-the-counter (“OTC”) market. In addition to common stocks, the equity
portion of each Fund’s portfolio may also include preferred stocks, convertible
preferred stocks, and convertible bonds. Prices of equity securities in which
the Fund invests (either directly or indirectly through the Fund’s investment in
shares of other investment companies) may fluctuate in response to many factors,
including, but not limited to, the activities of the individual companies whose
securities the Fund owns, general market and economic conditions, interest
rates, and specific industry changes. Such price fluctuations subject the
Fund to potential losses. In addition, regardless of any one company’s
prospects, a declining stock market may produce a decline in prices for all
equity securities, which could also result in losses for the Fund. Market
declines may continue for an indefinite period, and investors should understand
that during temporary or extended bear markets, the value of equity securities
will decline.
Foreign
Investment Risk. Foreign securities and foreign currency contracts
involve investment risks different from those associated with domestic
securities. Changes in foreign economies and political climates are more
likely to affect the Fund than a mutual fund that invests exclusively in
domestic securities. The value of foreign currency denominated securities or
foreign currency contracts is affected by the value of the local currency
relative to the U.S. dollar. There may be less government supervision of foreign
markets, resulting in non-uniform accounting practices and less publicly
available information about issuers of foreign currency denominated securities.
The value of foreign investments may be affected by changes in exchange control
regulations, application of foreign tax laws (including withholding tax),
changes in governmental administration or economic or monetary policy (in this
country or abroad), or changed circumstances in dealings between nations. In
addition, foreign brokerage commissions, custody fees, and other costs of
investing in foreign securities are generally higher than in the United States.
Investments in foreign issues could be affected by other factors not present in
the United States, including expropriation, armed conflict, confiscatory
taxation, and potential difficulties in enforcing contractual
obligations.
Uncertainties
surrounding the sovereign debt of a number of European Union (EU) countries and
the viability of the EU have disrupted and may in the future disrupt markets in
the United States and around the world. If one or more countries leave the EU or
the EU dissolves, the world’s securities markets likely will be significantly
disrupted. In June 2016, the United Kingdom approved a referendum to leave the
EU, commonly referred to as “Brexit.” There is significant market uncertainty
regarding Brexit’s ramifications, and the range and potential implications of
possible political, regulatory, economic, and market outcomes are difficult to
predict. Political and military events, including the military crises in Ukraine
and the Middle East, and nationalist unrest in Europe, also may cause market
disruptions.
Fixed-Income
Securities. Fixed -income securities include government and corporate
bonds, money market instruments, high yield securities or "junk bonds" and
zero-coupon bonds. Zero-coupon bonds are purchased at a discount from
their face values and accrue interest at the applicable coupon rate over a
period of time. Fixed-income securities purchased by the Fund may consist
of obligations of any rating. Fixed-income securities in the lowest
investment grade categories have speculative characteristics, with changes in
the economy or other circumstances more likely to lead to a weakened capacity of
the bonds to make principal and interest payments than would occur with bonds
rated in higher categories. High yield bonds are typically rated below
"Baa" by Moody's Investors Service, Inc. ("Moody's") or below "BBB" by
S&P Global Ratings ("S&P") or below investment grade by other recognized
rating agencies. The Fund may also invest in other mutual funds that
invest in unrated securities of comparable quality under certain
circumstances. Such bonds are subject to greater market fluctuations and
risk of loss of income and principal than higher rated bonds for a variety of
reasons, including:
Sensitivity
to Interest Rate and Economic Change. The economy and interest
rates affect high yield securities differently than other securities. For
example, the prices of high yield bonds have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, an underlying mutual fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility or market prices of high yield bonds
and the Underlying Fund's asset values.
Payment
Expectations. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption
and call provisions. If an issuer exercises
these provisions in a declining interest rate market,
the Fund or an ETF the Fund invests in would have to replace
the security with a lower yielding security,
resulting in a decreased return for
investors. Conversely, a high yield bond's value will decrease in a rising
interest rate market, as will the value of the Fund's or ETF’s assets. If
the Fund or an ETF the Fund invests in experiences unexpected
net redemptions, it may be forced to sell its high yield bonds
without regard to their investment merits, thereby
decreasing the asset base upon which the Fund's or ETF’s expenses
can be spread and possibly reducing the
Fund's or ETF’s rate of return.
Liquidity
and Valuation. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact a fund's ability to accurately value high yield bonds and may hinder
a fund's ability to dispose of the bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield bonds, especially in a thinly traded
market.
Credit
Ratings. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also,
because credit rating agencies may fail to timely
change the credit ratings to reflect subsequent
events, the Fund or an ETF the Fund invests in must monitor
the issuers of high yield bonds in
their portfolios to determine if the issuers will have
sufficient cash flow and profits to meet required
principal and interest payments, and to
assure the bonds' liquidity so the Fund or an ETF the Fund invests in can
meet redemption requests.
High-yield
securities are deemed speculative with respect to the issuer's capacity to pay
interest and repay principal over a long period of time. Special tax
considerations are associated with investing in high-yield securities structured
as zero coupon or "pay-in-kind" securities. The Fund or an ETF in which
the Fund invests , will report the interest on these securities as income even
though it receives no cash interest until the security's maturity or payment
date. The payment of principal and interest on most fixed-income
securities purchased by a fund will depend upon the ability of the issuers to
meet their obligations. An issuer's obligations under its fixed-income
securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations. The
power or ability of an issuer to meet its obligations for the payment of
interest on, and principal of, its fixed-income securities may be materially
adversely affected by litigation or other conditions.
The
ratings of S&P, Moody's and other nationally recognized rating agencies
represent their opinions as to the quality of fixed-income securities. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and fixed-income securities with the same maturity,
interest rate, and rating may have different yields while fixed-income
securities of the same maturity and interest rate with different ratings may
have the same yield. For a more detailed description of ratings, please
see Appendix A.
Money
Market Instruments. Money market instruments includ e U.S.
Government obligations or corporate debt obligations (including those subject to
repurchase agreements). Money market instruments also may include b
anker’s a cceptances and c ertificates of d eposit of domestic branches of U.S.
banks, c ommercial p aper, and v ariable a mount d emand m aster n otes (“Master
Notes”). Banker’s a cceptances are time drafts drawn on and “accepted” by a
bank. When a bank “accepts” such a time draft, it assumes liability for
its payment. When the Fund acquires a b anker’s a cceptance, the bank that
“accepted” the time draft is liable for payment of interest and principal when
due. The b anker’s a cceptance carries the full faith and credit of such bank. A
c ertificate of d eposit (“CD”) is an unsecured, interest bearing debt
obligation of a bank. Commercial p aper is an unsecured, short-term debt
obligation of a bank, corporation, or other borrower. Commercial p aper
maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund
will invest in c ommercial p aper only if it is rated in one of the top two
rating categories by Moody’s, S&P, or Fitch Investors Service, Inc.
(“Fitch’s) , or if not rated, of equivalent quality in the Advisor’s
opinion. Commercial Paper may include Master Notes of the same quality.
Master Notes are unsecured obligations that are redeemable upon demand of the
holder and that permit the investment of fluctuating amounts at varying rates of
interest. Master Notes will be acquired by the Fund only through the
Master Note program of the Fund’s custodian bank, acting as administrator
thereof. The Advisor will monitor, on a continuous basis, the earnings
power, cash flow, and other liquidity ratios of the issuer of a Master Note held
by the Fund.
U.S.
Government Securities. U.S. Government securities include
U.S. Government obligations such as U.S. Treasury notes, U.S. Treasury bonds,
and U.S. Treasury bills, obligations guaranteed by the U.S. Government such as
Government National Mortgage Association (GNMA), as well as obligations of U.S.
Government authorities, agencies, and instrumentalities such as Federal National
Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC),
Federal Housing Administration (FHA), Federal Farm Credit Bank (FFCB), Federal
Home Loan Bank (FHLB), Student Loan Marketing Association (SLMA), and The
Tennessee Valley Authority (TVA). U.S. Government securities may also be
acquired subject to repurchase agreements. While obligations of some U.S.
Government sponsored entities are supported by the full faith and credit of the
U.S. Government (e.g. GNMA), others are not. No assurance can be given
that the U.S. Government will provide financial support to U.S. Government
agencies or instrumentalities in the future since it is not obligated to do so
by law. The guarantee of the U.S. Government does not extend to the yield
or value of the Fund’s shares.
Debentures.
A debenture is long-term, unsecured, debt instrument backed only by the
integrity of the borrower, not by collateral, and documented by an indenture.
Governments often issue debentures, in part because they generally cannot
guarantee debt with assets (government assets are public property). The primary
risk with this type of investment is that the issuer will default or go into
bankruptcy. As an unsecured creditor, in the event of default or
bankruptcy, the holder of a debenture does not have a claim against any specific
assets of the issuing firm, so the investor will only be paid from the issuer’s
assets after the secured creditors have been paid. The Fund may invest in
all types of debentures, including corporate and government
debentures.
Derivative
Instruments Risk. While the Fund does not intend to invest in
derivatives directly, it may indirectly hold derivatives through the holdings of
the funds in which it invests. When a fund enters
into options, futures, and other forms of financial derivatives, such as foreign
exchange contracts, the investments involve risks different from direct
investments in the underlying securities.
While transactions in derivatives may reduce certain risks, these
transactions themselves entail certain other risks. For example, unanticipated
changes in interest rates, securities prices, or currency exchange rates may
result in a poorer overall performance of a f und than if they had not entered
into any derivatives transactions. Derivatives may magnify a f und’s gains
or losses, causing it to make or lose substantially more than it invested.
If a fund use s derivative instruments, such fund must comply with the
applicable requirements of the 1940 Act and the guidance of no-action letters
issued by the SEC, including SEC Release 10666 that requires a f und to
segregate assets or otherwise “cover” its positions in a manner that limits a f
und’s risk of loss. The Fund has no specific limit on the amount it invest s in
derivatives, directly or indirectly, although practical limits are created by
the requirement to segregate assets and hold offsetting positions in connection
with such investments.
When used
for hedging purposes, increases in the value of the securities a fund hold s or
intend s to acquire should offset any losses incurred with a derivative.
Purchasing derivatives for purposes other than hedging could expose a f und to
greater risks.
A f und’s
ability to hedge securities through derivatives depends on the degree to which
price movements in the underlying index or instrument correlate with price
movements in the relevant securities. In the case of poor correlation, the price
of the securities a f und is hedging may not move in the same amount, or even in
the same direction as the hedging instrument. A fund will try to minimize
this risk by investing only in those contracts whose behavior it expects to
resemble with the portfolio securities it is trying to hedge. However, if a f
und’s prediction of interest and currency rates, market value, volatility, or
other economic factors is incorrect, a f und may lose money, or may not make as
much money as it expected.
Derivative
prices can diverge from the prices of their underlying instruments, even if the
characteristics of the underlying instruments are very similar to the
derivative. Listed below are some of the factors that may cause such a
divergence:
|
· |
current
and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the
contract; |
|
· |
a
difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops;
and |
|
· |
differences
between the derivatives, such as different margin requirements, different
liquidity of such markets, and the participation of speculators in such
markets. |
Derivatives
based upon a narrow index of securities may present greater risk than
derivatives based on a broad index. Since narrower indices are made up of
a smaller number of securities, they are more susceptible to rapid and extreme
price fluctuations because of changes in the value of those
securities.
While
currency futures and options values are expected to correlate with exchange
rates, they may not reflect other factors that affect the value of the
investments of a f und. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect a f und
against a price decline resulting from deterioration in the issuer’s
creditworthiness. Because the value of a f und’s foreign-denominated investments
changes in response to many factors other than exchange rates, it may not be
possible to match the amount of currency options and futures to the value of a f
und’s investments precisely over time.
Before a
futures contract or option is exercised or expires, a f und can terminate it
only by entering into a closing purchase or sale transaction. Moreover, a f und
may close out a futures contract only on the exchange the contract was initially
traded. Even when there appears to be an active market for options an
futures , there is no guarantee that such a liquid market will exist. If
there is no secondary market for the contract, or the market is illiquid, a f
und may not be able to close out a position. In an illiquid market, a f
und may:
|
· |
have
to sell securities to meet its daily margin requirements at a time when it
is disadvantageous to do so; |
|
· |
have
to purchase or sell the instrument underlying the
contract; |
|
· |
not
be able to hedge its investments;
and |
|
· |
not
be able to realize profits or limit its
losses. |
Derivatives
may become illiquid (i.e., difficult to sell at a desired time and price) under
a variety of market conditions. For example:
|
· |
an
exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives, or all derivatives, which
sometimes occurs because of increased market
volatility; |
|
· |
unusual
or unforeseen circumstances may interrupt normal operations of an
exchange; |
|
· |
the
facilities of the exchange may not be adequate to handle current trading
volume; |
|
· |
equipment
failures, government intervention, insolvency of a brokerage firm or
clearing house, or other occurrences may disrupt normal trading activity;
or |
|
· |
investors
may lose interest in a particular derivative or category of
derivatives. |
If a fund
incorrectly predicts securities market and interest rate trends, such fund may lose money by investing
in derivatives. For example, if a f und were to write a call option based
on the expectation that the price of the underlying security would fall, but the
price were to rise instead, a f und could be required to sell the security upon
exercise at a price below the current market price. Similarly, if a f und
were to write a put option based on the Advisor’s expectation that the price of
the underlying security would rise, but the price were to fall instead, a f und
could be required to purchase the security upon exercise at a price higher than
the current market price.
Because of
the low margin deposits required upon the opening of a derivative position, such
transactions involve an extremely high degree of leverage. Consequently, a
relatively small price movement in a derivative may result in an immediate and
substantial loss (as well as gain) to the Fund and they may lose more than it
originally invested in the derivative.
If the
price of a futures contract changes adversely, a f und may have to sell
securities at a time when it is disadvantageous to do so to meet its minimum
daily margin requirement. A f und may lose margin deposits if a broker with whom
they have an open futures contract or related option becomes insolvent or
declares bankruptcy.
The prices
of derivatives are volatile (i.e., they may change rapidly, substantially, and
unpredictably) and are influenced by a variety of factors,
including:
|
· |
actual
and anticipated changes in interest
rates; |
|
· |
fiscal
and monetary policies; and |
|
· |
national
and international political events. |
Most
exchanges limit the amount by which the price of a derivative can change during
a single trading day. Daily trading limits establish the maximum amount that the
price of a derivative may vary from the settlement price of that derivative at
the end of trading on the previous day. Once the price of a derivative
reaches this value, a f und may not trade that derivative at a price beyond that
limit. The daily limit governs only price movements during a given day and does
not limit potential gains or losses. Derivative prices have occasionally moved
to the daily limit for several consecutive trading days, preventing prompt
liquidation of the derivative.
Government
Regulation of Derivatives. It is possible that government regulation
of various types of derivative instruments, including futures and swap
agreements, may limit or prevent a f und from using such instruments as a part
of its investment strategy, and could ultimately prevent a f und from being able
to achieve its investment objective. It is impossible to predict fully the
effects of legislation and regulation in this area, but the effects could be
substantial and adverse.
The
futures markets are subject to comprehensive statutes, regulations, and margin
requirements. The SEC, the Commodities Futures Trading Commission (“CFTC”) and
the exchanges are authorized to take extraordinary actions in the event of a
market emergency, including, for example, the implementation or reduction of
speculative position limits, the implementation of higher margin requirements,
the establishment of daily price limits and the suspension of
trading.
The
regulation of swaps and futures transactions in the U.S., the European Union and
other jurisdictions is a rapidly changing area of law and is subject to
modification by government and judicial action. There is a possibility of future
regulatory changes altering, perhaps to a material extent, the nature of an
investment in a f und or the ability of a f und to continue to implement its
investment strategies.
