Per Share Data and Ratios for a Share of
Beneficial Interest Outstanding Throughout the Period Presented
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2020
This Statement of Additional Information
(“SAI”) is not a Prospectus and should be read in conjunction with the Prospectus of ACM Dynamic Opportunity Fund and
ACM Tactical Income Fund (the “Funds”) dated May 1, 2020, which is incorporated by reference into this SAI (i.e., legally
made a part of this SAI). Copies may be obtained without charge by contacting the Funds’ Transfer Agent, Gemini Fund Services,
LLC, 4221 North 203rd Street, Suite 100, Elkhorn, Nebraska 68022-3474 or by calling 1-844-798-3833. You may also obtain a prospectus
by visiting the Funds’ website at www.ACM-Funds.com.
TABLE OF CONTENTS
THE FUND
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1
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INVESTMENTS AND RISKS
|
2
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PORTFOLIO TURNOVER
|
24
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INVESTMENT RESTRICTIONS
|
25
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INVESTMENT ADVISER
|
27
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PORTFOLIO MANAGERS
|
28
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ALLOCATION OF BROKERAGE
|
29
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POLICIES AND PROCEDURES FOR DISCLOSURE OF PORTFOLIO HOLDINGS
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31
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OTHER SERVICE PROVIDERS
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33
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
35
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LEGAL COUNSEL
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36
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DISTRIBUTOR
|
36
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DESCRIPTION OF SHARES
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38
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CODE OF ETHICS
|
38
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PROXY VOTING POLICIES
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39
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PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
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39
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TAX STATUS
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44
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ANTI-MONEY LAUNDERING PROGRAM
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49
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CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
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50
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MANAGEMENT
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51
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FINANCIAL STATEMENTS
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58
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APPENDIX A – BOND RATINGS
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59
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APPENDIX B – PROXY VOTING POLICIES AND PROCEDURES
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61
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THE FUNDS
Each Fund is a diversified
series of Northern Lights Fund Trust III, a Delaware statutory trust organized on December 5, 2011 (the "Trust"). The
Trust is registered as an Open-End Management Investment Company. The Trust is governed by the Board of Trustees (the "Board,"
"Trustees," or “Board of Trustees”).
Each Fund may issue an
unlimited number of shares of beneficial interest. All shares of the Funds have equal rights and privileges. Each share of the
Funds is entitled to one vote on all matters as to which shares are entitled to vote. In addition, each share of the Funds is entitled
to participate equally with other shares, on a class-specific basis, (i) in dividends and distributions declared by a Fund and
(ii) on liquidation to its proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of
a Fund are fully paid, non-assessable and fully transferable and have no pre-emptive, conversion or exchange rights. Fractional
shares have proportionately the same rights, including voting rights, as are provided for a full share.
Ascendant Capital Management,
LLC d/b/a ACM Funds (the "Adviser") is the Funds' investment adviser. The Funds’ investment objectives, restrictions
and policies are more fully described here and in the Prospectus. The Board may start other series and offer shares of a new fund
under the Trust at any time.
The Funds offer two classes
of shares: Class A shares and Class I shares. Each share class represents an interest in the same assets of the Fund, has the same
rights and is identical in all material respects except that (i) each class of shares may be subject to different (or no) sales
loads; (ii) each class of shares may bear different (or no) distribution fees; (iii) each class of shares may have different shareholder
features, such as minimum investment amounts; (iv) certain other class-specific expenses will be borne solely by the class to which
such expenses are attributable, including transfer agent fees attributable to a specific class of shares, printing and postage
expenses related to preparing and distributing materials to current shareholders of a specific class, registration fees paid by
a specific class of shares, the expenses of administrative personnel and services required to support the shareholders of a specific
class, litigation or other legal expenses relating to a class of shares, Trustees' fees or expenses paid as a result of issues
relating to a specific class of shares and accounting fees and expenses relating to a specific class of shares and (v) each class
has exclusive voting rights with respect to matters relating to its own distribution arrangements. The Board of Trustees may classify
and reclassify the shares of the Funds into additional classes of shares at a future date.
Under the Trust's Agreement
and Declaration of Trust, each Trustee will continue in office until the termination of the Trust or his/her earlier death, incapacity,
resignation or removal. Shareholders can remove a Trustee to the extent provided by the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules and regulations promulgated thereunder. Vacancies may be filled by a majority of the
remaining Trustees, except insofar as the 1940 Act may require the election by shareholders. As a result, normally no annual or
regular meetings of shareholders will be held unless matters arise requiring a vote of shareholders under the Agreement and Declaration
of Trust or the 1940 Act.
INVESTMENTS AND RISKS
The investment objective
of the Funds and the descriptions of the Funds’ principal investment strategies are set forth under "Investment Objective,”
“Principal Investment Strategies,” and “Principal Investment Risks" in the Prospectus. The Funds’
investment objectives are not fundamental and may be changed without the approval of a majority of the outstanding voting securities
of the Trust.
The following pages contain
more detailed information about the types of instruments in which the Funds may invest, strategies the Adviser may employ in pursuit
of the Funds’ investment objective and a summary of related risks.
Equity Securities
Equity securities in
which a Fund invests include common stocks, preferred stocks and securities convertible into common stocks, such as convertible
bonds, warrants, rights and options. The value of equity securities varies in response to many factors, including the activities
and financial condition of individual companies, the business market in which individual companies compete and general market and
economic conditions. Equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities,
and such fluctuations can be significant.
Common Stock
Common stock represents
an equity (ownership) interest in a company, and usually possesses voting rights and earns dividends. Dividends on common stock
are not fixed but are declared at the discretion of the issuer. Common stock generally represents the riskiest investment in a
company. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases
in earnings are usually reflected in a company's stock price.
Preferred Stock
The Funds may invest
in preferred stock with no minimum credit rating. Preferred stock is a class of stock having a preference over common stock as
to the payment of dividends and the recovery of investment should a company be liquidated, although preferred stock is usually
junior to the debt securities of the issuer. Preferred stock typically does not possess voting rights and its market value may
change based on changes in interest rates.
The fundamental risk of
investing in common and preferred stock is the risk that the value of the stock might decrease. Stock values fluctuate in response
to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks
have provided greater long-term returns and have entailed greater short-term risks than preferred stocks, fixed-income securities
and money market investments. The market value of all securities, including common and preferred stocks, is based upon the market's
perception of value and not necessarily the book value of an issuer or other objective measures of a company's worth.
Fixed Income/Debt/Bond
Securities
Yields on fixed income
securities are dependent on a variety of factors, including the general conditions of the money market and other fixed income securities
markets, the size of a particular offering, the maturity of the obligation and the rating of the issue. An investment in the Funds
will be subjected to risk even if all fixed income securities in the Funds’ portfolio are paid in full at maturity. All
fixed income securities, including U.S. Government
securities, can change in value when there is a change in interest rates or the issuer's actual or perceived creditworthiness or
ability to meet its obligations.
There is normally an inverse
relationship between the market value of securities sensitive to prevailing interest rates and actual changes in interest rates.
In other words, an increase in interest rates produces a decrease in market value. The longer the remaining maturity (and duration)
of a security, the greater will be the effect of interest rate changes on the market value of that security. Changes in the ability
of an issuer to make payments of interest and principal and in the market’s perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. Obligations of issuers of fixed income securities (including
municipal securities) are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies
of creditors, such as the Federal Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers may become subject
to laws enacted in the future by Congress, state legislatures, or referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes.