Under
recently adopted rules and regulations, transactions in some types of swaps
(including interest rate swaps and credit default swaps on North American and
European indices) are required to be centrally cleared, and additional types of
swaps may be required to be centrally cleared in the future. In a transaction
involving those swaps (“cleared derivatives”), a f und’s counterparty is a
clearing house, rather than a bank or broker. Since a f und is not a member of a
clearing house and only clearing members can participate directly in the
clearing house, a f und will hold cleared derivatives through accounts at
clearing members. In cleared derivatives transactions, a f und will make
payments (including margin payments) to and receive payments from a clearing
house through its accounts at clearing members. Clearing members guarantee
performance of their clients’ obligations to the clearing house.
In
addition, U.S. regulators, the European Union and certain other jurisdictions
have adopted minimum margin and capital requirements for uncleared OTC
derivatives transactions. It is expected that these regulations will have a
material impact on a f und’s use of uncleared derivatives. These rules will
impose minimum margin requirements on derivatives transactions between a f und
and its swap counterparties and may increase the amount of margin a f und is
required to provide. They will impose regulatory requirements on the timing of
transferring margin, which may accelerate a f und’s current margin process. They
will also effectively require changes to typical derivatives margin
documentation. Such requirements could increase the amount of margin a f und
needs to provide in connection with uncleared derivatives transactions and,
therefore, make such transactions more expensive.
The SEC
has also issued a proposed rule under the 1940 Act providing for the regulation
of registered investment companies’ use of derivatives and certain related
instruments. The ultimate impact, if any, of possible regulation remains
unclear, but the proposed rule, if adopted, could, among other things, restrict
a f und’s ability to engage in derivatives transactions and/or increase the
costs of such derivatives transactions such that a f und may be unable to
implement its investment strategy. These and other new rules and regulations
could, among other things, further restrict a f und’s ability to engage in, or
increase the cost to a f und of, derivatives transactions, for example, by
making some types of derivatives no longer available to a f und, increasing
margin or capital requirements, or otherwise limiting liquidity or increasing
transaction costs. The implementation of the clearing requirement has increased
the costs of derivatives transactions for a f und, since a f und has to pay fees
to its clearing members and is typically required to post more margin for
cleared derivatives than it has historically posted for bilateral derivatives.
The costs of derivatives transactions are expected to increase further as
clearing members raise their fees to cover the costs of additional capital
requirements and other regulatory changes applicable to the clearing members.
These regulations are new and evolving, so their potential impact on a f und and
the financial system are not yet known. While the new regulations and central
clearing of some derivatives transactions are designed to reduce systemic risk
(i.e., the risk that the interdependence of large derivatives dealers could
cause them to suffer liquidity, solvency or other challenges simultaneously),
there is no assurance that the new mechanisms will achieve that
result.
Options.
While the Fund does not intend to purchase and write put and call options on
securities directly, it may indirectly hold such securities through the holdings
of the funds Fund’s investment in which it invests . The purchase and writing of
options involves certain risks. During the option period, a call writer
that holds the underlying security has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time
when it may be required to fulfill its obligation as a writer of the option.
Once an option writer has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by a fund is not sold when it has remaining value,
and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, a fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will
exist when a f und seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options market, a f und
may be unable to close out a position.
A fund may
write a call or put option only if the option is “covered” by holding a position
in the underlying securities or by other means which would permit immediate
satisfaction of a f und’s obligation as writer of the option. A written call
option creates a potential obligation to sell the underlying security. In order
to make sure that this obligation can be met, a f und could (i) hold the
security underlying the written option; (ii) hold an offsetting call option (one
with a strike price that is the same or lower than the strike price of the
written option); or (iii) segregate cash and liquid securities (which can be
cash, U.S. Government securities, and other liquid debt or equity securities)
that when added to collateral on deposit equals the market value of the
underlying security. A written put option creates a potential obligation to buy
the underlying security. In order to make sure that this obligation can be
met, a f und could (i) sell short the underlying security at the same or higher
price than the strike price of the written put option; (ii) hold an offsetting
put option (one with a strike price that is the same or higher than the strike
price of the written option); or (iii) segregate cash and liquid securities that
when added to collateral on deposit equals the strike price of the
option.
Options
offer large amounts of leverage, which will result in a f und’s NAV being more
sensitive to changes in the value of the related instrument. A f und may
purchase or write both exchange-traded and over-the-counter ( OTC ) options.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between a f und and its counterparty
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when a f und purchases an OTC option, it relies on the counterparty from
whom it purchased the option to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by a f und as well as the loss of
any expected benefit of the transaction.
A f und’s
ability to establish and close out positions in exchange-listed options depends
on the existence of a liquid market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a f und will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a f und might be unable to close out an OTC option position at any
time prior to its expiration, if at all.
If a f und
were unable to effect a closing transaction for an option it had purchased, due
to the absence of a counterparty or secondary market, the imposition of price
limits or otherwise, it would have to exercise the option to realize any profit.
The inability to enter into a closing purchase transaction for a covered call
option written by a f und could cause material losses because a f und would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Options
have varying expiration dates. The exercise price of the options may be below,
equal to or above the current market value of the underlying security or
instrument. Options purchased by a f und that expire unexercised have no value,
and a f und will realize a loss in the amount of the premium paid and any
transaction costs. If an option written by a f und expires unexercised, a f und
realizes a gain equal to the premium received at the time the option was
written. Transaction costs must be included in these calculations.
Futures
Contracts. While the Fund does not intend to invest in futures
directly, it may indirectly hold futures through the holdings of the funds in
which it invests. A futures contract is a bilateral agreement to
buy or sell a security (or deliver a cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at
the end of trading in the contracts) for a set price in the future. Futures
contracts are designated by boards of trade that have been designated “contracts
markets” by the CFTC. No purchase price is paid or received when the contract is
entered into. Instead, a f und, upon entering into a futures contract (and to
maintain a f und’s open positions in futures contracts), would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, U.S. G overnment securities, suitable money market
instruments, or liquid, high-grade debt securities, known as “initial margin.”
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 margin that may range upward from less
than 5% of the value of the contract being traded. By using futures
contracts as a risk management technique, given the greater liquidity in the
futures market than in the cash market, it may be possible to accomplish certain
results more quickly and with lower transaction costs.
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) s uch 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. However,
if the value of a position increases because of favorable price changes in the
futures contract s uch that the margin deposit exceeds the required margin, the
broker will pay the excess to a f und. These subsequent payments, called
“variation margin,” to and from the futures broker, are made on a daily basis as
the price of the underlying assets fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
“marking to the market.” A f und is expected to earn interest income on
initial and variation margin deposits.
A f und
will incur brokerage fees when it purchases and sells futures contracts.
Positions taken in the futures markets are not normally held until delivery or
cash settlement is required, but are instead liquidated through offsetting
transactions that may result in a gain or a loss. While futures positions
taken by a f und will usually be liquidated in this manner, a f und may instead
make or take delivery of underlying securities whenever it appears economically
advantageous for a f und to do so. A clearing organization associated with the
exchange on which futures are traded assumes responsibility for closing out
transactions and guarantees that as between the clearing members of an exchange,
the sale and purchase obligations will be performed with regard to all positions
that remain open at the termination of the contract.
In
addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the SEC. Under those requirements, where a f und has a long position in
a futures contract, it may be required to establish a segregated account
(not with a futures commission merchant or broker) containing cash or certain
liquid assets equal to the purchase price of the contract (less any margin on
deposit). However, segregation of assets is not required if a f und
“covers” a long position. For a short position in futures or forward contracts
held by a f und, those requirements may mandate the establishment of a
segregated account (not with a futures commission merchant or broker) with cash
or certain liquid assets that, when added to the amounts deposited as margin,
equal the market value of the instruments underlying the futures contracts (but
are not less than the price at which the short positions were
established).
Short
Sales. While the Fund does not intend to engage in short
sales directly, the funds in which it invests may engage in short sales .
A short sale is a transaction in which a party sells a security it does not own
or have the right to acquire (or that it owns but does not wish to deliver) in
anticipation that the market price of that security will decline. When a
party makes a short sale, the broker-dealer through which the short sale is made
must borrow the security sold short and deliver it to the party purchasing the
security. The party is required to make a margin deposit in connection
with such short sales; the party may have to pay a fee to borrow particular
securities and will often be obligated to pay over any dividends and accrued
interest on borrowed securities. If the price of the security sold short
increases between the time of the short sale and the time the party covers the
short position, the party will incur a loss; conversely, if the price declines,
the party will realize a capital gain. Any gain will be decreased, and any
loss increased, by the transaction costs described above.
Swaps.
While the Fund does not intend to invest in swaps directly, it may indirectly
hold swaps through the holdings of the funds in which it invests. Swaps may
include in currency, equity, interest rate, index and other swaps, which involve
the exchange by an investor with another party of their respective commitments,
in an attempt to obtain a particular return when it is considered desirable to
do so, possibly at a lower cost than if a f und had invested directly in the
asset that yielded the desired return. In the case of interest rate swaps, an
investor may exchange with another party their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Use of swaps subjects the investor to risk of default by the
counterparties. If there is a default by the counterparty to such a
transaction, there may be contractual remedies pursuant to the agreements
related to the transaction although contractual remedies may not be sufficient
in the event that the counterparty to the transaction is insolvent. The swap
market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market. An investor may also enter into
currency swaps or other swaps which are similar to interest rate swaps but may
be surrogates for other instruments such as currency forwards or
options.
Forward
Commitment and When-Issued Securities. While the Fund does not
intend to purchase securities on a when-issued basis or for settlement at a
future date directly, it may indirectly engage in such transactions through the
holdings of the funds in which it invests. A fund may purchase securities on a
when-issued basis or for settlement at a future date if a f und holds sufficient
assets to meet the purchase price. In such purchase transactions, a f und will
not accrue interest on the purchased security until the actual settlement.
Similarly, if a security is sold for a forward date, the Fund will accrue the
interest until the settlement of the sale. When-issued security purchases and
forward commitments have a higher degree of risk of price movement before
settlement due to the extended time period between the execution and settlement
of the purchase or sale. As a result, the exposure to the counterparty of
the purchase or sale is increased. Although a f und would generally purchase
securities on a forward commitment or when-issued basis with the intention of
taking delivery, a f und may sell such a security prior to the settlement date
if the Advisor feels such action is appropriate. In such a case, a f und
could incur a short-term gain or loss.
Repurchase
Agreements. While the fund does not intend to enter into repurchase
agreements directly, it may indirectly engage in such transactions through the
holdings of the funds in which it invests. A repurchase transaction occurs when
an investor purchases a security (normally a U.S. Treasury obligation), and it
then resells it to the vendor (normally a member bank of the Federal Reserve or
a registered government securities dealer) and is required to deliver the
security (and/or securities substituted for them under the repurchase agreement)
to the vendor on an agreed upon date in the future. The repurchase price
exceeds the purchase price by an amount which reflects an agreed upon market
interest rate effective for the period of time during which the repurchase
agreement is in effect. Delivery pursuant to the resale normally will occur
within one to seven days of the purchase. Repurchase agreements are considered
“loans” under the 1940 Act, collateralized by the underlying security. The Trust
has implemented procedures to monitor on a continuous basis the value of the
collateral serving as security for repurchase obligations. The Advisor
will consider the creditworthiness of the vendor. If the vendor fails to
pay the agreed upon resale price on the delivery date, a f und will retain or
attempt to dispose of the collateral. A f und’s risk is that such default may
include any decline in value of the collateral to an amount which is less than
100% of the repurchase price, any costs of disposing of such collateral, and any
loss resulting from any delay in foreclosing on the collateral. Repurchase
agreements that do not provide for payment within seven days will be treated as
illiquid securities.
Illiquid
Investments. The Fund may invest up to 15% of net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. This restriction is not limited to the time of
purchase. Under the supervision of the Board of Trustees of the Trust (the
“Board” or the “Trustees”), the Advisor determines the liquidity of the Fund’s
investments, and through reports from the Advisor, the Trustees monitor
investments in illiquid instruments. In determining the liquidity of the Fund’s
investments, the Advisor may consider various factors including (i) the
frequency of trades and quotations; (ii) the number of dealers and prospective
purchasers in the marketplace; (iii) dealer undertakings to make a market; (iv)
the nature of the security (including any demand or tender features); and (v)
the nature of the marketplace for trades (including the ability to assign or
offset the Fund’s rights and obligations relating to the investment). If
through a change in values, net assets, or other circumstances, the Fund w as in
a position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
Investment in illiquid securities poses risks of potential delays in resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and the Fund may be unable to
dispose of illiquid securities promptly or at reasonable prices.
Restricted
Securities. Within its limitation on investment in illiquid
securities, the Fund may purchase restricted securities that generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the federal securities laws, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If during
such a period adverse market conditions were to develop, the Fund might obtain a
less favorable price than prevailed when it decided to seek registration of the
security. Restricted securities that can be offered and sold to qualified
institutional buyers under Rule 144A of the Securities Act of 1933 and are
determined to be liquid under guidelines adopted by and subject to the
supervision of the Trustees are not subject to the limitations on illiquid
securities.
Lending
of Portfolio Securities. In order to generate additional income,
the Fund may lend portfolio securities in an amount up to 33% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities which the Advisor has determined are
creditworthy under guidelines established by the Board. In determining whether
the Fund will lend securities, the Advisor will consider all relevant facts and
circumstances. The Fund may not lend securities to any company affiliated
with the Advisor. Each loan of securities will be collateralized by cash, U.S.
Government securities, or standby letters of credit not issued by the Fund’s
bank lending agent . The Fund might experience a loss if the borrower defaults
on the loan.
The
borrower at all times during the loan must maintain with the Fund cash or cash
equivalent collateral. While the loan is outstanding, the borrower will pay the
Fund any interest paid on the loaned securities, and the Fund may invest the
cash collateral to earn additional income. Alternatively, the Fund may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral. It is anticipated that the Fund may share with
the borrower some of the income received on the collateral for the loan or the
Fund will be paid a premium for the loan. Voting rights for loaned
securities will typically pass to the borrower, but the Fund will retain the
right to call any security in anticipation of a vote that the Advisor deems
material to the security on loan. Loans are subject to termination at the option
of the Fund or the borrower at any time. The Fund may pay reasonable
administrative and custodial fees in connection with a loan, and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially.
Securities
lending involves counterparty risk, including the risk that the loaned
securities may not be returned or returned in a timely manner and/or a loss of
rights in the collateral if the borrower or the lending agent defaults or fails
financially. This risk will be increased if a continuation of the current
downturn in the economic conditions in the United States and around the world,
particularly the recent failures of several major financial services firms,
causes further declines in the securities markets and/or causes further
financial instability in the borrowers or lending agents. This risk is
increased when the Fund’s loans are concentrated with a single or limited number
of borrowers. There are no limits on the number of borrowers the Fund may use,
and the Fund may lend securities to only one or a small group of borrowers.
Mutual funds participating in securities lending bear the risk of loss in
connection with investments of the cash collateral received from the borrowers,
which do not trigger additional collateral requirements from the
borrower.