Changes in the ability of an issuer to make payments of interest and principal and in the market's perception of an issuer's creditworthiness
will also affect the market value of the debt securities of that issuer. The possibility exists, therefore, that, the ability of
any issuer to pay, when due, the principal of and interest on its debt securities may become impaired.
The corporate debt securities
in which the Funds may invest include corporate bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by companies to finance their or their affiliate's
current obligations and is frequently unsecured. Variable and floating rate demand notes are unsecured obligations typically redeemable
upon not more than 30 days' notice. These obligations include master demand notes that permit investment of fluctuating amounts
at varying rates of interest pursuant to a direct arrangement with the issuer of the instrument. The issuer of these obligations
often has the right, after a given period, to prepay the outstanding principal amount of the obligations upon a specified number
of days' notice. These obligations generally are not traded, nor generally is there an established secondary market for these obligations.
To the extent a demand note does not have a 7-day or shorter demand feature and there is no readily available market for the obligation,
it is treated as an illiquid security.
The Funds may invest
in sovereign bonds. Sovereign bonds involve special risks not present in corporate bonds. The governmental authority that controls
the repayment of the bonds may be unable or unwilling to make interest payments and/or repay the principal on its bonds. If an
issuer of sovereign bonds defaults on payments of principal and/or interest, the Funds may have limited recourse against the issuer.
In the past, certain governments of emerging market countries have declared themselves unable to meet their financial obligations
on a timely basis, which has resulted in losses to holders of such government’s debt.
A sovereign debtor’s
willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of sufficient foreign exchange, the relative size
of the debt service burden, the sovereign debtor’s policy toward principal international lenders and local political constraints.
Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic reforms, achieve
specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party
commitments to lend funds to the sovereign
debtor, which may further impair such debtor’s ability or willingness to service its debts.
The Funds may invest
in debt securities, including non-investment grade debt securities. The following describes some of the risks associated with fixed
income debt securities:
Interest Rate Risk.
Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall
when interest rates rise and can rise when interest rates fall. Securities with longer maturities and mortgage securities can be
more sensitive to interest rate changes although they usually offer higher yields to compensate investors for the greater risks.
The longer the maturity of the security, the greater the impact a change in interest rates could have on the security's price.
In addition, short-term and long-term interest rates do not necessarily move in the same amount or the same direction. Short-term
securities tend to react to changes in short-term interest rates and long-term securities tend to react to changes in long-term
interest rates.
Credit Risk. Fixed
income securities have speculative characteristics and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity of those issuers to make principal or interest payments, as compared to issuers of more highly rated
securities.
Extension Risk.
The Funds are subject to the risk that an issuer will exercise its right to pay principal on an obligation held by the Funds (such
as mortgage-backed securities) later than expected. This may happen when there is a rise in interest rates. These events may lengthen
the duration (i.e., interest rate sensitivity) and potentially reduce the value of these securities.
Prepayment Risk.
Certain types of debt securities, such as mortgage-backed securities, have yield and maturity characteristics corresponding to
underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity when the entire principal
amount comes due, payments on certain mortgage-backed securities may include both interest and a partial payment of principal.
Besides the scheduled repayment of principal, payments of principal may result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans.
Securities subject to
prepayment are less effective than other types of securities as a means of "locking in" attractive long-term interest
rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments
resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities
may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market value during periods of rising interest rates. Prepayments
may also significantly shorten the effective maturities of these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective maturities of these
securities, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional
debt securities, and, therefore, potentially increasing the volatility of the Funds.
At times, some of the
mortgage-backed securities in which the Funds may invest will have higher than market interest rates and therefore will be purchased
at a premium above their par value. Prepayments may cause losses in securities purchased at a premium, as unscheduled prepayments,
which are made at par, will cause the Funds to experience a loss equal to any unamortized premium.
Certificates of Deposit
and Bankers' Acceptances
Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the
secondary market prior to maturity.
The Funds may invest
in insured bank obligations. The Federal Deposit Insurance Corporation ("FDIC") insures the deposits of federally insured
banks and savings and loan associations (collectively referred to as "banks") up to $250,000. The Funds may purchase
bank obligations that are fully insured as to principal by the FDIC. Currently, to remain fully insured as to principal, these
investments must be limited to $250,000 per bank; if the principal amount and accrued interest together exceed $250,000, the excess
principal and accrued interest will not be insured. Insured bank obligations may have limited marketability.
Bankers' acceptances typically
arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally,
an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value
of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be
sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be
as long as 270 days, most acceptances have maturities of six months or less.
Time Deposits and Variable
Rate Notes
The Funds may invest
in fixed time deposits, whether or not subject to withdrawal penalties. The commercial paper obligations, which the Funds may buy
are unsecured and may include variable rate notes. The nature and terms of a variable rate note (i.e., a "Master Note")
permit the Funds to invest fluctuating amounts at varying rates of interest pursuant to a direct arrangement between each Fund
as lender, and the issuer, as borrower. It permits daily changes in the amounts borrowed. The Funds have the right at any time
to increase, up to the full amount stated in the note agreement, or to decrease the amount outstanding under the note. The issuer
may prepay at any time and without penalty any part of or the full amount of the note. The note may or may not be backed by one
or more bank letters of credit. Because these notes are direct lending arrangements between each Fund and the issuer, it is not
generally contemplated that they will be traded; moreover, there is currently no secondary market for them. Except as specifically
provided in the Prospectus, there is no limitation on the type of issuer from whom these notes may be purchased; however, in connection
with such purchase and on an ongoing basis, the Adviser will consider the earning power, cash flow and other liquidity ratios of
the issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes made
demand simultaneously. Variable rate notes are subject to the Fund's investment restriction on illiquid securities unless such
notes can be put back to the issuer on demand within seven days.
Commercial Paper
The Funds may purchase
commercial paper. Commercial paper consists of short-term (usually from 1 to 270 days) unsecured promissory notes issued by corporations
in order to finance their current operations. It may be secured by letters of credit, a surety bond or other forms of collateral.
Commercial paper is usually repaid at maturity by the issuer from the proceeds of the issuance of new commercial
paper. As a result, investment in commercial
paper is subject to the risk the issuer cannot issue enough new commercial paper to satisfy its outstanding commercial paper, also
known as rollover risk. Commercial paper may become illiquid or may suffer from reduced liquidity in certain circumstances. Like
all fixed income securities, commercial paper prices are susceptible to fluctuations in interest rates. If interest rates rise,
commercial paper prices will decline. The short-term nature of a commercial paper investment makes it less susceptible to interest
rate risk than many other fixed income securities because interest rate risk typically increases as maturity lengths increase.
Commercial paper tends to yield smaller returns than longer-term corporate debt because securities with shorter maturities typically
have lower effective yields than those with longer maturities. As with all fixed income securities, there is a chance that the
issuer will default on its commercial paper obligation.