Borrowing. The
Fund may borrow money for investment purposes, which is a form of
leveraging. Leveraging investments, by purchasing securities with borrowed
money, is a speculative technique that increases investment risk while
increasing investment opportunity. Any such borrowing may make the Fund’s NAV
more volatile than funds that do not borrow for investment purposes because
leverage magnifies changes in the Fund’s NAV and on the Fund’s investments.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Leverage
also creates interest expenses for the Fund. To the extent the income
derived from securities purchased with borrowed funds exceeds the interest the
Fund will have to pay, the Fund's net income will be greater than it would be if
leverage were not used. Conversely, if the income from the assets obtained with
borrowed funds is not sufficient to cover the cost of leveraging, the net income
of the Fund will be less than it would be if leverage were not used, and
therefore the amount available for distribution to shareholders as dividends
will be reduced. The use of derivatives in connection with leverage
creates the potential for significant loss. The Fund does not intend to use
leverage in excess of 5% of total assets and will not make additional
investments when outstanding borrowings exceed 5% of the Fund’s total assets.
Any leveraging will comply with the applicable requirements of the 1940 Act and
the guidance of no-action letters issued by the SEC, including Investment
Company Act Release No. 10666 (Apr. 18, 1979), intended to minimize the use of
leverage and the possibility that the Fund’s liabilities will exceed the value
of its assets.
The Fund
may also borrow money to meet redemptions or for other emergency purposes. Such
borrowings may be on a secured or unsecured basis at fixed or variable rates of
interest. The 1940 Act requires the Fund to maintain continuous asset coverage
of not less than 300% with respect to all borrowings. If such asset
coverage should decline to less than 300% due to market fluctuations or other
reasons, the Fund may be required to dispose of some of its portfolio holdings
within three days in order to reduce the Fund's debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
dispose of assets at that time. The Fund also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit. Either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Temporary
Defensive Positions. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the Fund’s principal
investment strategies in an attempt to respond to adverse market, economic,
political, or other conditions. During such an unusual set of
circumstances, the Fund may hold up to 100% of its portfolios in cash or cash
equivalent positions (e.g., money market securities, U.S. Government securities,
and/or similar securities). When the Fund takes a temporary defensive
position, the Fund may not be able to achieve its investment
objective.
Fundamental
Investment Restrictions. The following investment restrictions have been
adopted by the Trust with respect to the Fund. Except as otherwise stated, these
investment restrictions are “fundamental” policies. A “fundamental” policy is
defined in the 1940 Act to mean that the restriction cannot be changed without
approval by holders of a majority of the outstanding voting shares of the
Fund. A “majority” for this purpose means the lesser of (i) 67% of the
Fund’s outstanding shares represented in person or by proxy at a meeting at
which more than 50% of its outstanding shares are represented; or (ii) more than
50% of its outstanding shares. Unless otherwise indicated, percentage
limitations apply at the time of purchase of the applicable
securities.
As a
matter of fundamental policy, the Fund may:
| (1) |
Not
invest 25% or more of its total assets in a particular industry or group
of industries. This limitation is not applicable to investments in
obligations issued or guaranteed by the U.S. government, its agencies ,
and instrumentalities or repurchase agreements with respect
thereto. |
| (2) |
Not
borrow money or issue senior securities (as defined under the 1940 Act),
except to the extent permitted under the 1940 Act, the rules and
regulations thereunder or any exemption therefrom, as such statute, rules
or regulations may be amended or interpreted from time to
time. |
| (3) |
Not
make loans, except to the extent permitted under the 1940 Act, the rules
and regulations thereunder or any exemption therefrom, as such statute,
rules, or regulations may be amended or interpreted from time to
time. |
| (4) |
Not
purchase or sell commodities or real estate, except to the extent
permitted under the 1940 Act, the rules and regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be amended
or interpreted from time to
time. |
| (5) |
Not
underwrite securities issued by other persons, except to the extent
permitted under the 1940 Act, the rules and regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be amended
or interpreted from time to
time. |
With
respect to the fundamental investment restrictions above (other than those
involving senior securities and borrowings), if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction (i.e., percentage limitations are determined at the time of
purchase).
Illiquid
Securities. The Fund may invest up to 15% of net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. This restriction is not limited to the time of purchase.
The
following descriptions of certain provisions of the 1940 Act may assist
investors in understanding the above policies and restrictions:
Concentration
. For purposes of the Fund’s concentration policy, if the Fund invests in
one or more investment companies, the Fund will examine the holdings of such
investment companies to ensure that the Fund is not indirectly concentrating its
investments in a particular industry. In determining the exposure of the Fund to
a particular industry for purposes of the fundamental investment restriction on
concentration, the Fund currently uses Standard & Poor’s Global Industry
Classification Standard (GICS) in order to classify industries.
Borrowing.
The 1940 Act allows a fund to borrow from any bank (including pledging,
mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total
assets (not including temporary borrowings not in excess of 5% of its total
assets). The Fund will not make additional investments in securities when
outstanding borrowings exceed 5% of the Fund’s total assets.
Senior
Securities. Senior securities may include any obligation or
instrument issued by a fund evidencing indebtedness. The 1940 Act
generally prohibits funds from issuing senior securities, although it does not
treat certain transactions as senior securities, such as certain borrowings,
short sales, reverse repurchase agreements, firm commitment agreements and
standby commitments, with appropriate earmarking or segregation of assets to
cover such obligation. The Fund’s specific policies for segregation of
assets are described in “Additional Information About Investment Policies”
above.
Lending.
Under the 1940 Act, a fund may only make loans if expressly permitted by its
investment policies. The Fund's current investment policy on lending is as
follows: the Fund may not make loans if, as a result, more than 33 1/3% of its
total assets would be lent to other parties, except that the Fund may: (i)
purchase or hold debt instruments in accordance with its investment objective
and policies; (ii) enter into repurchase agreements; and (iii) engage in
securities lending as described in its Statement of Additional
Information.
Underwriting.
Under the 1940 Act, underwriting securities involves a fund purchasing
securities directly from an issuer for the purpose of selling (distributing)
them or participating in any such activity either directly or indirectly.
Under the 1940 Act, a diversified fund may not make any commitment as
underwriter, if immediately thereafter the amount of its outstanding
underwriting commitments, plus the value of its investments in securities of
issuers (other than investment companies) of which it owns more than 10% of the
outstanding voting securities, exceeds 25% of the value of its total
assets.
Commodities
and Real Estate. The 1940 Act does not directly restrict an
investment company's ability to invest in commodities or real estate, but does
require that every investment company have a fundamental investment policy
governing such investments. The Fund has adopted a fundamental policy that
would permit direct investment in commodities or real estate. However, the
Fund's current investment policy is as follows: the Fund will not purchase or
sell real estate, physical commodities, or commodities contracts, except that
the Fund may purchase: (i) marketable securities issued by companies which own
or invest in real estate (including REITs), commodities, or commodities
contracts; and (ii) commodities contracts relating to financial instruments,
such as financial futures contracts and options on such contracts.
Non-Fundamental
Restrictions. The following investment policies are not
fundamental and may be changed without shareholder approval. As a matter of
non-fundamental policy, the Fund may:
| (1)
|
Not
borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies that either obligate the Fund to purchase securities or require
the Fund to segregate assets are not considered to be borrowing. Asset
coverage of at least 300% is required for all borrowing, except where the
Fund has borrowed money for temporary purposes in an amount not exceeding
5% of its total assets. |
| (2)
|
Not
make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may: (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
|
| (3)
|
Not
purchase or sell real estate, real estate limited partnership interests,
physical commodities, or commodities contracts except that the Fund may
purchase: (i) marketable securities issued by companies which own or
invest in real estate (including real estate investment trusts),
commodities or commodities contracts; and (ii) commodities contracts
relating to financial instruments, such as financial futures contracts and
options on such contracts. |
Subject to
the general supervision of the Trustees, the Advisor makes decisions with
respect to, and places orders for all purchases and sales of portfolio
securities for the Fund. The Advisor shall manage the Fund’s portfolios in
accordance with the terms of the i nvestment a dvisory a greement by and between
the Advisor and the Trust on behalf of the Fund ( the “Advisory Agreement”),
which is described in detail under “Management and Other Service Providers –
Investment Advisor.” The Advisor serves as investment advisor for a number
of client accounts, including the Fund. Investment decisions for the Fund
are made independently from those for any other series of the Trust, if any, and
for any other investment companies and accounts advised or managed by the
Advisor.
Brokerage
Selection. The Fund has adopted, and the Trustees have approved, policies
and procedures relating to the direction of mutual fund portfolio securities
transactions to broker-dealers. The Advisor may not give consideration to sales
of shares of the Fund as a factor in selecting broker-dealers to execute
portfolio securities transactions. The Advisor may, however, place portfolio
transactions with broker-dealers that promote or sell the Fund’s shares so long
as such transactions are done in accordance with the policies and procedures
established by the Trustees that are designed to ensure that the selection is
based on the quality of the broker’s execution and not on its sales efforts. In
selecting brokers to be used in portfolio transactions, the Advisor’s general
guiding principle is to obtain the best overall execution for each trade, which
is a combination of price and execution. With respect to execution, the
Advisor considers a number of discretionary factors, including, without
limitation, the actual handling of the order, the ability of the broker to
settle the trade promptly and accurately, the financial standing of the broker,
the ability of the broker to position stock to facilitate execution, the
Advisor’s past experience with similar trades, and other factors that may be
unique to a particular order. Recognizing the value of these discretionary
factors, the Advisor may select brokers who charge a brokerage commission that
is higher than the lowest commission that might otherwise be available for any
given trade.
Under
Section 28(e) of the Securities Exchange Act of 1934, as amended, and the
Advisory Agreement, the Advisor is authorized to pay a brokerage commission in
excess of that which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and/or research services
provided by the broker. The research received by the Advisor may include,
without limitation: information on the United States and other world economies;
information on specific industries, groups of securities, individual companies,
and political and other relevant news developments affecting markets and
specific securities; technical and quantitative information about markets;
analysis of proxy proposals affecting specific companies; accounting and
performance systems that allow the Advisor to determine and track investment
results; and trading systems that allow the Advisor to interface electronically
with brokerage firms, custodians, and other providers. Research is received in
the form of written reports, telephone contacts, personal meetings, research
seminars, software programs, and access to computer databases. In some
instances, research products or services received by the Advisor may also be
used by the Advisor for functions that are not research related (i.e. not
related to the making of investment decisions). Where a research product
or service has a mixed use, the Advisor will make a reasonable allocation
according to the use and will pay for the non-research function in cash using
its own funds.
The
research and investment information services described above make available to
the Advisor for its analysis and consideration the views and information of
individuals and research staffs of other securities firms. These services may be
useful to the Advisor in connection with advisory clients other than the Fund
and not all such services may be useful to the Advisor in connection with the
Fund. Although such information may be a useful supplement to the Advisor’s own
investment information in rendering services to the Fund, the value of such
research and services is not expected to reduce materially the expenses of the
Advisor in the performance of its services under the Advisory Agreement and will
not reduce the management fees payable to the Advisor by the Fund.
The Fund
may invest in securities traded in the OTC market. In these cases, the Fund may
initiate trades through brokers on an agency basis and pay a commission in
connection with the transaction. The Fund may also effect these transactions by
dealing directly with the dealers who make a market in the securities involved,
in which case the costs of such transactions would involve dealer spreads rather
than brokerage commissions. With respect to securities traded only in the
OTC market, orders will be executed on a principal basis with primary market
makers in such securities except where better prices or executions may be
obtained on an agency basis or by dealing with those other than a primary market
maker.
The Fund
may participate, if and when practicable, in bidding for the purchase of Fund
securities directly from an issuer in order to take advantage of the lower
purchase price available to members of a bidding group. The Fund will engage in
this practice, however, only when the Advisor, in its sole discretion, believes
such practice to be otherwise in the Fund’s interest.
For the
fiscal years ended September 30, 2018, September 30, 2017, and September 30,
2016, the Fund paid brokerage commissions in the amount of $16,996, $30,674, and
$38,648, respectively. The brokerage commissions paid by the Fund
decreased for the fiscal year ended September 30, 2018, from the fiscal year
ended September 30, 2017, primarily due to a decrease in portfolio turnover.
Aggregated
Trades. While investment decisions for the Fund are made independently of
the Advisor’s other client accounts, the Advisor’s other client accounts may
invest in the same securities as the Fund. To the extent permitted by law, the
Advisor 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
executing transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount in a manner which the Advisor believes to be
equitable to the Fund and such other 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 or sold by the
Fund.
Portfolio
Turnover. Portfolio turnover is a ratio that indicates how often
the securities in a mutual fund’s portfolio change during a year’s time. Higher
numbers indicate a greater number of changes, and lower numbers indicate a
smaller number of changes. The annualized portfolio turnover rate for the Fund
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the reporting period by the monthly average value of the
portfolio securities owned during the reporting period. The calculation excludes
all securities whose maturities or expiration dates at the time of acquisition
are one year or less. Portfolio turnover of the Fund may vary greatly from
year to year as well as within a particular year, and may be affected by
cash requirements for redemption of shares and by requirements that enable the
Fund to receive favorable tax treatment. Portfolio turnover will not be a
limiting factor in making Fund decisions, and the Fund may engage in short-term
trading to achieve its investment objectives. High rates of portfolio
turnover could lower performance of the Fund due to increased transaction costs
and may also result in the realization of short-term capital gains taxed at
ordinary income tax rates. Under normal circumstances, the anticipated portfolio
turnover rate for the Fund is expected to be greater than 100%. The portfolio
turnover rate for the fiscal year ended September 30, 2018 was 219.74 %. The
portfolio turnover rate for the fiscal year ended September 30, 2017 was
333.48%. The decrease in the portfolio turnover for the Fund for the fiscal year
ended September 30, 2018 from the fiscal year ended September 30, 2017, was
primarily due to market conditions during the period.
The Trust,
which is a statutory trust organized under Delaware law on May 13, 2009, is an
open-end management investment company. The Trust’s Declaration of Trust
(“Trust Instrument”) authorizes the Trustees to divide shares into series, each
series relating to a separate portfolio of investments, and to classify and
reclassify any unissued shares into one or more classes of shares of each such
series. The Trust currently consists of 17 series. Additional series
and/or classes may be created from time to time. The number of shares in each
series of the Trust shall be unlimited. When issued for payment as
described in the Fund’s p rospectus and this SAI, shares of the Fund will be
fully paid and non‑assessable and shall have no preemptive rights. The Trust
normally does not issue share certificates.
In the
event of a liquidation or dissolution of the Trust or an individual series, such
as the Fund, shareholders of a particular series would be entitled to receive
the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If
there are any assets, income, earnings, proceeds, funds, or payments, that are
not readily identifiable as belonging to any particular series, the Trustees
shall allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders
of all of the series of the Trust, including the Fund, will vote together and
not separately on a series‑by‑series or class-by-class basis, except as
otherwise required by law or when the Trustees determine that the matter to be
voted upon affects only the interests of the shareholders of a particular series
or class. The Trust has adopted a Rule 18f-3 Multi-class Plan for certain series
that contain the general characteristics of and conditions under which such
series may offer multiple classes of shares. 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 each series or class affected by the
matter. A series or class is affected by a matter unless it is clear that
the interests of each series or class in the matter are substantially identical
or that the matter does not affect any interest of the series or class. Under
Rule 18f-2, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
series only if approved by a majority of the outstanding shares of such series.
However, the rule also provides that the ratification of the appointment of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Trust voting together, without regard to a particular series or class.
Rights of shareholders can only be modified by a majority vote.
When used
in the Prospectus or this SAI, a “majority” of shareholders means the vote of
the lesser of (i) 67% of the shares of the Trust or the applicable series or
class present at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (ii) more than 50% of the
outstanding shares of the Trust or the applicable series or class.
Share-holders
are entitled to one vote for each full share and a fractional vote for each
fractional share held. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees, and in this event, the holders of the
remaining shares voting will not be able to elect any Trustees.