Repurchase Agreements
The Funds may enter into
repurchase agreements. In a repurchase agreement, an investor (such as the Funds) purchases a security (known as the "underlying
security") from a securities dealer or bank. Any such dealer or bank must be deemed creditworthy by the Adviser. At that time,
the bank or securities dealer agrees to repurchase the underlying security at a mutually agreed upon price on a designated future
date. The repurchase price may be higher than the purchase price, the difference being income to the Funds, or the purchase and
repurchase prices may be the same, with interest at an agreed upon rate due to the Funds on repurchase. In either case, the income
to the Funds generally will be unrelated to the interest rate on the underlying securities. Repurchase agreements must be "fully
collateralized," in that the market value of the underlying securities (including accrued interest) must at all times be equal
to or greater than the repurchase price. Therefore, a repurchase agreement can be considered a loan collateralized by the underlying
securities.
Repurchase agreements
are generally for a short period of time, often less than a week, and will generally be used by the Funds to invest excess cash
or as part of a temporary defensive strategy. Repurchase agreements that do not provide for payment within seven days will be treated
as illiquid securities. In the event of a bankruptcy or other default by the seller of a repurchase agreement, the Funds could
experience both delays in liquidating the underlying security and losses. These losses could result from: (a) possible decline
in the value of the underlying security while a Fund is seeking to enforce its rights under the repurchase agreement; (b) possible
reduced levels of income or lack of access to income during this period; and (c) expenses of enforcing its rights.
High Yield Securities
The Funds may invest
in high yield securities. High yield, high risk bonds are securities that are generally rated below investment grade by the primary
rating agencies (BB+ or lower by S&P and Ba1 or lower by Moody's). Other terms used to describe such securities include "lower
rated bonds," "non-investment grade bonds," "below investment grade bonds," and "junk bonds."
These securities are considered to be high-risk investments. The risks include the following:
Greater Risk of Loss.
These securities are regarded as predominately speculative. There is a greater risk that issuers of lower rated securities will
default than issuers of higher rated securities. Issuers of lower rated securities generally are less creditworthy and may be highly
indebted, financially distressed, or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political
changes or adverse industry developments. In addition, high yield securities are frequently subordinated to the prior payment of
senior indebtedness. If an issuer fails to pay principal or interest, the Funds would experience a decrease in income and a decline
in the market value of its investments.
Sensitivity to Interest
Rate and Economic Changes. The income and market value of lower-rated securities may fluctuate more than higher rated securities.
Although non-investment grade securities tend to be less sensitive to interest rate changes than investment grade securities, non-investment
grade securities are more sensitive to short-term corporate, economic and market developments. During periods of economic uncertainty
and change, the market price of the investments in lower-rated securities may be volatile. The default rate for high yield bonds
tends to be cyclical, with defaults rising in periods of economic downturn. For example, in 2000, 2001 and 2002, the default rate
for high yield securities was significantly higher than in the prior or subsequent years.
Valuation Difficulties.
It is often more difficult to value lower rated securities than higher rated securities. If an issuer's financial condition deteriorates,
accurate financial and business information may be limited or unavailable. In addition, the lower rated investments may be thinly
traded and there may be no established secondary market. Because of the lack of market pricing and current information for investments
in lower rated securities, valuation of such investments is much more dependent on judgment than is the case with higher rated
securities.
Liquidity. There
may be no established secondary or public market for investments in lower rated securities. Such securities are frequently traded
in markets that may be relatively less liquid than the market for higher rated securities. In addition, relatively few institutional
purchasers may hold a major portion of an issue of lower-rated securities at times. As a result, the Funds may be required to sell
investments at substantial losses or retain them indefinitely when an issuer's financial condition is deteriorating.
Credit Quality. Credit
quality of non-investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not
fully reflect the actual risks posed by a particular high-yield security.
New Legislation.
Future legislation may have a possible negative impact on the market for high yield, high risk bonds. As an example, in the late
1980s, legislation required federally-insured savings and loan associations to divest their investments in high yield, high risk
bonds. New legislation, if enacted, could have a material negative effect on the Fund's investments in lower rated securities.
High yield. High risk investments may
include the following:
Straight fixed-income
debt securities. These include bonds and other debt obligations that bear a fixed or variable rate of interest payable at regular
intervals and have a fixed or resettable maturity date. The particular terms of such securities vary and may include features such
as call provisions and sinking funds.
Zero-coupon debt securities.
These bear no interest obligation but are issued at a discount from their value at maturity. When held to maturity, their entire
return equals the difference between their issue price and their maturity value.
Zero-fixed-coupon debt
securities. These are zero-coupon debt securities that convert on a specified date to interest-bearing debt securities.
Pay-in-kind bonds.
These are bonds which allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional
bonds. These are bonds sold without registration under the Securities Act of 1933, as amended (the "Securities Act"),
usually to a relatively small number of institutional investors.
Convertible Securities.
These are bonds or preferred stock that may be converted to common stock.
Preferred Stock.
These are stocks that generally pay a dividend at a specified rate and have preference over common stock in the payment of dividends
and in liquidation.
Loan Participations and
Assignments. These are participations in, or assignments of all or a portion of loans to corporations or to governments, including
governments of less developed countries.
Securities issued
in connection with Reorganizations and Corporate Restructurings. In connection with reorganizing or restructuring of an issuer,
an issuer may issue common stock or other securities to holders of its debt securities. The Funds may hold such common stock and
other securities even if it does not invest in such securities.
Municipal Government
Obligations
In general, municipal
obligations are debt obligations issued by or on behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies and instrumentalities. Municipal obligations generally include
debt obligations issued to obtain funds for various public purposes. Certain types of municipal obligations are issued in whole
or in part to obtain funding for privately operated facilities or projects. Municipal obligations include general obligation bonds,
revenue bonds, industrial development bonds, notes and municipal lease obligations. Municipal obligations also include additional
obligations, the interest on which is exempt from federal income tax that may become available in the future as long as the Board
determines that an investment in any such type of obligation is consistent with the Funds' investment objectives. Municipal obligations
may be fully or partially backed by local government, the credit of a private issuer, current or anticipated revenues from a specific
project or specific assets or domestic or foreign entities providing credit support such as letters of credit, guarantees or insurance.
Bonds and Notes.
General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of interest
and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified
revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users.
Municipal notes are issued to meet the short-term funding requirements of state, regional and local governments. Municipal notes
include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction
loan notes, short-term discount notes, tax-exempt commercial paper, demand notes and similar instruments.
Municipal Lease Obligations.
Municipal lease obligations may take the form of a lease, an installment purchase or a conditional sales contract. They are issued
by state and local governments and authorities to acquire land, equipment and facilities, such as vehicles, telecommunications
and computer equipment and other capital assets. The Funds may invest in underlying funds that purchase these lease obligations
directly, or it may purchase participation interests in such lease obligations (See "Participation Interests" section).
States have different requirements for issuing municipal debt and issuing municipal leases. Municipal leases are generally subject
to greater risks than general obligation or revenue bonds because they usually contain a "non-appropriation" clause,
which provides that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated
for this purpose each year. Such non-appropriation clauses are required to avoid the municipal lease obligations from being treated
as debt for state debt restriction purposes. Accordingly, such obligations are subject to "non-appropriation" risk. Municipal
leases may be secured by the
underlying capital asset and it may be difficult
to dispose of any such asset in the event of non-appropriation or other default.