The
Trustees will hold office indefinitely, except that: (i) any Trustee may resign
or retire, and (ii) any Trustee may be removed: (a) any time by written
instrument signed by at least two-thirds of the number of Trustees prior to such
removal; (b) at any meeting of shareholders of the Trust by a vote of two-thirds
of the outstanding shares of the Trust; or (c) by a written declaration signed
by shareholders holding not less than two-thirds of the outstanding shares of
the Trust. In case a vacancy on the Board shall for any reason exist, the
vacancy shall be filled by the affirmative vote of a majority of the remaining
Trustees, subject to certain restrictions under the 1940 Act. Otherwise, there
will normally be no meeting of shareholders for the purpose of electing
Trustees, and the Trust does not expect to have an annual meeting of
share-holders.
The Trust
Instrument provides that the Trustees will not be liable in any event in
connection with the affairs of the Trust, except as such liability may arise
from a Trustee’s bad faith, willful misfeasance, gross negligence, or reckless
disregard of duties. It also provides that all third parties shall look
solely to the Trust’s property for satisfaction of claims arising in connection
with the affairs of the Trust. With the exceptions stated, the Trust
Instrument provides that a Trustee or officer is entitled to be indemnified
against all liability in connection with the affairs of the Trust.
The
Trustees are responsible for the management and supervision of the Fund. The
Trustees approve all significant agreements between the Trust, on behalf of the
Fund, and those companies that furnish services to the Fund; review performance of the Advisor and the Fund; and
oversee activities of the Fund. This section of the SAI provides information
about the persons who serve as Trustees and officers to the Trust and Fund,
respectively, as well as the entities that provide services to the
Fund.
Trustees
and Officers. Following are the Trustees and officers of the Trust,
their age and address, their present position with the Trust or the Fund, and
their principal occupation during the past five years. The Trustees in the
following table who are not “interested persons ” of the Trust within the
meaning of the 1940 Act (“Independent Trustees”) are indic a ted as such.
The address of each Trustee and officer of the Trust, unless otherwise
indicated, is 116 South Franklin Street, Rocky Mount, North Carolina
27804.
|
Name,
Age
and
Address |
Position
held
with
Funds
or Trust |
Length
of
Time
Served
|
Principal
Occupation
During
Past 5 Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Trustee |
Other
Directorships
Held
by Trustee
During
Past 5 Years |
|
Independent
Trustees |
|
James
H. Speed, Jr.
Date
of Birth: 06/1953 |
Independent
Trustee, Chairman |
Trustee
since 7/09, Chair since 5/12 |
Previously
President and CEO of NC Mutual Insurance Company (insurance company) from
2003 to 2015. |
17
|
Independent
Trustee of the Brown Capital Management Mutual Funds for all its series,
Hillman Capital Management Investment Trust for all its series, Centaur
Mutual Funds Trust for all its series, Chesapeake Investment Trust for all
its series, Leeward Investment Trust for all its series, and WST
Investment Trust for all its series (all registered investment companies).
Member of Board of Directors of M&F Bancorp. Member of Board of
Directors of Investors Title Company. Previously, Board of Directors of NC
Mutual Life Insurance Company. |
|
Theo
H. Pitt, Jr.
Date
of Birth: 04/1936 |
Independent
Trustee |
Since
9/10 |
Senior
Partner, Community Financial Institutions Consulting (financial
consulting) since 1999; Partner, Pikar Properties (real estate) since
2001. |
17
|
Independent
Trustee of World Funds Trust for all its series, Chesapeake Investment
Trust for all its series, DGHM Investment Trust for all its series,
Leeward Investment Trust for all its series and Hillman Capital Management
Investment Trust for all its series (all registered investment companies).
|
|
Name,
Age
and
Address |
Position
held
with
Funds
or Trust |
Length
of
Time
Served
|
Principal
Occupation
During
Past 5 Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Trustee |
Other
Directorships
Held
by Trustee
During
Past 5 Years |
|
Michael
G. Mosley
Date
of Birth: 01/1953 |
Independent
Trustee |
Since
7/10 |
Owner
of Commercial Realty Services (real estate) since 2004. |
17
|
None.
|
|
J.
Buckley Strandberg
Date
of Birth: 03/1960 |
Independent
Trustee |
Since
7/09 |
President
of Standard Insurance and Realty since 1982. |
17
|
None.
|
|
Other
Officers |
|
Katherine
M. Honey
Date
of Birth: 09/1973 |
President
and Principal Executive Officer |
Since
05/15 |
EVP
of The Nottingham Company since 2008. |
n/a
|
n/a
|
|
Ashley
E. Harris
Date
of Birth: 03/1984 |
Treasurer,
Assistant Secretary and Principal Financial Officer |
Since
05/15 |
Fund
Accounting Manager and Financial Reporting, The Nottingham Company since
2008. |
n/a
|
n/a
|
|
Robert
G. Schaaf
Date
of Birth: 09/1988 |
Secretary
|
Since
09/18 |
General
Counsel of The Nottingham Company since 2018; Daughtry, Woodard, Lawrence
& Starling (08/2015 – 01/2018); JD/MBA Candidate, Wake Forest
University (07/2011 – 05/2015).
|
n/a
|
n/a
|
|
Stacey
Gillespie
Date
of Birth: 05/1974 |
Chief
Compliance Officer |
Since
03/16 |
Compliance
Director, Cipperman Compliance Services, LLC (09/15-present). Formerly,
Chief Compliance Officer of Boenning & Scattergood, Inc. (2013-2015)
and Director of Investment Compliance at Boenning & Scattergood, Inc.
(2007-2013). |
n/a
|
n/a
|
The Board
met six times during the fiscal year ended September 30, 201 8 .
Board
Structure. The Trust’s Board includes four Independent Trustees.
Mr. Speed serves as the Independent Chairman of the Board. The Board has
established several standing committees: the Audit Committee, Nominating
Committee, Fair Valuation Committee , Governance Committee, and Qualified Legal
Compliance Committee. These standing committees are comprised entirely of
the Independent Trustees. Other information about these standing committees is
set forth below. The Board has determined that the Board’s structure is
appropriate given the characteristics, size, and operations of the Trust.
The Board also believes that its leadership structure, including its committees,
helps facilitate effective oversight of Trust management. The Board reviews its
structure annually.
With
respect to risk oversight, the Board considers risk management issues as part of
its general oversight responsibilities throughout the year. The Board holds four
regular board meetings each year during which the Board receives risk management
reports and/or assessments from Trust management, the Fund’s advisor,
administrator, transfer agent, and distributor, and receives an annual report
from the Trust’s Chief Compliance Officer (“CCO”). The Audit Committee
also meets with the Trust’s independent registered public accounting firm on an
annual basis, to discuss among other things, the internal control structure of
the Trust’s financial reporting function. When appropriate, the Board may
hold special meeting or communicate directly with Trust management, the CCO, the
Trust’s third party service providers, legal counsel, or independent public
accountants to address matters arising between regular board meeting or needing
special attention. In addition, the Board has adopted policies and procedures
for the Trust to help detect and prevent and, if necessary, correct violations
of federal securities laws.
Qualification
of Trustees. The Board believes that each Trustee’s experience,
qualifications, attributes or skills on an individual basis and in combination
with those of the other Trustees on the Board lead to the conclusion that the
Board possesses the requisite skills and attributes to carry out its oversight
responsibilities with respect to the Trust. The Board believes that its
Trustees’ ability to review, critically evaluate, question, and discuss
information provided to them, to interact effectively with the Advisor, other
service providers, counsel and independent auditors, and to exercise effective
business judgment in the performance of its duties, support this conclusion. The
Board also has considered the following experience, qualifications, attributes
and/or skills, among others, of its members, as applicable, in reaching its
conclusion: (i) such person’s business and professional experience and
accomplishments, including prior experience in the financial services and
investment management fields or on other boards; (ii) such person’s ability to
work effectively with the other members of the Board; (iii) how the individual’s
skills, experiences, and attributes would contribute to an appropriate mix of
relevant skills and experience on the Board; (iv) such person’s character and
integrity; (v) such person’s willingness to serve and willingness and ability to
commit the time necessary to perform the duties of a Trustee; and (vi) as to
each Trustee his status as an Independent Trustee.
In
addition, the following specific experience, qualifications, attributes and/or
skills were considered in respect of the listed Trustee.
Mr. Mosley
has had business experience as an owner of a real estate company. Mr. Pitt
has experience as an investor, including his role as trustee of several other
investment companies and business experience as s enior p artner of a financial
consulting company, as a p artner of a real estate partnership and as an a
ccount a dministrator for a money management firm. Mr. Speed also has
experience as an investor as trustee of several other investment companies and
business experience as p resident and chief executive officer of an insurance
company and as p resident of a company in the business of consulting and private
investing. Mr. Strandberg also has investment experience as a former trustee of
another investment company and business experience as p resident of an insurance
and property management company.
The Board
has determined that each of the Trustees’ careers and background, combined with
their interpersonal skills and general understanding of financial and other
matters, enable the Trustees to effectively participate in and contribute to the
Board’s functions and oversight of the Trust.
Trustee
Standing Committees. The Trustees have established the following
standing committees:
Audit
Committee. All of the Independent Trustees are members of the
Audit Committee. The Audit Committee oversees the Fund’s accounting and
financial reporting policies and practices, reviews the results of the annual
audits of the Fund’s financial statements, and interacts with the Fund’s
independent auditors on behalf of all the Trustees. The Audit Committee
operates pursuant to an Audit Committee Charter and will meet periodically as
necessary . The Audit Committee met eight times during the fiscal year ended
September 30, 201 8 .
Nominating
Committee. All of the Independent Trustees are members of the
Nominating Committee. The Nominating Committee nominates, selects, and
appoints independent trustees to fill vacancies on the Board and to stand for
election at meetings of the shareholders of the Trust. The Nominating
Committee generally will not consider nominees recommended by shareholders of
the Trust. The Nominating Committee meets only as necessary and did not
meet during the fiscal year ended September 30, 201 8 .
Fair
Valuation Committee. An Independent Trustee and a
representative of the advisor are members of the Fair Valuation Committee. The
Fair Valuation Committee has the authority to determine the fair value of
specific securities under the methods established by the adopted Guidelines for
Valuing Portfolio Securities. The Fair Valuation Committee meets only as
necessary. The Fair Valuation Committee met 19 times during the fiscal year
ended September 30, 2018.
Governance
Committee. The Independent Trustees are the current members of the
Governance Committee. The Governance Committee assists the Board in
adopting fund governance practices and meeting certain fund governance
standards. The Governance Committee operates pursuant to a Governance
Committee Charter and normally meets annually, but may also meet as often as
necessary to carry out its purpose. The Governance Committee met once
during the fiscal year ended September 30, 201 8 .
Qualified
Legal Compliance Committee. The Independent Trustees are the
current members of the Qualified Legal Compliance Committee. The Qualified Legal
Compliance Committee receives, investigates, and makes recommendations as to
appropriate remedial action in connection with any report of evidence of a
material violation of securities laws or breach of fiduciary duty or similar
violation by the Trust, its officers, Trustees, or agents. The Qualified
Legal Compliance Committee meets only as necessary and did not meet during the
fiscal year ended September 30, 201 8 .
Beneficial
Equity Ownership Information. The
table below shows for each Trustee, the amount of Fund equity securities
beneficially owned by each Trustee, and the aggregate value of all investments
in equity securities of the Fund complex, as of valuation date of December 31,
201 8,
and
stated as one of the following ranges: A = None; B = $1-$10,000; C =
$10,001-$50,000; D = $50,001-$100,000; and E = over
$100,000.
|
Name
of Trustee |
Dollar
Range of
Equity
Securities in the Fund |
Aggregate
Dollar Range
of
Equity Securities in
All
Registered Investment
Companies
Overseen By
Trustee
i n Family of
Investment
Companies |
|
Michael
G. Mosley |
A |
A |
|
Theo
H. Pitt, Jr. |
A |
A |
|
James
H. Speed, Jr. |
A |
A |
|
J.
Buckley Strandberg |
A |
A |
Ownership
of Securities of Advisor, Distributor, or Related Entities. As of
December 31, 201 8 , none of the Independent Trustees and/or their immediate
family members own securities of the Advisor, Capital Investment Group,
Inc. (the “Distributor”) , or any entity controlling, controlled by, or under
common control with the Advisor or Fund’s distributor.
Compensation.
Officers of the Trust and Trustees who are interested persons of the Trust or
the Advisor will receive no salary or fees from the Trust. Independent Trustees
receive $2,000 per series of the Trust each year , and may receive up to an
additional $500 per series of the Trust per special meeting in the event that
special meetings are held. This amount may be paid pro rata in the event that a
fund closes during the fiscal year . The Trust reimburses each Trustee and
officers of the Trust for his or her travel and other expenses relating to
attendance at such meetings. The following compensation is based on
figures for the fiscal year ended September 30, 201 8 . Each of the
Trustees serves as a Trustee to all series of the Trust, including the
Fund.
|
Name
of Trustee |
Aggregate
Compensation
From
the Fund* |
Pension
or
Retirement
Benefits
Accrued
As Part of
Fund
Expenses |
Estimated
Annual
Benefits
Upon
Retirement |
Total
Compensation
f
rom Fund and
Fund
Complex Paid
to
Trustees* |
|
Independent
Trustees |
|
Michael
G. Mosley |
$2,000.00 |
None |
None |
$
35,500.00 |
|
Theo
H. Pitt, Jr. |
$2,000.00 |
None |
None |
$
35,500.00 |
|
James
H. Speed, Jr. |
$2,000.00 |
None |
None |
$
35,500.00 |
|
J.
Buckley Strandberg |
$2,000.00 |
None |
None |
$
35,500.00 |
*Each
of the Trustees serves as a Trustee to all series of the Trust.
Codes
of Ethics. The Trust , Advisor , and Distributor each have adopted
a code of ethics, as required under Rule 17j-1 of the 1940 Act, which is
designed to prevent affiliated persons of the Trust , Advisor , and Distributor
from engaging in deceptive, manipulative, or fraudulent activities in connection
with securities held or to be acquired by the Fund (which securities may also be held by persons subject to
each such code of ethics). There can be no assurance that the codes will
be effective in preventing such activities. The codes permit employees and
officers of the Trust , Advisor , and Distributor to invest in securities held
by the Fund , subject to certain restrictions and pre-approval
requirements. In addition, the Advisor’s code requires that portfolio
managers and other investment personnel of the Advisor report their personal
securities transactions and holdings, which are reviewed for compliance with the
Trust’s and Advisor’s code s of ethics.
Anti-Money
Laundering Program. The Trust has adopted an anti-money laundering
program, as required by applicable law, which is designed to prevent the Fund
from being used for money laundering or the financing of terrorist activities.
The Trust’s CCO is responsible for implementing and monitoring the operations
and internal controls of the program. Compliance officers at certain of the
Fund’s service providers are also responsible for monitoring the program. The
anti-money laundering program is subject to the continuing oversight of the
Trustees.
Proxy
Voting Policies. The Trust has adopted a proxy voting and
disclosure policy that delegates to the Advisor the authority to vote proxies
for the Fund, subject to oversight by the Trustees. A copy of the
Advisor’s Proxy Voting Policy and Procedures is included as Appendix B to this
SAI. No later than August 31st of each year, the Fund will file Form N-PX
stating how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30th. Information regarding how the Fund
voted proxies as set forth in its most recent filing of Form N-PX will be
available (i) without charge, upon request, by calling the Fund at
1-800-773-3863; and (ii) on the SEC’s website at
http://www.sec.gov.
Principal
Holders of Voting Securities. As of December
31, 201 8 , the Trustees and officers of the Trust as a group owned beneficially
(i.e., had direct or indirect voting and/or investment power) less than 1% of
the then outstanding shares of the Fund. On that same date, the following
shareholders owned of record more than 5% of the outstanding shares of the Fund.
Shareholders owning 25% or more of outstanding shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
Shareholders. Except as provided below, no person is known by the Trust to be
the beneficial owner of more than 5% of the outstanding shares of the Fund as of
December 31, 201 8 .
|
Name
and Address of
Owner |
Amount
of
Ownership
|
Nature
of
Ownership
|
Percent
|
|
Charles
Schwab & Company, Inc.
211
Main Street
San
Francisco, CA 94104 |
1,636,461.429
Shares |
Record*
|
80.70
% |
*
The Fund believes that such entity does not have a beneficial ownership interest
in such shares.
Investment
Advisor. Information about the Advisor, Grimaldi Portfolio
Solutions, Inc. (formerly Navigator Money Management, Inc.), Route 9, Suite 10,
Wappingers Falls, NY 12590, and its duties and compensation as Advisor is
contained in the Fund’s Prospectus. The Advisor is controlled by Mark Anthony
Grimaldi, p rincipal and p resident, and Joseph V. Visconti, p rincipal and v
ice p resident. The Advisor supervises the Fund’s investments pursuant to the
Advisory Agreement. The Advisory Agreement is effective for an initial
two-year period and will be renewed thereafter only so long as such renewal and
continuance is specifically approved at least annually by the Trustees or by
vote of a majority of the Fund’s outstanding voting securities, provided the
continuance is also approved by a majority of the Trustees who are not parties
to the Advisory Agreement or interested persons of any such party. The Advisory
Agreement is terminable without penalty by the Trust on 60 calendar days’
written notice by the Trustees or by vote of a majority of the outstanding
voting securities or upon 60 calendar days’ written notice by the Advisor.
The Advisory Agreement provides that it will terminate automatically in the
event of its “assignment,” as such term is defined in the 1940 Act.
The
Advisor manages the Fund’s investments in accordance with the stated policies of
the Fund, subject to the approval of the Trustees. The Advisor is responsible
for investment decisions, and provides the Fund with portfolio managers who are
authorized by the Trustees to execute purchases and sales of
securities.
Under the
Advisory Agreement, the Advisor is not liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of such 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 Advisor in the performance of its duties; or from its reckless
disregard of its duties and obligations under the Advisory
Agreement.
The
Advisor receives a monthly management fee equal to an annual rate of 1.00% of
the Fund’s net assets. In the interest of limiting expenses of the Fund, the
Advisor has entered into an Expense Limitation Agreement with the Fund, pursuant
to which the Advisor has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of the Fund (exclusive of
(i) any front-end or contingent deferred loads; (ii) brokerage fees and
commissions, (iii) acquired fund fees and expenses; (iv) fees and expenses
associated with investments in other collective investment vehicles or
derivative instruments (including for example option and swap fees and
expenses); (v) borrowing costs (such as interest and dividend expense on
securities sold short); (vi) taxes; and (vii) extraordinary expenses, such as
litigation expenses (which may include indemnification of Fund officers and
Trustees and contractual indemnification of Fund service providers (other than
the Advisor)) ) is limited to 2.14 %. The Expense Limitation Agreement
runs through January 31, 20 20 , and may be terminated by the Board at any
time. The Advisor cannot recoup from the Fund any amounts paid by the
Advisor under the Expense Limitation Agreement.
For the
last three fiscal years, the Fund paid fees for the services of the Advisor in
the amount s shown below.
|
Fiscal
Year Ended September 30, |
Advisory
Fees Incurred |
Advisory
Fees Waived |
|
2018
|
$248,975
|
$0
|
|
2017
|
$224,166
|
$3,444
|
|
2016
|
$239,311
|
N/A*
|
*
For the fiscal year ended September 30, 2016, the advisory fees paid to the
Advisor do not include deductions due to Fund expenses, which the Advisor was
partially responsible for under an operating agreement that was in place between
the Advisor and the Administrator during that fiscal year. If Fund expenses were
deducted, the advisory fees paid to the Advisor would be lower for the fiscal
year ended September 30, 2016 .
Portfolio
Managers. The Fund’s portfolio is managed on a day-to-day basis by
Mark Anthony Grimaldi.
Compensation.
The portfolio manager’s compensation varies with the general success of the
Advisor as a firm. The portfolio manager’s compensation consists of a fixed
annual salary, plus additional remuneration based on the Advisor’s assets under
management. The portfolio manager’s compensation is not directly linked to the
Fund’s performance, although positive performance and growth in managed assets
are factors that may contribute to the Advisor’s distributable profits and
assets under management.
Ownership
of Fund Shares. The table below shows the amount of the Fund’s
equity securities beneficially owned by each portfolio manager as of September
30, 201 8, and stated as one of the following ranges: A = None; B = $1-$10,000;
C = $10,001-$50,000; D = $50,001-$100,000; E = $100,001-$500,000; F =
$500,001-$1,000,000; and G = over $1,000,000.
|
Name
of
Portfolio
Manager |
Dollar
Range of
Equity
Securities in the Fund |
|
Mark
Anthony Grimaldi |
F |
Other
Accounts.
In addition to the Fund, the portfolio manager is responsible for the
day-to-day management of certain other accounts. The table below shows the
number of, and total assets in, such other accounts as of the end of the Fund ’
s fiscal year ended September 30, 201 8 .
|
Portfolio
Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
|
Number
of
Accounts |
Total
Assets |
Number
of
Accounts |
Total
Assets |
Number
of
Accounts |
Total
Assets |
|
All
Accounts |
|
Mark
Anthony Grimaldi |
0
|
$0
|
0 |
$0 |
450
|
$57,000,000
|
|
Accounts
with Performance-Based Advisory Fee |
|
Mark
Anthony Grimaldi |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Conflicts
of Interests. The portfolio manager’s management of “other
accounts” may give rise to potential conflicts of interest in connection with
their management of the Fund ’ s investments, on the one hand, and the
investments of the other accounts, on the other. The other accounts
consist of separately managed private clients (“Other Accounts”). The
Other Accounts might have similar investment objectives as the Fund, be compared
to the same index as the Fund, or otherwise hold, purchase, or sell securities
that are eligible to be held, purchased, or sold by the Fund.
Knowledge
of the Timing and Size of Fund Trades: A potential conflict of
interest may arise as a result of the portfolio manager’s day-to-day management
of the Fund. The portfolio manager knows the size and timing of trades for the
Fund and the Other Accounts, and may be able to predict the market impact of
Fund trades. It is theoretically possible that the portfolio manager could use
this information to the advantage of Other Accounts it manages and to the
possible detriment of the Fund, or vice versa.
Investment
Opportunities: The Advisor provides investment supervisory
services for a number of investment products that have varying investment
guidelines. The portfolio manager works across different investment
products. Differences in the compensation structures of the Advisor’s
investment products may give rise to a conflict of interest by creating an
incentive for the Advisor to allocate the investment opportunities it believes
might be the most profitable to the client accounts where it might benefit the
most from the investment gains.
Administrator.
The Trust has entered into a Fund Accounting and Administration Agreement with
The Nottingham Company (“Administrator”), located at 116 South Franklin Street,
Post Office Box 69, Rocky Mount, North Carolina 27802-0069. The Administrator
performs the following services for the Fund: (i) procures on behalf of the
Trust, and coordinates with the custodian and monitors the services it provides
to the Fund; (ii) coordinates with and monitors any other third parties
furnishing services to the Fund; (iii) provides the Fund with necessary
office space, telephones , and other communications facilities and personnel
competent to perform administrative and clerical functions for the Fund; (iv)
assists or supervises the maintenance by third parties of such books and records
of the Fund as may be required by applicable federal or state law;
(v) assists in the preparation of all federal, state, and local tax returns
and reports of the Fund required by applicable law; (vi) assists in the
preparation of and, after approval by the Trust, files and arranges for the
distribution of proxy materials and periodic reports to shareholders of the Fund
as required by applicable law; (vii) assists in the preparation of and, after
approval by the Trust, arranges for the filing of such registration statements
and other documents with the SEC and other federal and state regulatory
authorities as may be required by applicable law; (viii) reviews and submits to
the officers of the Trust for their approval invoices or other requests for
payment of Fund expenses and instructs the Custodian to issue checks in payment
thereof; and (ix) takes such other action with respect to the Fund as may be
necessary in the opinion of the Administrator to perform its duties under the
agreement. The Administrator will also provide certain accounting and pricing
services for the Fund.
Compensation
of the Administrator, which is based upon an administration fee on the average
daily net assets of the Fund, is at the following annual rates: 0.100% of the
Fund’s first $250 million, 0.080% on the next $250 million, 0.060% on the next
$250 million, and 0.050% on the next $250 million, 0.040% on the next $1
billion, and 0.035% on the average daily net assets over $2 billion, with a
monthly minimum general administration fee of $2,000. The Administrator
currently receives a monthly fund accounting fee of $2,250 per Fund for
accounting and recordkeeping services with an additional fee of $500 per month
for each additional class of shares plus an asset-based fee of 0.01% of the net
assets of the Fund. The Administrator also charges the Fund for certain costs
involved with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses.
For the
fiscal year ended September 30, 2018, the Fund paid $24,951 in general
administration fees and $29,489 in fund accounting fees to the
Administrator. For the fiscal year ended September 30, 2017, the Fund paid
$26,499 in general administration fees and $29,238 in fund accounting fees to
the Administrator. For the fiscal year ended September 30, 2016, the Fund paid
$157,993 in general administration fees to the Administrator,
respectively. For the fiscal year ended September 30, 2016, the Fund and
the Administrator were parties to an Operating Agreement designed to limit the
Fund’s expenses. For this period, the general administration fees paid to the
Administrator do not include deductions for Fund expenses, which were paid for
by the Administrator under the terms of the Operating Agreement. If Fund
expenses were deducted, the applicable amounts would be lower for the fiscal
year ended September 30, 2016.
Transfer
Agent. The Trust has entered into a Dividend Disbursing and
Transfer Agent Agreement with Nottingham Shareholder Services, LLC (“Transfer
Agent”), a North Carolina limited liability company, to serve as transfer,
dividend paying, and shareholder servicing agent for the Fund. The address of
the Transfer Agent is 116 South Franklin Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365.
Distributor.
The Fund will conduct a continuous offering of their securities. Capital
Investment Group, Inc., located at 100 E. Six Forks Road, Suite 200, Raleigh,
North Carolina 27609, acts as the underwriter and distributor of the Fund’s
shares for the purpose of facilitating the registration of shares of the Fund
under state securities laws and assisting in sales of Fund shares pursuant to a
distribution agreement (“Distribution Agreement”) approved by the
Trustees. In this regard, the Distributor has agreed at its own expense to
qualify as a broker‑dealer under all applicable federal or state laws in those
states that the Fund shall from time to time identify to the Distributor as
states in which the Fund wishes to offer its shares for sale, in order that
state registrations may be maintained for the Fund. The Distributor is a
broker‑dealer registered with the SEC and a member in good standing of the
FINRA. The Distributor is entitled to receive an annual fee of $5,000 per
Fund for performing certain recordkeeping, communication, and other
administrative services for the Fund. Such administrative services shall
include, but are not limited to, the following: (i) maintaining records with
respect to submissions to the FINRA, dealer discounts , brokerage fees and
commissions, and selling agreements; (ii) maintaining an account with the
National Securities Clearing Corporation's Fund/SERV System for the purpose of
processing account registrations, maintaining accounts, and communicating
transaction data; (iii) preparing reports for the Board as shall be reasonably
requested from time to time; and (iv) performing other services for the Trust as
agreed to by the Distributor and the Trust from time to time. The
Distributor and Trust agree that the services described above are of an
administrative nature and such services, as well as the fee provided in
connection therewith, are not, nor are they intended to be, payment for
marketing and/or distribution services related to, or the promotion of, the sale
of the Fund’s shares. The Distribution Agreement may be terminated by either
party upon 60-days’ prior written notice to the other party and will terminate
automatically in the event of its assignment. The Distributor serves as
exclusive agent for the distribution of the shares of the Fund.
The
Distributor for the Fund received the following commissions and other
compensation during the fiscal year ended September 30, 2018.
|
Net
Underwriting
Discounts
and
Commissions
|
Compensation
on
Redemptions
and
Repurchases |
Brokerage
Commissions
|
Other
Compensation
|
|
$0
|
$0
|
$0
|
$5,000
|
Rule
12b-1 Plan. The Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act for the Fund (the “Plan”). Pursuant to
the Plan, the Fund is authorized to pay the Distributor a fee at an annual rate
of 0.25% of the average daily net assets of the Fund as compensation for the
Distributor’s account maintenance services and as compensation for the
Distributor’s sales of the Fund . Such fees are to be paid by the Fund
monthly, or at such other intervals, as the Board shall determine. Such fees
shall be based upon the average daily net assets of the Fund during the
preceding month, and shall be calculated and accrued daily. The Fund may pay
fees to the Distributor at a lesser rate, as agreed upon by the Board and the
Distributor.
Pursuant
to the Plan, the Fund may: (i) incur certain expenses, including reimbursing the
Distributor and others for items such as advertising expenses, selling expenses,
commissions, travel or other expenses reasonably intended to result in sales of
the Fund; and/or (ii) pay compensation for providing account maintenance
services to Fund shareholders, including arranging for certain dealers or
brokers, administrators and others to provide the m services.
The
services to be provided by recipients may include, but are not limited to, the
following: assistance in the offering and sale of Fund shares and in other
aspects of the marketing of the shares to clients or prospective clients of the
respective recipients; answering routine inquiries concerning the Fund;
assisting in the establishment and maintenance of accounts or sub-accounts in
the Fund and in processing purchase and redemption transactions; making the
Fund’s investment plan and shareholder services available; and providing such
other information and services to investors in shares of the Fund as the
Distributor for the Trust, on behalf of the Fund, may reasonably request. The
distribution services shall also include any advertising and marketing services
provided by or arranged by the Distributor with respect to the Fund.
The
Distributor is required to provide a written report, at least quarterly, to the
Board, specifying in reasonable detail the amounts expended pursuant to the Plan
and the purposes for which such expenditures were made. Further, the Distributor
will inform the Board of any Rule 12b-1 fees to be paid by the Distributor to
recipients.
The
initial term of the Plan is one year and will continue in effect from year to
year thereafter, provided such continuance is specifically
approved ,
at least annually, by a majority of the Board and a majority of the Trustees who
are not “interested persons” of the Trust and do not have a direct or indirect
financial interest in the Plan (“Rule 12b-1 Trustees”) by vote s cast in person
at a meeting called for the purpose of voting on the Plan. The Plan may be
terminated at any time by the Board or the Fund by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority of the outstanding voting shares of
the Fund .
The Plan
may not be amended to increase materially the amount of the Distributor’s
compensation to be paid by the Fund, unless such amendment is approved by the
vote of a majority of the outstanding voting shares of the Fund (as defined in
the 1940 Act). All material amendments must be approved by a majority of the
Board of the Trust and a majority of the Rule 12b- 1 Trustees by votes cast in
person at a meeting called for the purpose of voting on the Plan. During the
term of the Plan, the selection and nomination of non-interested Trustees of the
Trust will be committed to the discretion of current non-interested Trustees.
The Distributor will preserve copies of the Plan, any related agreements, and
all reports, for a period of not less than six years from the date of such
document and for at least the first two years in an easily accessible
place.