Master Limited Partnerships
A master limited partnership
(“MLP”) is an entity that is generally taxed as a partnership for federal income tax purposes and that derives each
year at least 90% of its gross income from “Qualifying Income.” Qualifying Income for MLPs includes interest, dividends,
real estate rents, gain from the sale or disposition of real property, income and gain from commodities or commodity futures, and
income and gain from mineral or natural resources activities that generate Qualifying Income. MLP interests (known as units) are
traded on securities exchanges or over-the-counter. An MLP’s organization as a partnership and compliance with the Qualifying
Income rules generally eliminates federal tax at the entity level.
An MLP has one or more general
partners (who may be individuals, corporations, or other partnerships) which manage the partnership, and limited partners, which
provide capital to the partnership but have no role in its management. Typically, the general partner is owned by company management
or another publicly traded sponsoring corporation. When an investor buys units in an MLP, the investor becomes a limited partner.
MLPs are formed in several
ways. A nontraded partnership may decide to go public. Several nontraded partnerships may roll up into a single MLP. A corporation
may spin-off a group of assets or part of its business into an MLP of which it is the general partner, to realize the assets’
full value on the marketplace by selling the assets and using the cash proceeds received from the MLP to address debt obligations
or to invest in higher growth opportunities, while retaining control of the MLP. A corporation may fully convert to an MLP, although
since 1986 the tax consequences have made this an unappealing option for most corporations. Unlike the ways described above, it
is also possible for a newly formed entity to commence operations as an MLP from its inception.
The sponsor or general partner
of an MLP, other energy companies, and utilities may sell assets to MLPs in order to generate cash to fund expansion projects or
repay debt. The MLP structure essentially transfers cash flows generated from these acquired assets directly to MLP limited partner
unitholders.
In the case of an MLP, buying
assets from its sponsor or general partner the transaction is intended to be based upon comparable terms in the acquisition market
for similar assets. To help insure that appropriate protections are in place, the board of the MLP generally creates an independent
committee to review and approve the terms of the transaction. The committee often obtains a fairness opinion and can retain counsel
or other experts to assist its evaluation. Since both parties normally have a significant equity stake in the MLP, both parties
are aligned to see that the transaction is accretive and fair to the MLP.
As a motivation for the
general partner to successfully manage the MLP and increase cash flows, the terms of MLPs typically provide that the general partner
receives a larger portion of the net income as distributions reach higher target levels. As cash flow grows, the general partner
receives a greater interest in the incremental income compared to the interest of limited partners. Although the percentages vary
among MLPs, the general partner’s marginal interest in distributions generally increases from 2% to 15% at the first designated
distribution target level moving up to 25% and ultimately 50% as pre-established distribution per unit thresholds are met. Nevertheless,
the aggregate amount distributed to limited partners will increase as MLP distributions reach higher target levels.
Given this incentive structure, the general
partner has an incentive to streamline operations and undertake acquisitions and growth projects in order to increase distributions
to all partners.
Because the MLP itself generally
does not pay federal income tax, its income or loss is allocated to its investors, irrespective of whether the investors receive
any cash payment or other distributions from the MLP. An MLP typically makes quarterly cash distributions. Although they resemble
corporate dividends, MLP distributions are treated differently for tax purposes. The MLP distribution is treated as a return of
capital to the extent of the investor’s basis in his MLP interest and, to the extent the distribution exceeds the investor’s
basis in the MLP, generally as capital gain. The investor’s original basis is the price paid for the units. The basis is
adjusted downwards with each distribution and allocation of deductions (such as depreciation) and losses, and upwards with each
allocation of taxable income and gain.
The partner will not incur
federal income tax on distributions until: (1) he sells his MLP units and pays tax on his gain, which gain is increased due to
the basis decrease due to prior distributions; or (2) his basis reaches zero. When the units are sold, the difference between the
sales price and the investor’s adjusted basis is gain or loss for federal income tax purposes.
The business of certain
MLPs is affected by supply and demand for energy commodities because such MLPs derive revenue and income based upon the volume
of the underlying commodity produced, transported, processed, distributed, and/or marketed. Pipeline MLPs have indirect commodity
exposure to gas and oil price volatility because although they do not own the underlying energy commodity, the general level of
commodity prices may affect the volume of the commodity that the MLP delivers to its customers and the cost of providing services
such as distributing natural gas liquids. The costs of natural gas pipeline MLPs to perform services may exceed the negotiated
rates under “negotiated rate” contracts. Specifically, processing MLPs may be directly affected by energy commodity
prices. Propane MLPs own the underlying energy commodity, and therefore have direct exposure to energy commodity prices, although
the Adviser intends to target high quality MLPs that seek to mitigate or manage direct margin exposure to commodity prices. However,
the MLP industry in general could be hurt by market perception that an MLP’s performance and valuation are directly tied
to commodity prices.
Real Estate Investment
Trusts
The Funds may invest
in the equity securities of real estate investment trusts (“REITs”) focused on the energy industry. A REIT is a corporation
or business trust that invests in real estate and derives its income from rents or sales of real property or interest on loans
secured by mortgages on real property. The market value of REITs may be affected by numerous factors, including decreases in the
value of real estate, vacancies, decreases in lease rates, and defaults by lessees, changes in the tax laws or by their inability
to qualify for the tax-free pass-through of their income.
Energy Trust Securities.
The Funds may invest
in U.S. royalty trusts. U.S. royalty trusts are generally not subject to U.S. federal corporate income taxation at the trust or
entity level. Instead, each unitholder of the U.S. royalty trust is required to take into account its share of all items of the
U.S. royalty trust’s income, gain, loss, deduction and expense. It is possible that the Funds’ share of taxable income
from a U.S. royalty trust may exceed the cash actually distributed to it from the U.S. royalty trust in a given year. In such a
case, a Fund will have less after-tax cash available for distribution to shareholders.
Exchange-Traded Notes
The Funds may invest
in exchange-traded notes (“ETNs”), which are senior, unsecured, unsubordinated debt securities whose returns are linked
to the performance of a particular market benchmark or strategy, minus applicable fees. ETNs are traded on an exchange (e.g., the
New York Stock Exchange) during normal trading hours; however, investors also can hold ETNs until they mature. At maturity, the
issuer pays to the investor a cash amount equal to the principal amount, subject to the day‘s market benchmark or strategy
factor. ETNs do not make periodic coupon payments or provide principal protection. ETNs are subject to credit risk, including the
credit risk of the issuer, and the value of the ETN may drop due to a downgrade in the issuer‘s credit rating, despite the
underlying market benchmark or strategy remaining unchanged. The value of an ETN also may be influenced by time to maturity, level
of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates,
changes in the issuer‘s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying
asset. When the Funds invest in ETNs, it will bear its proportionate share of any fees and expenses borne by the ETN. A decision
by a Fund to sell ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed
on an exchange, the issuer may not be required to maintain the listing, and there can be no assurance that a secondary market will
exist for an ETN.
ETNs also are subject
to tax risk. No assurance can be given that the IRS will accept, or a court will uphold, how the Funds characterize and treat ETNs
for tax purposes.
An ETN that is tied to a
specific market benchmark or strategy may not be able to replicate and maintain exactly the composition and relative weighting
of securities, commodities or other components in the applicable market benchmark or strategy. Some ETNs that use leverage can,
at times, be relatively illiquid, and thus they may be difficult to purchase or sell at a fair price. Leveraged ETNs are subject
to the same risk as other instruments that use leverage in any form. The market value of ETNs may differ from their market benchmark
or strategy. This difference in price may be due to the fact that the supply and demand in the market for ETNs at any point in
time is not always identical to the supply and demand in the market for the securities, commodities or other components underlying
the market benchmark or strategy that the ETN seeks to track. As a result, there may be times when an ETN trades at a premium or
discount to its market benchmark or strategy.
United States Government
Obligations
These consist of various
types of marketable securities issued by the United States Treasury, i.e., bills, notes and bonds. Such securities are direct obligations
of the United States government and differ mainly in the length of their maturity. Treasury bills, the most frequently issued marketable
government security, have a maturity of up to one year and are issued on a discount basis. The Funds may also invest in Treasury
Inflation-Protected Securities (“TIPS”). TIPS are special types of treasury bonds that were created in order to offer
bond investors protection from inflation. The values of the TIPS are automatically adjusted to the inflation rate as measured by
the Consumer Price Index (“CPI”). If the CPI goes up by half a percent, the value of the bond (the TIPS) would also
go up by half a percent. If the CPI falls, the value of the bond does not fall because the government guarantees that the original
investment will stay the same. TIPS decline in value when real interest rates rise. However, in certain interest rate environments,
such as when real interest rates are rising faster than nominal interest rates, TIPS may experience greater losses than other fixed
income securities with similar duration.
United States Government
Agency Obligations
These consist of debt securities
issued by agencies and instrumentalities of the United States government, including the various types of instruments currently
outstanding or which may be offered in the future. Agencies include, among others, the Federal Housing Administration, Government
National Mortgage Association ("GNMA"), Farmer's Home Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities include, for example, each of the Federal Home Loan Banks,
the National Bank for Cooperatives, the Federal Home Loan Mortgage Corporation ("FHLMC"), the Farm Credit Banks, the
Federal National Mortgage Association ("FNMA"), and the United States Postal Service. These securities are either: (i)
backed by the full faith and credit of the United States government (e.g., United States Treasury Bills); (ii) guaranteed by the
United States Treasury (e.g., GNMA mortgage-backed securities); (iii) supported by the issuing agency's or instrumentality's right
to borrow from the United States Treasury (e.g., FNMA Discount Notes); or (iv) supported only by the issuing agency's or instrumentality's
own credit (e.g., Tennessee Valley Association). On September 7, 2008, the U.S. Treasury Department and the Federal Housing Finance
Authority (the "FHFA") announced that FNMA and FHLMC had been placed into conservatorship, a statutory process designed
to stabilize a troubled institution with the objective of returning the entity to normal business operations. The U.S. Treasury
Department and the FHFA at the same time established a secured lending facility and a Secured Stock Purchase Agreement with both
FNMA and FHLMC to ensure that each entity had the ability to fulfill its financial obligations. The FHFA announced that it does
not anticipate any disruption in pattern of payments or ongoing business operations of FNMA and FHLMC.
Government-related guarantors
(i.e., not backed by the full faith and credit of the United States Government) include FNMA and FHLMC. FNMA is a government-sponsored
corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved
seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks
and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal
and interest by FNMA but are not backed by the full faith and credit of the United States Government.
FHLMC was created by Congress
in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. It is a government-sponsored
corporation formerly owned by the twelve Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC issues participation
certificates ("PCs"), which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees
the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the
United States Government. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related
securities. Pools created by such nongovernmental issuers generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers.
Securities of Other Investment
Companies
A Fund's investments
in exchange traded funds ("ETFs"), mutual funds and closed-end funds involve certain additional expenses and certain
tax results, which would not be present in a direct investment in the underlying fund. Generally, each Fund will not purchase securities
of another investment company if, as a result: (i) more than 10% of the Fund’s total assets would be invested in securities
of other investment companies, (ii) such purchase would result in more than 3% of the total outstanding voting securities of any
such investment company being held by the Fund, or (iii) more than 5% of the Fund’s total assets would be invested in any
one such investment company. However, many ETFs have obtained exemptive relief from the Securities and Exchange Commission (“SEC”)
to permit unaffiliated funds to invest in the ETF’s shares beyond the above statutory limitations, subject to certain conditions
and pursuant to a contractual arrangement between the particular ETF and the investing fund. The Funds may rely on these exemptive
orders to invest in unaffiliated ETFs. In the alternative, the Funds intend to rely on Rule 12d1-3, which allows unaffiliated mutual
funds and ETFs to exceed the 5% limitation and the 10% limitation, provided the aggregate sales loads any investor pays (i.e.,
the combined distribution expenses of both the acquiring fund and the acquired fund) does not exceed the limits on sales loads
established by the Financial Industry Regulatory Authority, Inc. (“FINRA”) for funds of funds. In addition to ETFs,
the Funds may invest in other investment companies such as open-end mutual funds or exchange-traded closed-end funds, within the
limitations described above.
Closed-End Investment
Companies
The Funds may invest
its assets in "closed-end" investment companies (or "closed-end funds"), subject to the investment restrictions
set forth above. Shares of closed-end funds are typically offered to the public in a one-time initial public offering by a group
of underwriters who retain a spread or underwriting commission of between 4% or 6% of the initial public offering price. Such securities
are then listed for trading on the New York Stock Exchange (“NYSE”), the American Stock Exchange, the National Association
of Securities Dealers Automated Quotation System (commonly known as "NASDAQ") and, in some cases, may be traded in other
over-the-counter markets. Because the shares of closed-end funds cannot be redeemed upon demand to the issuer like the shares of
an open-end investment company (such as the Funds), investors seek to buy and sell shares of closed-end funds in the secondary
market.
The Funds generally purchases
shares of closed-end funds only in the secondary market. Each Fund will incur normal brokerage costs on such purchases similar
to the expenses the Funds would incur for the purchase of securities of any other type of issuer in the secondary market. Each
Fund may, however, also purchase securities of a closed-end fund in an initial public offering when, in the opinion of the Adviser,
based on a consideration of the nature of the closed-end fund's proposed investments, the prevailing market conditions and the
level of demand for such securities, they represent an attractive opportunity for growth of capital. The initial offering price
typically will include a dealer spread, which may be higher than the applicable brokerage cost if the Funds purchased such securities
in the secondary market.
The shares of many closed-end
funds, after their initial public offering, frequently trade at a price per share, which is less than the net asset value (“NAV”)
per share, the difference representing the "market discount" of such shares. This market discount may be due in part
to the investment objective of long-term appreciation, which is sought by many closed-end funds, as well as to the fact that the
shares of closed-end funds are not redeemable by the holder upon demand to the issuer at the next determined NAV but rather are
subject to the principles of supply and demand in the secondary market. A relative lack of secondary market purchasers of closed-end
fund shares also may contribute to such shares trading at a discount to their NAV.
The Funds may invest
in shares of closed-end funds that are trading at a discount to NAV or at a premium to NAV. There can be no assurance that the
market discount on shares of any closed-end fund purchased by the Funds will ever decrease. In fact, it is possible that this market
discount may increase and the Fund may suffer realized or unrealized capital losses due to further decline in the market price
of the securities of such closed-end funds, thereby adversely affecting the NAV of the Funds’ shares. Similarly, there can
be no assurance that any shares of a closed-end fund purchased by a Fund at a premium will continue to trade at a premium or that
the premium will not decrease subsequent to a purchase of such shares by the Fund.