Any
agreement related to the Plan will be in writing and provide that: (a) it may be
terminated by the Trust or the Fund at any time upon sixty days’ written notice,
without the payment of any penalty, by vote of a majority of the respective Rule
12b-1 Trustees, or by vote of a majority of the outstanding voting shares of the
Fund; (b) it will automatically terminate in the event of its assignment (as
defined in the 1940 Act); and (c) it will continue in effect for a period of
more than one year from the date of its execution or adoption only so long as
such continuance is specifically approved at least annually by a majority of the
Board and a majority of the Rule 12b-1 Trustees by votes cast in person at a
meeting called for the purpose of voting on such agreement.
The Plan was effective beginning on June 20, 2017. For
the period from June 20, 2017 through September 30, 2017, the Fund
accrued $16,405 in distribution and service fees. For the fiscal year ended
September 30, 2018, the Fund accrued $62,244 in distribution and service fees.
The
following chart describes the dollar amount and the manner in which amounts
accrued by the Fund under the Plan were spent during the past fiscal year.
| |
|
|
Advertising
|
$35,915.67
|
|
Printing
and Mailing of Prospectuses to Other than Current Shareholders
|
$0
|
|
|
|
|
Compensation
to Underwriters |
$0
|
|
Compensation
to Broker-Dealers |
$0
|
|
Compensation
to Sales Personnel |
$0
|
|
Interest,
Carrying, or Other Financing Charges |
$0
|
|
Other
|
$0
|
Custodian.
UMB Bank, n.a., with its principal place of business located at 1010 Gran
Boulevard, Kansas City, Missouri 64106 , serves as custodian for the Fund’s
assets (the “Custodian”). The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund’s request,
and maintains records in connection with its duties as custodian. For its
services, the custodian is entitled to receive a monthly fee from the
Administrator based on the average net assets of the Fund plus additional
out-of-pocket and transaction expenses as incurred by the Fund
Compliance
Services Administrator. The Trust has entered into a compliance
services arrangement with Cipperman Compliance Services, LLC, located at 500
East Swedesford Road, Suite 104, Wayne, Pennsylvania 19087. The Trust’s CCO will
prepare and update the Trust’s compliance manual and monitor and test compliance
with the policies and procedures under the Trust’s compliance
manual.
Independent
Registered Public Accounting Firm. The Trustees have selected the
firm of BBD, LLP, located at 1835 Market Street, 3rd Floor, Philadelphia, P
ennsylvania 19103, to serve as the independent registered
public accounting firm for the Fund for the current fiscal year and to audit the
annual financial statements of the Fund, and prepare the Fund’s federal, state,
and excise tax returns. The independent registered public accounting firm will
audit the financial statements of the Fund at least once each year.
Shareholders will receive annual audited and semi-annual (unaudited) reports
when published and written confirmation of all transactions in their
account. A copy of the most recent annual report will accompany the SAI
whenever a shareholder or a prospective investor requests it.
Legal
Counsel. Greenberg Traurig LLP serves as legal counsel to the Trust
and the Fund.
Reference
is made to “Purchasing Shares” and “Redeeming Shares” in the Fund’s Prospectus
for more information concerning how to purchase and redeem shares. The following
information supplements the information regarding share purchases and share
redemptions in the Fund’s Prospectus:
Regular
Account. The regular account allows for voluntary investments to be
made at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans, and others, investors are free to make
additions to or withdrawals from their account. When an investor makes an
initial investment in the Fund, a shareholder account is opened in accordance
with the investor’s registration instructions. Each time there is a transaction
in a shareholder account, such as an additional investment or the reinvestment
of a dividend or distribution, the shareholder will receive a confirm-ation
statement showing the current transaction and all prior transactions in the
shareholder account during the calendar year to date, along with a summary of
the status of the account as of the transaction date. As stated in the Fund’s
Prospectus, share certificates are normally not issued.
Purchases.
Shares of the Fund are offered and sold on a continuous basis and may be
purchased through authorized investment dealers or directly by contacting the
Distributor, or the Fund directly . The purchase price of shares of the Fund is
based on the NAV next determined after the order is received, subject to the
order being received by the Fund in good form. NAV is normally determined
at the time regular trading closes on the NYSE on days the NYSE is open for
regular trading, as described under “Net Asset Value”. The NAV per share
of the Fund is not calculated on business holidays when the NYSE is
closed. An order received prior to the time regular trading closes on the
NYSE will be executed at the price calculated on the date of receipt and an
order received after the time regular trading closes on the NYSE will be
executed at the price calculated as of that time on the next business
day.
The Fund
reserves the right in its sole discretion to : (i) suspend the offering of its
shares; (ii) reject purchase orders when in the judgment of management such
rejection is in the best interest of the Fund and its shareholders; and (iii)
reduce or waive the minimum for initial and subsequent investments under
circumstances where certain economies can be achieved in sales of Fund
shares.
Redemptions.
The Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the NYSE is closed for other than customary weekend and
holiday closings, or that trading on the NYSE is restricted as determined by the
SEC; (ii) during any period when an emergency exists as defined by the rules of
the SEC as a result of which it is not reasonably practicable for the Fund to
dispose of securities owned by it, or to determine fairly the value of its
assets; and (iii) for such other periods as the SEC may permit. The Fund
may also suspend or postpone the recordation of the transfer of shares upon the
occurrence of any of the foregoing conditions. Any redemption may be more
or less than the shareholder’s cost depending on the market value of the
securities held by the Fund. No charge is made by the Fund for redemptions other
than the possible charge for wiring redemption proceeds.
Involuntary
Redemptions. In addition to the situations described in the Fund’s
Prospectus under “Redeeming Fund Shares,” the Fund may redeem shares
involuntarily to reimburse the Fund for any loss sustained by reason of the
failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to Fund shares as provided in the
Fund’s Prospectus from time to time or to close a shareholder’s account if the
Fund is unable to verify the shareholder’s identity.
Other
Information. If an investor realizes a gain on the redemption, the
reinvestment will not affect the amount of any federal capital gains tax payable
on the gain. If an investor realizes a loss on the redemption, the reinvestment
may cause some or all of the loss to be disallowed as a tax deduction, depending
on the number of shares purchased by reinvestment and the period of time that
has elapsed after the redemption, although for tax purposes, the amount
disallowed is added to the cost of the shares acquired upon the
reinvestment.
The Fund
offers the following special shareholder services:
Automatic
Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($50 minimum) which will be automatically invested in
shares at the public offering price on or about the 21st day of the month. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Fund.
Purchases
In Kind. The Fund may accept securities in lieu of payment for the
purchase of shares in the Fund. The acceptance of such securities is at the sole
discretion of the Advisor based upon the suitability of the securities accepted
for inclusion as a long-term investment of the Fund, the marketability of such
securities, and other factors that the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in “Purchase and Redemption Price – Determining the Fund’s Net Asset
Value” in the Fund’s Prospectus.
Systematic
Withdrawal Plan. Shareholders owning shares with a value of $5,000
or more may establish a systematic withdrawal plan (“Systematic Withdrawal
Plan”). A shareholder may receive monthly or quarterly payments, in amounts of
not less than $100 per payment, by authorizing the Fund to redeem the necessary
number of shares periodically (each month, or quarterly) in order to make the
payments requested. The Fund has the capability of electronically depositing the
proceeds of the systematic withdrawal directly to the shareholders personal bank
account ($5,000 minimum per bank wire). Instructions for establishing this
service are included in the Fund Shares Application, enclosed in the Fund’s
Prospectus, or are available by calling the Fund. If the shareholder prefers to
receive his systematic withdrawal proceeds in cash, or if such proceeds are less
than the $5,000 minimum for a bank wire, checks will be made payable to the
designated recipient and mailed with-in seven days of the valuation date.
If the designated recipient is other than the registered shareholder, the
signature of each shareholder must be guaranteed on the application (see
“Redeeming Shares – Signature Guarantees” in the Fund’s Prospectus). A
corporation (or partnership) must also submit a “Corporate Resolution” (or
“Certification of Partnership”) indi-cat-ing the names, titles, and required
number of signatures auth-orized to act on its behalf. The application
must be signed by a duly authori-zed officer(s) and the corporate seal affixed.
Costs in conjunction with the administration of the plan are borne by the Fund.
Shareholders should be aware that such systematic withdrawals may deplete or use
up entirely their initial investment and may result in real-ized long-term or
short-term capital gains or losses. The Syste-matic Withdrawal Plan may be
terminated at any time by the Fund upon 60-days’ written notice or by a
shareholder upon written notice to the Fund. Applications and further details
may be obtained by calling the Fund at 1-800-773-3863 or by writing
to:
The
Sector Rotation Fund
c/o
Nottingham Shareholder Services
116
South Franklin Street
Post
Office Box 4365
Rocky
Mount, NC 27803-0365
Redemptions
In-Kind. The Fund does not intend, under normal circumstances, to redeem
its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case the Trustees may authorize payment to be made in readily marketable
portfolio securities of the Fund. The securities will be chosen by the Fund, may
be either a pro rata payment of each of the securities held by the Fund or a
representative sample of securities, and will be valued at the same value
assigned to them in computing the NAV per share. Shareholders receiving them
would incur brokerage costs when these securities are sold. An irrevocable
election has been filed under Rule 18f‑1 of the 1940 Act, wherein the Fund
committed to pay redemptions in cash, rather than in kind, to any shareholder of
record of the Fund who redeems during any 90- day period, the lesser of (a)
$250,000 or (b) one percent (1%) of the Fund’s NAV at the beginning of such
period.
Transfer
of Registration. To transfer shares to another owner, send a
written request to the Fund at the address shown above. Your request
should include the following: (i) the Fund name and existing account
registration; (ii) signature(s) of the registered owner(s) exactly as the
signature(s) appear(s) on the account registration; (iii) the new account
registration, address, social security or taxpayer identification number, and
how dividends and capital gains are to be distributed; (iv) signature guarantees
(See the Fund’s Prospectus under the heading “Signature Guarantees”); and (v)
any additional documents which are required for transfer by corporations,
administrators, executors, trustees, guardians, etc. If you have any
questions about transferring shares, call or write the Fund.
Employees
and Affiliates of the Fund. The Fund has adopted initial investment
minimums for the purpose of reducing the cost to the Fund (and consequently to
the shareholders) of communicating with and servicing its shareholders. At the
discretion of the Advisor, the Fund may allow investments in the Fund with a
reduced minimum initial investment from its Trustees, officers, and employees;
the Advisor and certain parties related thereto; including clients of the
Advisor or any sponsor, officer, committee member thereof, or the immediate
family of any of them. In addition, accounts having the same mailing
address may be aggregated for purposes of the minimum investment if they consent
in writing to sharing a single mailing of shareholder reports, proxy statements
(but each such shareholder would receive his/her own proxy), and other Fund
literature.
Dealers.
The Distributor, at its expense, may provide additional compensation in addition
to dealer discounts and brokerage commissions to dealers in connection with
sales of shares of the Fund. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Fund,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
Financial Industries Regulatory Authority. None of the aforementioned
compensation is paid directly by the Fund or its shareholders although the
Distributor may use a portion of the payment it receives under the Plan to pay
these expenses.
The
Trustees have adopted a policy that governs the disclosure of portfolio
holdings. This policy is intended to ensure that such disclosure is in the best
interests of the shareholders of the Fund and to address possible conflicts of
interest. Under the Fund’s policy, the Fund generally will not disclose
portfolio holdings to a third party unless such information is made available to
the public. The policy provides that the Fund may disclose non-public portfolio
holdings information as required by law and under other limited circumstances
that are set forth in more detail below.
The Fund
will generally make portfolio holdings information available to the public at
http://www.ncfunds.com/holdings/current-245.htm
, including the complete portfolio holdings from the previous day as reported on
a monthly basis. This information is generally available within ten days
of the month end and will remain available until the next month’s portfolio
holdings report becomes available . You may obtain a copy of these monthly
portfolio holdings reports by calling the Fund at 1-800-773-3863. The Fund will
also file these quarterly portfolio holdings reports with the SEC on Form N-CSR
or Form N-Q, as applicable. The Fund’s Form N-CSR and Form N-Q are
available on the SEC’s website at http://www.sec.gov and may be reviewed and
copied at the SEC’s Public Reference Room in Washington, DC. The first and
third quarter portfolio holdings reports will be filed with the SEC on Form N-Q
and the second and fourth fiscal quarter portfolio holdings reports will be
included with the semi-annual and annual financial statements, respectively,
which are sent to shareholders and filed with the SEC on Form
N-CSR.
To the
extent that the Fund’s portfolio holdings have previously been disclosed
publicly either through a filing made with the SEC on Form N-CSR or Form N-Q, or
by being posted to the Fund’s website, such holdings may also be disclosed to
any third party that requests them.
Consistent
with policies approved by the Board, the officers of the Fund will share
non-public portfolio holdings information with the Fund’s service providers that
require such information for legitimate business and Fund oversight purposes.
Recipients of non-public portfolio holdings information have a duty not to trade
on that confidential information. The Fund has not (and does not intend to)
enter into any arrangement providing for the receipt of compensation or other
consideration in exchange for the disclosure of non-public portfolio holdings
information, other than the benefits that result to the Fund and its
shareholders from providing such information, which include the publication of
Fund ratings and rankings.
The
Advisor, as well as the Custodian, fund accountant and A dministrator, and CCO ,
have full daily access to the Fund’s portfolio holdings. These service providers
are subject to obligations requiring them to keep non-public portfolio holdings
information confidential. In some, but not all, cases these
confidentiality obligations are established by written agreements. The Board has
concluded that the confidentiality obligations in place for these parties are
adequate to safeguard the Fund from unauthorized disclosure of non-public
portfolio holdings information. In addition, the Advisor has a code of
ethics that prohibits covered persons from disclosing or trading based on
non-public portfolio holdings information.
The Fund’s
Distributor, Transfer Agent, independent public accountants, and legal counsel
have access to the Fund’s portfolio holdings on an ad hoc, as needed basis. The
Distributor and Transfer Agent are subject to written agreements that establish
confidentiality obligations with respect to the Fund’s portfolio holdings. The
independent public accountants and legal counsel are subject to professional
obligations that require them to keep non-public portfolio holdings information
confidential. The Board has concluded that the confidentiality obligations in
place for these parties are adequate to safeguard the Fund from unauthorized
disclosure of non-public portfolio holdings information.
Allegra
Design Marketing Print Mail, PrintGrafix (a division of Sunbelt Graphics
Systems, Inc.), PrinterLink Communications Group, Inc., Riverside Printing,
Inc., and V.G. Reed & Sons are financial printers the Fund may engage for,
among other things, the printing and/or distribution of regulatory and
compliance documents. These service providers are subject to written
agreements that establish confidentiality obligations with respect to the Fund’s
portfolio holdings.
The Fund
and its service providers may also provide non-public portfolio holdings
information to appropriate regulatory agencies as required by applicable laws
and regulations.
The Fund
currently does not provide non-public portfolio holdings information to any
other third parties. In the future, the Advisor may establish ongoing
arrangements with other third parties if the Advisor determines that the Fund
has a legitimate business purpose for doing so, determines that the disclosure
is in the shareholders' best interest, and the recipient is subject to a duty of
confidentiality. These parties could include, by way of example, financial data
processing companies that provide automated data scanning and monitoring
services for the Fund, research companies that allow the Advisor to perform
attribution analysis for the Fund; and the Advisor’s proxy voting agent to
assess and vote proxies on behalf of the Fund. The Advisor is responsible for
determining which other third parties have a legitimate business purpose for
receiving the Fund’s portfolio holdings information.