Closed-end funds may
issue senior securities (including preferred stock and debt obligations) for the purpose of leveraging the closed-end fund's common
shares in an attempt to enhance the current return to such closed-end fund's common shareholders. Each Fund's investment in the
common shares of closed-end funds that are financially leveraged may create an opportunity for greater total return on its investment,
but at the same time may be expected to exhibit more volatility in market price and NAV than an investment in shares of investment
companies without a leveraged capital structure.
Open-End Investment Companies
The Funds and any "affiliated
persons," as defined by the 1940 Act, may purchase in the aggregate only up to 3% of the total outstanding securities of any
underlying fund. Accordingly, when affiliated persons hold shares of any of the underlying fund, the Funds’ ability
to invest fully in shares of those funds is restricted, and the Adviser must then, in some instances, select alternative investments
that would not have been its first preference. The 1940 Act also provides that an underlying fund whose shares are purchased
by the Funds when relying on certain exemptions to limitations on investments in other investment companies will be obligated to
redeem shares held by a Fund only in an amount up to 1% of the underlying fund's outstanding securities during any period of less
than 30 days. Therefore, shares held by a Fund when relying on certain exemptions to limitations on investments in other investment
companies under the 1940 Act in excess of 1% of an underlying fund's outstanding securities will be considered not readily marketable
securities, which, together with other such securities, may not exceed 15% of a Fund’s total assets.
Under certain circumstances,
an underlying fund may determine to make payment of a redemption by the Funds wholly or partly by a distribution in kind of securities
from its portfolio, in lieu of cash, in conformity with the rules of the SEC. In such cases, the Funds may hold securities distributed
by an underlying fund until the Adviser determines that it is appropriate to dispose of such securities.
Investment decisions
by the investment advisers of the underlying fund(s) are made independently of the Funds and their Adviser. Therefore, the investment
adviser of one underlying fund may be purchasing shares of the same issuer whose shares are being sold by the investment adviser
of another such fund. The result would be an indirect expense to the Funds without accomplishing any investment purpose.
Exchange Traded Funds
ETFs are generally passive
funds that track their related index and have the flexibility of trading like a security. They are managed by professionals and
provide the investor with diversification, cost and tax efficiency, liquidity, marginability, are useful for hedging, have the
ability to go long and short, and some provide quarterly dividends. Additionally, some ETFs are unit investment trusts. ETFs typically
have two markets. The primary market is where institutions swap "creation units" in block-multiples of, for example,
50,000 shares for in-kind securities and cash in the form of dividends. The
secondary market is where individual investors
can trade as little as a single share during trading hours on the exchange. This is different from open-ended mutual funds that
are traded after hours once the NAV is calculated. ETFs share many similar risks with open-end and closed-end funds.
Foreign Securities
General. The Funds
may invest in foreign securities and ETFs and other investment companies that hold a portfolio of foreign securities. Investing
in securities of foreign companies and countries involves certain considerations and risks that are not typically associated with
investing in U.S. government securities and securities of domestic companies. There may be less publicly available information
about a foreign issuer than a domestic one, and foreign companies are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to U.S. companies. There may also be less government supervision
and regulation of foreign securities exchanges, brokers and listed companies than exists in the United States. Interest and dividends
paid by foreign issuers may be subject to withholding and other foreign taxes, which may decrease the net return on such investments
as compared to dividends and interest paid to the Funds by domestic companies or the U.S. government. There may be the possibility
of expropriations, seizure or nationalization of foreign deposits, confiscatory taxation, political, economic or social instability
or diplomatic developments that could affect assets of the Funds held in foreign countries. Finally, the establishment of exchange
controls or other foreign governmental laws or restrictions could adversely affect the payment of obligations.
To the extent the Funds’
currency exchange transactions do not fully protect the Funds against adverse changes in currency exchange rates, decreases in
the value of currencies of the foreign countries in which the Funds will invest relative to the U.S. dollar will result in a corresponding
decrease in the U.S. dollar value of the Funds’ assets denominated in those currencies (and possibly a corresponding increase
in the amount of securities required to be liquidated to meet distribution requirements). Conversely, increases in the value of
currencies of the foreign countries in which the Funds invest relative to the U.S. dollar will result in a corresponding increase
in the U.S. dollar value of the Funds’ assets (and possibly a corresponding decrease in the amount of securities to be liquidated).
Securities Options
The Funds may
purchase and write (i.e., sell) put and call options. Such options may relate to particular securities or stock indices, and may
or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the Options Clearing Corporation.
Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options may be more volatile
than the underlying instruments, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying instruments themselves.
A call option for
a particular security gives the purchaser of the option the right to buy, and the writer (seller) the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option
for a particular security gives the purchaser the right to sell the security at the stated exercise price at any time prior to
the expiration date of the option, regardless of the market price of the security.
Stock index options
are put options and call options on various stock indices. In most respects, they are identical to listed options on common stocks.
The primary difference between stock options and index options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does
not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price
of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market value of the
stocks included in the index. For example, some stock index options are based on a broad market index, such as the Standard &
Poor's 500® Index or the Value Line Composite Index or a narrower market index, such as the Standard & Poor's 100®.
Indices may also be based on an industry or market segment, such as the AMEX Oil and Gas Index or the Computer and Business Equipment
Index. Options on stock indices are currently traded on the NYSE, the American Stock Exchange and the NASDAQ PHLX.
A Fund's obligation
to sell an instrument subject to a call option written by it, or to purchase an instrument subject to a put option written by it,
may be terminated prior to the expiration date of the option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same underlying instrument, exercise price and expiration
date) as the option previously written. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding
option, to prevent an underlying instrument from being called, to permit the sale of the underlying instrument or to permit the
writing of a new option containing different terms on such underlying instrument. The cost of such a liquidation purchase plus
transactions costs may be greater than the premium received upon the original option, in which event the Funds will have paid a
loss in the transaction. There is no assurance that a liquid secondary market will exist for any particular option. An option writer
unable to effect a closing purchase transaction will not be able to sell the underlying instrument or liquidate the assets held
in a segregated account, as described below, until the option expires or the optioned instrument is delivered upon exercise. In
such circumstances, the writer will be subject to the risk of market decline or appreciation in the instrument during such period.
If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium paid. If the Fund enters into a closing sale transaction
on an option purchased by it, the Fund will realize a gain if the premium received by the Fund on the closing transaction is more
than the premium paid to purchase the option, or a loss if it is less. If an option written by a Fund expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold). If an option written by a Fund is exercised, the
proceeds of the sale will be increased by the net premium originally received and the Fund will realize a gain or loss.
Certain Risks
Regarding Options.
There are several
risks associated with transactions in options. For example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded over-the-counter or on an exchange, may be absent
for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed
by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying securities or currencies; unusual or unforeseen circumstances
may interrupt normal operations on an exchange; the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading value; or one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event
the
secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
Successful use
by a Fund of options on stock indices will be subject to the ability of the Adviser to correctly predict movements in the directions
of the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities.
In addition, the Fund's ability to effectively hedge all or a portion of the securities in its portfolio, in anticipation of or
during a market decline, through transactions in put options on stock indices, depends on the degree to which price movements in
the underlying index correlate with the price movements of the securities held by the Fund. Inasmuch as the Fund's securities will
not duplicate the components of an index, the correlation will not be perfect. Consequently, each Fund bears the risk that the
prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indices. It
is also possible that there may be a negative correlation between the index and a Fund's securities that would result in a loss
on both such securities and the options on stock indices acquired by the Fund.