The Fund’s
policy regarding disclosure of portfolio holdings is subject to the continuing
oversight and direction of the Trustees. Oversight includes: (i) review
and approval of the policy on disclosure of portfolio holdings as necessary,
including review of the parties receiving non-public portfolio holdings
information; (ii) periodic assessment of compliance in connection with a report
from the Trust’s CCO , (iii) receipt of reports on any conflicts of interest
where disclosure of information about portfolio holdings may conflict or appear
to conflict with the interests of the Fund’s investment advisor, investment
sub-advisor, any principal underwriter for the Trust, or an affiliated person of
the Trust, and (iv) receipt of reports on any known disclosure of the Fund’s
portfolio holdings to unauthorized third parties. The Fund and Advisor are
obligated to report issues that arise under the policy on disclosure of
portfolio holdings to the CCO . Material compliance matters are then reported to
the Board.
The NAV
and NAV per share of the Fund normally is determined at the time regular trading
closes on the NYSE (currently 4:00 p.m., New York time, Monday through Friday),
except when the NYSE closes earlier. The Fund’s NAV is not calculated on
business holidays when the NYSE is closed. The NYSE generally recognizes the
following holidays: New Year’s Day, Martin Luther King, Jr. Day,
President’s Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Any other holiday recognized by the
NYSE will be deemed a business holiday on which the NAV of the Fund will not be
calculated.
The NAV
per share of each class of shares of the Fund is calculated separately by adding
the value of the Fund’s securities and other assets belonging to the Fund and
attributable to a class of shares, subtracting the liabilities charged to the
Fund and to the class of shares, and dividing the result by the number of
outstanding shares of such class of shares. “Assets belonging to” the Fund
consist of the consideration received upon the issuance of shares of the Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular series of shares. Income, realized and unrealized capital gains and
losses, and any expenses of the Fund not allocated to a particular class of
shares will be allocated to each class on the basis of the NAV of that class in
relation to the NAV of the Fund. Assets belonging to the Fund are charged with
the direct liabilities of the Fund and with a share of the general liabilities
of the Trust, which are normally allocated in proportion to the number of or the
relative NAVs of all of the Trust’s series at the time of allocation or in
accordance with other allocation methods approved by the Trustees. Certain
expenses attributable to a particular class of shares (such as the distribution
and service fees) will be charged against that class. Certain other expenses
attributable to a particular class of shares (such as registration fees,
professional fees, and certain printing and postage expenses) may be charged
against that class if such expenses are actually incurred in a different amount
by that class or if the class receives services of a different kind or to a
different degree than other classes, and the Trustees approve such allocation.
Subject to the provisions of the Trust Instrument, determinations by the
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets, with respect to the Fund and the classes of the Fund are
conclusive.
Values are
determined according to accepted accounting practices and all laws and
regulations that apply. The assets of the Fund are valued as
follows:
|
· |
Securities
that are listed on a securities exchange are valued at the last quoted
sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is
primarily traded by the Fund. |
|
· |
Securities
that are listed on an exchange and which are not traded on the valuation
date are valued at the bid price. |
|
· |
Unlisted
securities for which market quotations are readily available are valued at
the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid
price. |
|
· |
Options
are valued at the mean of the last quoted bid and ask prices at the time
of valuation. |
|
· |
Foreign
securities listed on foreign exchanges are valued with quotations from the
primary market in which they are traded and are translated from the local
currency into U.S. dollars using current exchange
rates. |
|
· |
Temporary
cash investments with maturities of 60 days or less will be valued at
amortized cost, which approximates market
value. |
|
· |
Securities
for which no current quotations are readily available are valued at fair
value as determined in good faith using methods approved by the
Trustees. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair
market value of such securities. |
Subject to
the provisions of the Trust Instrument determinations by the Trustees as to the
direct and allocable liabilities, and the allocable portion of any general
assets, with respect to the Fund are conclusive.
The
pricing and valuation of portfolio securities is determined in good faith in
accordance with procedures established by, and under the direction of, the
Trustees.
The
following summarizes certain additional tax considerations generally affecting
the Fund and its shareholders that are not described in the Fund’s Prospectus.
No attempt is made to present a detailed explanation of the tax treatment of the
Fund or its shareholders or any particular category of shareholders. The
discussions here and in the Fund’s Prospectus are not intended as a substitute
for careful tax planning and are based on United States federal income tax laws
that are in effect on the date hereof and which may be changed by legislative,
judicial, or administrative action. In addition, no
attempt is made to address tax concerns applicable to an investor with a special
tax status such as a financial institution, real estate investment trust,
insurance company, regulated investment company, individual retirement account,
other tax-exempt entity, dealer in securities or non-U.S. investor. Furthermore,
this discussion does not reflect possible application of the alternative minimum
tax. Unless otherwise noted, this discussion assumes the common shares are
held by U.S. persons and that such shares are held as capital assets.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
The Fund,
and any other series of the Trust, will be treated as a separate corporate
entity under the Internal Revenue Code of 1986, as amended (“Code”), and intends
to qualify or remain qualified as a regulated investment company under
Subchapter M of the Code. In order to so qualify, the Fund must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy certain requirements relating to the amount of
distributions and source of its income for a taxable year. At least 90% of
the gross income of the Fund must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stocks, securities, or foreign currencies, and other income derived with respect
to the Fund’s business of investing in such stock, securities or currencies and
net income derived from an interest in a qualified publicly traded
partnership. Any income derived by the Fund from a partnership (other than
a qualified publicly traded partnership) or trust is treated as derived with
respect to the Fund’s business of investing in stock, securities, or currencies
only to the extent that such income is attributable to items of income that
would have been qualifying income if realized by the Fund in the same manner as
by the partnership or trust.
An
investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies, and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the Fund or
more than 10% of the outstanding voting securities of such issuer. In
addition, not more than 25% of the value of the Fund’s total assets may be
invested in (i) the securities (other than government securities or the
securities of other regulated investment companies) of any one issuer; (ii) the
securities of two or more issuers (other than securities of another regulated
investment company) if the issuers are controlled by the Fund and they are,
pursuant to Internal Revenue Service Regulations, engaged in the same or similar
or related trades or businesses; or (iii) the securities of one or more publicly
traded partnerships. The Fund intends to satisfy all requirements on an
ongoing basis for continued qualification as a regulated investment
company.
Some, but
not all, of the dividends paid by the Fund may be taxable at the reduced
long-term capital gains tax rate for individual shareholders. If the Fund
designates a dividend as qualified dividend income, it generally will be taxable
to individual shareholders at the long-term capital gains tax rate, provided
certain holding period requirements are met.
Taxable
dividends paid by the Fund to corporate shareholders will be taxed at corporate
income tax rates. Corporate shareholders may be entitled to a dividends
received deduction (“DRD”) for a portion of the dividends paid and designated by
the Fund as qualifying for the DRD.
If the
Fund designates a dividend as a capital gains distribution, it generally will be
taxable to shareholders as long-term capital gains, regardless of how long the
shareholders have held their Fund shares or whether they received in cash or
reinvested in additional shares. All taxable dividends paid by the Fund
other than those designated as qualified dividend income or capital gains
distributions will be taxable as ordinary income to shareholders, whether
received in cash or reinvested in additional shares. To the extent the Fund
engages in increased portfolio turnover, short-term capital gains may be
realized, and any distribution resulting from such gains will be considered
ordinary income for federal tax purposes. The Fund’s net realized capital gains
from securities transactions will be distributed only after reducing such gains
by the amount of any available capital loss carryforwards. Capital losses may be
carried forward indefinitely and retain the character of the original loss.
Capital loss carryforwards are available to offset future realized capital
gains. To the extent that these carryforwards are used to offset future capital
gains it is probable that the amount offset will not be distributed to
shareholders. As of September 30, 2018, the Fund had no capital loss
carryforwards.
Certain
individuals, estates, and trusts must pay a 3.8% Medicare surtax on “net
investment income” including, among other things, dividends, and proceeds of
sale in respect of securities like the shares, subject to certain exceptions.
Prospective investors should consult with their own tax advisors regarding the
effect, if any, of this surtax on their ownership and disposition of the shares.
Shareholders
who hold Fund shares in a tax-deferred account, such as a retirement plan,
generally will not have to pay tax on Fund distributions until they receive
distributions from their account.
The Fund,
and any other series of the Trust, will designate (i) any dividend of qualified
dividend income as qualified dividend income; (ii) any distribution of long-term
capital gains as a capital gain dividend; and (iii) any dividend eligible for
the corporate DRD as such in a written notice mailed to shareholders within 60
days after the close of the Fund’s taxable year. Shareholders should note
that, upon the sale or exchange of Fund shares, if such shares have not been
held for at least six months, any loss on the sale or exchange of those shares
will be treated as long-term capital loss to the extent of the capital gain
dividends received with respect to the shares.
To the
extent that a distribution from the Fund is taxable, it is generally included in
a shareholder’s gross income for the taxable year in which the shareholder
receives the distribution. However, if the Fund declares a dividend in
October, November, or December but pays it in January, it will be taxable to
shareholders as if the dividend was received in the year it was declared.
Every year, each shareholder will receive a statement detailing the tax status
of any Fund distributions for that year.
A 4%
nondeductible excise tax is imposed on regulated investment companies that fail
to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
If for any
taxable year the Fund does not qualify for the special federal income tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders) at the Fund level. In
such event, dividend distributions (whether or not derived from interest on
tax-exempt securities) would be taxable as qualified dividends to individual
shareholders, to the extent of the
Fund’s current and accumulated earnings and profits, and would be eligible for
the DRD for corporations, provided in each case that certain holding period and other
requirements are met.
In
general, a shareholder who sells or redeems shares will realize a capital gain
or loss, which will be long-term or short-term, depending upon the shareholder’s
holding period for the Fund shares. An exchange of shares may be treated
as a sale and any gain may be subject to tax.
The Fund
will be required in certain cases to withhold and remit to the U.S. Treasury a
percentage of taxable dividends or of gross proceeds realized upon sale paid to
shareholders who (i) have failed to provide a correct taxpayer identification
number in the manner required; (ii) are subject to back-up withholding by the
Internal Revenue Service for failure to include properly on their return
payments of taxable interest or dividends; or (iii) have failed to certify to
the Fund that they are not subject to backup withholding when required to do
so. Back-up withholding is not an additional tax. Any amounts
withheld from payments to you may be refunded or credited against your U.S.
federal income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.
Depending
upon the extent of the Fund’s 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,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
Dividends
paid by the Fund to non-U.S. shareholders may be subject to U.S. withholding tax
unless reduced by treaty (and the shareholder files a valid Internal Revenue
Service Form W-8BEN, or other applicable form, with the Fund certifying foreign
status and treaty eligibility) or the non-U.S. shareholder files an Internal
Revenue Service Form W-8ECI, or other applicable form, with the Fund certifying
that the investment to which the distribution relates is effectively connected
to a United States trade or business of such non-U.S. shareholder (and, if
certain tax treaties apply, is attributable to a United States permanent
establishment maintained by such non-U.S. shareholder). The Fund may elect
not to withhold the applicable withholding tax on any distribution representing
a capital gain dividend to a non-U.S. shareholder. Special rules may apply
to non-U.S. shareholders with respect to the information reporting requirements
and withholding taxes and non-U.S. shareholders should consult their tax
advisors with respect to the application of such reporting requirements and
withholding taxes.
The Fund
will send shareholders information each year on the tax status of dividends and
distributions. A dividend or capital gains distribu-tion paid shortly
after shares have been purchased, although in effect a return of investment, is
subject to federal income taxa-tion. Dividends from net investment income, along
with capital gains, will be taxable to shareholders, whether received in cash or
Fund shares and no matter how long the shareholder has held Fund shares, even if
they reduce the NAV of shares below the shareholder’s cost and thus, in effect,
result in a return of a part of the shareholder’s investment.
The
audited financial statements of the Fund for the fiscal year ended September 30,
2018, including the financial highlights appearing in the Annual Report to
shareholders, are incorporated by reference and made a part of this
document. You may request a copy of the Fund’s annual and semi-annual
reports at no charge by calling the Fund at 1-800-773-3863.
The Fund
may acquire from time to time certain securities that meet the following minimum
rating criteria (“Investment-Grade Debt Securities”) (or if not rated, of
equivalent quality as determined by the Advisor). The various ratings used
by the nationally recognized securities rating services are described
below.
A rating
by a rating service represents the service’s opinion as to the credit quality of
the security being rated. However, the ratings are general and are not
absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of
Investment-Grade Debt Securities in which the Fund may invest should be
continuously reviewed and that individual analysts give different weightings to
the various factors involved in credit analysis. A rating is not a
recommendation to purchase, sell, or hold a security, because it does not take
into account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating is
evaluated independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from other sources
that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
S&P
Global Ratings. The following summarizes the highest four ratings
used by S&P Global Ratings, a division of McGraw-Hill Companies, Inc., for
bonds which are deemed to be Investment‑Grade Debt Securities by the
Advisor:
AAA – An
obligation rated ‘AAA’ has the highest rating assigned by S&P Global
Ratings. The obligor’s capacity to meet its financial commitment on the
obligation is extremely strong.
AA – An
obligation rated ‘AA’ differs from the highest-rated obligations only to a small
degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
A – An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
BBB
– An obligation rated ‘BBB’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
To provide
more detailed indications of credit quality, the AA, A, and BBB ratings may be
modified by the addition of a plus or minus sign to show relative standing
within these major rating categories.
Bonds
rated BB, B, CCC, CC, and C are not considered by the Advisor to be
Investment‑Grade Debt Securities and are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation
and C the highest. While such obligations will likely have some quality
and protective characteristics, these may be outweighed by large uncertainties
or major exposures to adverse conditions.
Commercial
paper rated A‑1 by S&P Global Ratings indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A‑1+. Capacity for
timely payment on commercial paper rated A‑2 is satisfactory, but the relative
degree of safety is not as high as for issues designated A‑1.
The rating
SP‑1 is the highest rating assigned by S&P Global Ratings to short term
notes and indicates strong capacity to pay principal and interest. An
issue determined to possess a very strong capacity to pay debt service is given
a plus (+) designation. The rating SP‑2 indicates a satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes. The rating SP-3 indicates a
speculative capacity to pay principal and interest.
Moody’s
Investor Service, Inc. The following summarizes the highest four
ratings used by Moody’s Investors Service, Inc. (“Moody’s”) for fixed-income
obligations with an original maturity of one year or more, which are deemed to
be Investment-Grade Securities by the Advisor:
Aaa – Bond
obligations rated Aaa are judged to be of the highest quality, subject to the
lowest level of credit risk.
Aa – Bond
obligations rated Aa are judged to be of high quality and are subject to very
low credit risk.
A – Bond
obligations rated A are considered upper-medium grade and are subject to low
credit risk.
Baa – Bond
obligations rated Baa are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative
characteristics.
Obligations
that are rated Ba, B, Caa, Ca, or C by Moody’s are not considered
“Investment-Grade Debt Securities” by the Advisor. Obligations rated Ba
are judged to have speculative elements and are subject to substantial credit
risk. Obligations rated B are considered speculative and are subject to
high credit risk. Obligations rated Caa are judged to be of poor standing
and are subject to very high credit risk.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Short-Term
Ratings.
Moody’s
short-term ratings are opinions of the ability of issuers to honor short-term
financial obligations. Ratings may be assigned to issuers, short-term
programs, or individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted.
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
P-1 –
Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.
P-2 –
Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
P-3 –
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term debt obligations.
NP –
Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
Note:
Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the
senior-most long-term rating of the issuer, its guarantor, or
support-provider.
US
Municipal Short-Term Debt And Demand Obligation Ratings.
Short-Term
Debt Ratings. There are three rating categories for short-term
municipal obligations that are considered investment grade. These ratings
are designated as Municipal Investment Grade (MIG) and are divided into three
levels – MIG 1 through MIG 3. In addition, those short-term obligations
that are of speculative quality are designated SG, or speculative grade.
MIG ratings expire at the maturity of the obligation.
MIG 1 –
This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2 –
This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
MIG 3 –
This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.
SG – This
designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
Demand
Obligation Ratings. In the case of variable rate demand obligations
(VRDOs), a two-component rating is assigned; a long or short-term debt rating
and a demand obligation rating. The first element represents Moody’s
evaluation of the degree of risk associated with scheduled principal and
interest payments. The second element represents Moody’s evaluation of the
degree of risk associated with the ability to receive purchase price upon demand
("demand feature"), using a variation of the MIG rating scale, the Variable
Municipal Investment Grade or VMIG rating.
When
either the long- or short-term aspect of a VRDO is not rated, that piece is
designated NR, e.g., Aaa/NR or NR/VMIG 1.
VMIG
rating expirations are a function of each issue’s specific structural or credit
features.
VMIG 1 –
This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections that ensure the timely payment of purchase
price upon demand.
VMIG 2 –
This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.
VMIG 3 –
This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
SG – This
designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.
Fitch
Ratings. The following summarizes the highest four ratings used by Fitch,
Inc. (“Fitch”):
Long-Term
Ratings.
AAA –
Highest credit quality. ‘AAA’ ratings denote the lowest expectation of
credit risk. They are assigned only in cases of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA – Very
high credit quality. ‘AA’ ratings denote expectations of very low default
risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A – High
credit quality. ‘A’ ratings denote expectations of low default risk.
The capacity for payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to adverse business or
economic conditions than is the case for higher ratings.
BBB – Good
credit quality. ‘BBB’ ratings indicate that expectations of default risk
are currently low. The capacity for payment of financial commitments is
considered adequate, but adverse business or economic conditions are more likely
to impair this capacity.
Long-term
securities rated below BBB by Fitch are not considered by the Advisor to be
investment-grade securities. Securities rated BB and B are regarded as
speculative with regard to a possible credit risk developing. BB is
considered speculative and B is considered highly speculative. Securities
rated CCC, CC, and C are regarded as a high default risk. A rating CC
indicates that default of some kind appears probable, while a rating C signals
imminent default. Securities rated DDD, D, and D indicate a default has
occurred.
Short-Term
Ratings.
F1 –
Highest short-term credit quality. The rating F1 indicates the strongest
intrinsic capacity for timely payment of financial commitments; may have an
added “+” to denote any exceptionally strong credit feature.
F2 – Good
short-term credit quality. The rating F2 indicates good intrinsic capacity
for timely payment of financial commitments.
F3 – Fair
short-term credit quality. The rating F3 indicates the intrinsic capacity
for timely payment of financial commitments is adequate.
B –
Speculative short-term credit quality. The rating B indicates minimal
capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions.
Short-term
rates B, C, and D by Fitch are considered by the Advisor to be below
investment-grade securities. Short-term securities rated B are considered
speculative, securities rated C have a high default risk, and securities rated D
denote actual or imminent payment default.
(+) or (-)
suffixes may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to long-term ratings “AAA”
category, categories below “CCC”, or short-term ratings other than “F1”.
The suffix “NR” indicates that Fitch does not publicly rate the issuer or issue
in question.
GRIMALDI
PORTFOLIO SOLUTIONS, INC.
Proxy
and Corporate Action Voting
Policies
and Procedures
I. POLICY.
Grimaldi
Portfolio Solutions, Inc. (formerly Navigator Money Management, Inc.) (the
“Adviser”) acts as a discretionary investment adviser for various clients,
including clients governed by the Employee Retirement Income Security Act of
1974 (“ERISA”) and registered open-end management investment companies (i.e.,
“mutual funds”). The Adviser is registered with the U.S. Securities and Exchange
Commission (the “SEC”) as an investment adviser pursuant to the Investment
Advisers Act of 1940, as amended (the “Advisers Act”). Some of the Adviser’s
clients have delegated to the Adviser the authority to vote proxies or act with
respect to corporate actions that may arise with respect to securities held
within such client’s investment portfolio. Corporate actions may include, for
example and without limitation, tender offers or exchanges, bankruptcy
proceedings, and class actions. The Adviser’s authority to vote proxies or act
with respect to other corporate actions is established through the delegation of
discretionary authority under its investment advisory agreements. Therefore,
unless a client (including a “named fiduciary” under ERISA) specifically
reserves the right, in writing, to vote its own proxies or to take shareholder
action with respect to other corporate actions requiring shareholder actions,
the Adviser will vote all proxies and act on all other actions in a timely
manner as part of its full discretionary authority over client assets in
accordance with these policies and procedures.
When
voting proxies or acting with respect to corporate actions on behalf of clients,
the Adviser’s utmost concern is that all decisions be made solely in the best
interests of the client (and for ERISA accounts, plan beneficiaries and
participants, in accordance with the letter and spirit of ERISA). The Adviser
will act in a prudent and diligent manner intended to enhance the economic value
of the assets in the client’s account.
II. PURPOSE.
The
purpose of these policies and procedures is to memorialize the procedures and
policies adopted by the Adviser to enable it to comply with its fiduciary
responsibilities to clients and the requirements of Rule 206(4)-6 under the
Advisers Act. These policies and procedures also reflect the fiduciary standards
and responsibilities set forth by the Department of Labor for ERISA
accounts.
III. PROCEDURES.
The
Adviser is ultimately responsible for ensuring that all proxies received are
voted in a timely manner and in a manner consistent with the Adviser’s
determination of the client’s best interests. Although many proxy proposals may
be voted in accordance with the Guidelines described in Section V below, some
proposals require special consideration which may dictate that the Adviser makes
an exception to the Guidelines.
The
Adviser is also responsible for ensuring that all corporate action notices or
requests which require shareholder action that are received are addressed in a
timely manner and consistent action is taken across all similarly situated
client accounts.
A. Conflicts
of Interest.
Where a
proxy proposal raises a material conflict between the Adviser’s interests and a
client’s interest, including a mutual fund client, the Adviser will resolve such
a conflict in the manner described below:
| 1. |
Vote
in Accordance with the Guidelines. To the extent that the Adviser has
little or no discretion to deviate from the Guidelines with respect to the
proposal in question, the Adviser shall vote in accordance with such
pre-determined voting policy. |
| 2. |
Obtain
Consent of Clients. To the extent that the Adviser has discretion to
deviate from the Guidelines with respect to the proposal in question, the
Adviser will disclose the conflict to the relevant clients and obtain
their consent to the proposed vote prior to voting the securities.
The disclosure to the client will include sufficient detail regarding the
matter to be voted on and the nature of the conflict so that the client
will be able to make an informed decision regarding the vote. If a
client does not respond to such a conflict disclosure request or denies
the request, the Adviser will abstain from voting the securities held by
that client’s account. |
| 3. |
Client
Directive to Use an Independent Third Party. Alternatively, a client
may, in writing, specifically direct the Adviser to forward all proxy
matters in which the Adviser has a conflict of interest regarding the
client’s securities to an identified independent third party for review
and recommendation. Where such independent third party’s recommendations
are received on a timely basis, the Adviser will vote all such proxies in
accordance with such third party’s recommendation. If the third
party’s recommendations are not timely received, the Adviser will abstain
from voting the securities held by that client’s
account. |
The
Adviser will review the proxy proposal for conflicts of interest as part of the
overall vote review process. All material conflicts of interest so identified
will be addressed as described above in this Section III, A.
B. Limitations.
In certain
circumstances, in accordance with a client’s investment advisory agreement (or
other written directive) or where the Adviser has determined that it is in the
client’s best interest, the Adviser will not vote proxies received.
The
following are certain circumstances where the Adviser will limit its role in
voting proxies:
| 1. |
Client
Maintains Proxy Voting Authority. Where a client specifies in
writing that it will maintain the authority to vote proxies itself or that
it has delegated the right to vote proxies to a third party, the Adviser
will not vote the securities and will direct the relevant custodian to
send the proxy material directly to the client. If any proxy material is
received by the Adviser for such account, it will promptly be forwarded to
the client or specified third
party. |
| 2. |
Terminated
Account. Once a client account has been terminated in accordance with its
investment advisory agreement, the Adviser will not vote any proxies
received after the termination date. However, the client may specify in
writing that proxies should be directed to the client (or a specified
third party) for action. |
| 3. |
Limited
Value. If the Adviser determines that the value of a client’s economic
interest or the value of the portfolio holding is indeterminable or
insignificant, the Adviser may abstain from voting a client’s proxies. The
Adviser also will not vote proxies received for securities which are no
longer held by the client’s account. In addition, the Adviser generally
will not vote securities where the economic value of the securities in the
client account is less than
$500. |
| 4. |
Securities
Lending Programs. When securities are out on loan, they are transferred
into the borrower’s name and are voted by the borrower, in its discretion.
However, where the Adviser determines that a proxy vote (or other
shareholder action) is materially important to the client’s account, the
Adviser may recall the security for the purposes of
voting. |
| 5. |
Unjustifiable
Costs. In certain circumstances, after doing a cost-benefit analysis, the
Adviser may abstain from voting where the cost of voting a client’s proxy
would exceed any anticipated benefits from the proxy
proposal. |
IV. RECORD
KEEPING.
In
accordance with Rule 204-2 under the Advisers Act, the Adviser will maintain for
the time periods set forth in the Rule: (i) these proxy voting procedures and
policies, and all amendments thereto; (ii) all proxy statements received
regarding client securities (provided however, that the Adviser may rely on the
proxy statement filed on EDGAR as its records); (iii) a record of all votes cast
on behalf of clients; (iv) records of all written client requests for proxy
voting information; (v) a copy of any written response made by the Adviser to
any written or oral client request for proxy voting information; (vi) any
documents prepared by the Adviser that were material to making a decision on how
to vote or that memorialized the basis for the decision; and (vii) all records
relating to requests made to clients regarding conflicts of interest in voting
the proxy.
The
Adviser will describe in its Form ADV, Part II (or other brochure fulfilling the
requirement of Rule 204-3 under the Advisers Act) its proxy voting policies and
procedures and will inform clients how they may obtain information on how the
Adviser voted proxies with respect to the clients’ portfolio securities. The
Adviser will also provide to each mutual fund client a copy of its policies and
procedures. Clients may obtain information on how their securities were voted or
a copy of the policies and procedures by written request addressed to the
Adviser.
The
Adviser will coordinate with all mutual fund clients to assist in the provision
of all information required to be filed by such mutual funds on Form N-PX. Form
N-PX will provide information concerning each matter relating to a portfolio
security considered at any shareholder meeting with respect to which a mutual
fund was entitled to vote. Each Form N-PX will need to be filed no later than
August 31st of each year, and will cover all proxy votes with respect to which a
mutual fund was entitled to vote for the period July 1st through June 30th. The
Adviser shall maintain and provide the following information concerning any
shareholder meetings with respect to which a mutual fund they manage was
entitled to vote:
o the name
of the issuer of the portfolio security;
o the
exchange ticker symbol of the portfolio security(1);
o the CUSIP
number of the portfolio security(1);
o the
shareholder meeting date;
o a brief
description of the matter voted on;
o whether
the matter was put forward by the issuer or a shareholder;
o whether
the mutual fund voted;
o how the
mutual fund cast its vote; and
o whether
the mutual fund cast its vote for or against management.
V. GUIDELINES.
Each proxy
issue will be considered individually. The following guidelines are a partial
list to be used in voting proposals contained in the proxy statements, but will
not be used as rigid rules.
A. Oppose.
The
Adviser will generally vote against any management proposal that clearly has the
effect of restricting the ability of shareholders to realize the full potential
value of their investment. Proposals in this category would
include:
| 1. |
Issues
regarding the issuer’s board entrenchment and anti-takeover measures such
as the following: |
a. Proposals
to stagger board members’ terms;
b. Proposals
to limit the ability of shareholders to call special meetings;
c. Proposals
to require super majority votes;
|
d. |
Proposals
requesting excessive increases in authorized common or preferred shares
where management provides no explanation for the use or need of these
additional shares; |
e. Proposals
regarding “fair price” provisions;
f. Proposals
regarding “poison pill” provisions; and
g. Permitting
“green mail”.
2. Providing
cumulative voting rights.
B. Approve.
Routine
proposals are those which do not change the structure, bylaws, or operations of
the corporation to the detriment of the shareholders. Given the routine nature
of these proposals, proxies will nearly always be voted with management.
Traditionally, these issues include:
| 1. |
Election
of independent accountants recommended by management, unless seeking to
replace if there exists a dispute over
policies. |
| 2. |
Date
and place of annual meeting. |
| 3. |
Limitation
on charitable contributions or fees paid to
lawyers. |
| 4. |
Ratification
of directors’ actions on routine matters since previous annual
meeting. |
| 5. |
Confidential
voting. Confidential voting is most often proposed by shareholders as a
means of eliminating undue management pressure on shareholders regarding
their vote on proxy issues. The Adviser will generally vote to approve
these proposals as shareholders can later divulge their votes to
management on a selective basis if a legitimate reason
arises. |
| 6. |
Limiting
directors’ liability. |
| 7. |
Eliminate
preemptive rights. Preemptive rights give current shareholders the
opportunity to maintain their current percentage ownership through any
subsequent equity offerings. These provisions are no longer common in the
U.S., and can restrict management’s ability to raise new
capital. |
| 8. |
The
Adviser will generally vote to approve the elimination of preemptive
rights, but will oppose the elimination of listed preemptive rights, e.g.,
on proposed issues representing more than an acceptable level of total
dilution. |
| 9. |
Employee
Stock Purchase Plans. |
| 10. |
Establish
40 1(k) Plans. |
The
Adviser will review each issue in this category on a case-by-case basis.
Voting decisions will he made based on the financial interest of the client
involved. These matters include proposals to:
| 1. |
Pay
directors solely in stock; |
| 2. |
Eliminate
director’s mandatory retirement
policy; |
| 3. |
Rotate
annual meeting location or
date; |
| 4. |
Changes
in the state of
incorporation; |
| 5. |
Social
and corporate responsibility
issues; |
| 6. |
Option
and stock grants to management and directors;
and |
| 7. |
Allowing
indemnification of directors and/or officers after reviewing the
applicable laws and extent of protection
requested. |
| D. |
Investment
Company Issues. |
From time
to time the Adviser will have to vote shares of investment company securities
that may be held in a client’s account. These matters generally include
proposals to:
1. Elect
directors or trustees;
2. Ratify or
approve independent accountants;
3. Approve a
new investment adviser or sub-adviser;
4. Approve a
change to an investment advisory fee;
5. Approve a
Distribution (i.e., Rule 12b-1) Plan;
6. Approve a
change in a fundamental investment objective, policy or limitation;
7. Approve a
change in the state of incorporation; and
8. Approve a
plan of reorganization or merger.
The
Adviser will generally vote with management’s recommendation on the election of
directors and trustees, the approval of independent accountants, the approval of
a change in a fundamental investment objective, policy or limitation, and the
approval of a change in the state of incorporation. On the approval of a new
investment adviser or sub-adviser, approval of a change in investment advisory
fee, approval of a distribution (i.e., Rule 12b-1) plan, or the approval of a
plan of reorganization or merger, the Adviser will review each issue on a
case-by-case basis. Voting decisions will be made based on the financial
interest of the client involved.
| (1) |
The
exchange ticker symbol and CUSIP number may be difficult to obtain for
certain portfolio securities, such as foreign issuers. Accordingly, such
information may be omitted if it’s not available through reasonably
practicable means. |