The hours of trading
for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets. The purchase of options is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of stock index
options involves the risk that the premium and transaction costs paid by the Funds in purchasing an option will be lost as a result
of unanticipated movements in prices of the securities comprising the stock index on which the option is based.
There is no assurance
that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time, and for
some options no secondary market on an exchange or elsewhere may exist. If a Fund is unable to close out a call option on securities
that it has written before the option is exercised, the Fund may be required to purchase the optioned securities in order to satisfy
its obligation under the option to deliver such securities. If a Fund is unable to effect a closing sale transaction with respect
to options on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur
transaction costs upon the purchase and sale of the underlying securities.
Cover for Options
Positions.
Transactions using
options (other than options that the Funds have purchased) expose the Funds to an obligation to another party. The Funds will not
enter into any such transactions unless they own either (i) an offsetting ("covered") position in securities or other
options or (ii) cash or liquid securities with a value sufficient at all times to cover its potential obligations not covered as
provided in (i) above. The Funds will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities in a segregated account with the Funds’ custodian in the prescribed amount.
Under current SEC guidelines, the Funds segregate assets to cover transactions in which the Fund writes or sells options.
Assets used as
cover or held in a segregated account cannot be sold while the position in the corresponding option is open, unless they are replaced
with similar assets. As a result, the commitment of a large portion of the Funds’ assets to cover or segregated accounts
could impede portfolio management or the Funds’ ability to meet redemption requests or other current obligations.
Options on Futures Contracts
The Funds may purchase
and sell options on the same types of futures in which it may invest. Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell
the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of
the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option
on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
Dealer Options
The Funds may engage
in transactions involving dealer options as well as exchange-traded options. Certain additional risks are specific to dealer options.
While the Funds might look to a clearing corporation to exercise exchange-traded options, if a Fund were to purchase a dealer option
it would need to rely on the dealer from which it purchased the option to perform if the option were exercised. Failure by the
dealer to do so would result in the loss of the premium paid by the Funds as well as loss of the expected benefit of the transaction.
Exchange-traded options
generally have a continuous liquid market while dealer options may not. Consequently, a Fund may generally be able to realize the
value of a dealer option it has purchased only by exercising or reselling the option to the dealer who issued it. Similarly, when
a Fund writes a dealer option, it may generally be able to close out the option prior to its expiration only by entering into a
closing purchase transaction with the dealer to whom the Fund originally wrote the option. While the Funds will seek to enter into
dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with
the Funds, there can be no assurance that the Funds will at any time be able to liquidate a dealer option at a favorable price
at any time prior to expiration. Unless a Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction,
it will not be able to liquidate securities (or other assets) used as cover until the option expires or is exercised. In the event
of insolvency of the other party, the Funds may be unable to liquidate a dealer option. With respect to options written by a Fund,
the inability to enter into a closing transaction may result in material losses to the Fund. For example, because the Funds must
maintain a secured position with respect to any call option on a security it writes, a Fund may not sell the assets, which it has
segregated to secure the position while it is obligated under the option. This requirement may impair the Funds’ ability
to sell portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC
has taken the position that purchased dealer options are illiquid securities. The Funds may treat the cover used for written dealer
options as liquid if the dealer agrees that a Fund may repurchase the dealer option it has written for a maximum price to be calculated
by a predetermined formula. In such cases, the dealer option would be considered illiquid only to the extent the maximum purchase
price under the formula exceeds the intrinsic value of the option. Accordingly, the Funds will treat dealer options as subject
to the Funds’ limitation on illiquid securities. If the SEC changes its position on the liquidity of dealer options, the
Funds will change their treatment of such instruments accordingly.
Futures Contracts
A futures contract provides
for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g.,
units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees
are paid when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred
to as selling a contract or holding a short position.
Unlike when the Funds
purchase or sell a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Funds’ open positions in futures contracts, the Funds would be required
to deposit with its custodian or futures broker in a segregated account in the name of the futures broker an amount of cash, U.S.
government securities, suitable money market instruments, or other liquid 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 margins that may range upward from less than 5% of the value of the contract being traded.
If the price of an open
futures contract changes (by increase in underlying instrument or index in the case of a sale or by decrease in the case of a purchase)
so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the
broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes
in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Funds.
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
fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to
the market." The Funds expect to earn interest income on its margin deposits.
Although certain futures
contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures
contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by
entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical underlying
instrument or index and the same delivery date. If the offsetting purchase price is less than the original sale price, the Funds
realize a gain; if it is more, the Funds realize a loss. Conversely, if the offsetting sale price is more than the original purchase
price, the Funds realize a gain; if it is less, the Funds realize a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Funds will be able to enter into an offsetting transaction with respect
to a particular futures contract at a particular time. If the Funds are not able to enter into an offsetting transaction, the Funds
will continue to be required to maintain the margin deposits on the futures contract.
For example, one contract
in the Financial Times Stock Exchange 100 Index future is a contract to buy 25 pounds sterling multiplied by the level of the UK
Financial Times 100 Share Index on a given future date. Settlement of a stock index futures contract may or may not be in the underlying
instrument or index. If not in the underlying instrument or index, then settlement will be made in cash, equivalent over time to
the difference between the contract price and the actual price of the underlying asset at the time the stock index futures contract
expires.
Swap Agreements
The Funds may enter into
swap agreements for purposes of attempting to gain exposure to equity, debt, commodities or other asset markets without actually
purchasing those assets, or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a day to more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments.
The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount,"
i.e., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing
a particular index.
Most swap agreements
entered into by the Funds calculate the obligations of the parties to the agreement on a "net basis." Consequently, the
Funds’ current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or
received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount").
Payments may be made at the conclusion of a swap agreement or periodically during its term.
Swap agreements do not
involve the delivery of securities or other underlying assets. Accordingly, if a swap is entered into on a net basis, if the other
party to a swap agreement defaults, the Funds’ risk of loss consists of the net amount of payments that the Funds are contractually
entitled to receive, if any.
The net amount of the
excess, if any, of the Funds’ obligations over its entitlements with respect to a swap agreement entered into on a net basis
will be accrued daily and an amount of cash or liquid asset having an aggregate NAV at least equal to the accrued excess will be
maintained in an account with the Custodian. The Funds will also establish and maintain such accounts with respect to its total
obligations under any swaps that are not entered into on a net basis. Obligations under swap agreements so covered will not be
construed to be "senior securities" for purposes of the Funds’ investment restriction concerning senior securities.
Because they are two-party
contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the
Funds’ illiquid investment limitations. The Funds will not enter into any swap agreement unless the Adviser believes that
the other party to the transaction is creditworthy. The Funds bear the risk of loss of the amount expected to be received under
a swap agreement in the event of the default or bankruptcy of a swap agreement counter-party.
The Funds may enter into
a swap agreement in circumstances where the Adviser believes that it may be more cost effective or practical than buying the securities
represented by such index or a futures contract or an option on such index. The counter-party to any swap agreement will typically
be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Funds the amount, if any,
by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks
represented in the index, plus the dividends that would have been received on those stocks. The Funds agree to pay to the counter-party
a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount
would have decreased in value had it been invested in such stocks. Therefore, the return to the Funds on any swap agreement should
be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Funds on the notional amount.
The swap market has grown
substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap
documentation. As a result, the swap market
has become relatively liquid in comparison with the markets for other similar instruments that are traded in the over-the-counter
market.
Regulation as a Commodity
Pool Operator
The Trust, on behalf
of each Fund, has filed with the National Futures Association, a notice claiming an exclusion from the definition of the term "commodity
pool operator" under the Commodity Exchange Act, as amended, and the rules of the Commodity Futures Trading Commission promulgated
thereunder, with respect to the Funds’ operations. Accordingly, the Funds are not currently subject to registration
or regulation as a commodity pool operator.
When-Issued, Forward
Commitments and Delayed Settlements
The Funds may purchase
and sell securities on a when-issued, forward commitment or delayed settlement basis. In this event, the Custodian (as defined
under the section entitled "Custodian") segregates liquid assets equal to the amount of the commitment in a separate
account. Normally, the Custodian sets aside portfolio securities to satisfy a purchase commitment. In such a case, the Funds may
be required subsequently to segregate additional assets in order to assure that the value of the account remains equal to the amount
of the Funds’ commitment. It may be expected that the Funds’ net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments than when it sets aside cash.
The Funds do not intend
to engage in these transactions for speculative purposes but only in furtherance of its investment objectives. Because the Funds
will segregate liquid assets to satisfy its purchase commitments in the manner described, the Funds’ liquidity and the ability
of the Adviser to manage them may be affected in the event the Funds’ forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 15% of the value of its net assets.
The Funds purchase securities
on a when-issued, forward commitment or delayed settlement basis only with the intention of completing the transaction. If deemed
advisable as a matter of investment strategy, however, the Funds may dispose of or renegotiate a commitment after it is entered
into, and may sell securities it has committed to purchase before those securities are delivered to the Funds on the settlement
date. In these cases, a Fund may realize a taxable capital gain or loss. When the Funds engage in when-issued, forward commitment
and delayed settlement transactions, they rely on the other party to consummate the trade. Failure of such party to do so may result
in the Funds incurring a loss or missing an opportunity to obtain a price credited to be advantageous.
The market value of the
securities underlying a when-issued purchase, forward commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the market value of the Funds starting on the day the
Funds agree to purchase the securities. The Funds do not earn interest on the securities it has committed to purchase until it
has paid for and delivered on the settlement date.
Illiquid and Restricted
Securities
The Funds may invest
up to 15% of its net assets in illiquid securities. Illiquid securities include securities subject to contractual or legal restrictions
on resale (e.g., because they have not been registered under the Securities Act) and securities that are otherwise not readily
marketable (e.g., because trading in the security is suspended or because market makers do not exist or will not entertain bids
or offers). Securities that have not been registered under the Securities Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or in the
secondary market. Foreign securities that are
freely tradable in their principal markets are not considered to be illiquid.
Restricted and other
illiquid securities may be subject to the potential for delays on resale and uncertainty in valuation. The Funds might be unable
to dispose of illiquid securities promptly or at reasonable prices and might thereby experience difficulty in satisfying redemption
requests from shareholders. The Funds might have to register restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering of securities.
A large institutional market
exists for certain securities that are not registered under the Securities Act, including foreign securities. The fact that there
are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity
of such investments. Rule 144A under the Securities Act allows such a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resale of certain securities to qualified institutional buyers. Rule 144A has produced enhanced
liquidity for many restricted securities, and market liquidity for such securities may continue to expand as a result of this regulation
and the consequent existence of the PORTAL system, which is an automated system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers sponsored by FINRA.
Under guidelines adopted
by the Board, the Adviser may determine that particular Rule 144A securities, and commercial paper issued in reliance on the private
placement exemption from registration afforded by Section 4(a)(2) of the Securities Act, are liquid even though they are not registered.
A determination of whether such a security is liquid or not is a question of fact. In making this determination, the Adviser will
consider, as it deems appropriate under the circumstances and among other factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers willing to purchase or sell the security; (3) the number of other potential purchasers of the
security; (4) dealer undertakings to make a market in the security; (5) the nature of the security (e.g., debt or equity, date
of maturity, terms of dividend or interest payments, and other material terms) and the nature of the marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); and (6) the rating
of the security and the financial condition and prospects of the issuer. In the case of commercial paper, the Adviser will also
determine that the paper (1) is not traded flat or in default as to principal and interest, and (2) is rated in one of the two
highest rating categories by at least two Nationally Recognized Statistical Rating Organizations ("NRSROs") or, if only
one NRSRO rates the security, by that NRSRO, or, if the security is unrated, the Adviser determines that it is of equivalent quality.
Rule 144A securities and
Section 4(a)(2) commercial paper that have been deemed liquid as described above will continue to be monitored by the Adviser to
determine if the security is no longer liquid as the result of changed conditions. Investing in Rule 144A securities or Section
4(a)(2) commercial paper could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if
institutional buyers are unwilling to purchase such securities.
Lending Portfolio Securities
For the purpose of achieving
income, each Fund may lend its portfolio securities, provided (1) the loan is secured continuously by collateral consisting of
U.S. Government securities or cash or cash equivalents (cash, U.S. Government securities, negotiable certificates of deposit, bankers'
acceptances or letters of credit) maintained on a daily mark-to-market basis in an amount at least equal to the current market
value of the securities loaned, (2) each Fund may at any time call the loan and obtain the return
of securities loaned, (3) the Fund will receive
any interest or dividends received on the loaned securities, and (4) the aggregate value of the securities loaned will not at any
time exceed one-third of the total assets of the Fund.
Short Sales
Short Sales “Against
The Box.” The Funds may engage in short sales “against the box.” In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the identical security. The seller does not immediately deliver
the securities sold and is said to have a short position in those securities until delivery occurs. The Funds may engage in a short
sale if at the time of the short sale a Fund owns or has the right to obtain without additional cost an equal amount of the security
being sold short. This investment technique is known as a short sale “against the box.” It may be entered into by a
Fund to, for example, lock in a sale price for a security the Fund does not wish to sell immediately. If a Fund engages in a short
sale, the collateral for the short position will be segregated in an account with the Fund’s custodian or qualified sub-custodian.
No more than 10% of a Fund’s net assets (taken at current value) may be held as collateral for short sales against the box
at any one time.
The Funds may make a
short sale as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security
owned by the Fund (or a security convertible or exchangeable for such security). In such case, any future losses in the Fund’s
long position should be offset by a gain in the short position and, conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security
sold short relative to the amount the Fund owns. There will be certain additional transaction costs associated with short sales
“against the box,” but the Funds will endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If a Fund effects a short
sale of securities at a time when it has an unrealized gain on the securities, it may be required to recognize that gain as if
it had actually sold the securities (as a “constructive sale”) on the date it effects the short sale. However, such
constructive sale treatment may
not apply if a Fund closes out the short
sale with securities other than the appreciated securities held at the time of the short sale and if certain other conditions are
satisfied. Uncertainty regarding the tax consequences of effecting short sales may limit the extent to which the Fund may effect
short sales.
Short Sales (excluding
Short Sales “Against the Box”). The Funds may sell securities short. A short sale is a transaction in which a Fund
sells securities it does not own in anticipation of a decline in the market price of the securities.
To deliver the securities
to the buyer, the Funds must arrange through a broker to borrow the securities and, in so doing, the Funds become obligated to
replace the securities borrowed at their market price at the time of replacement, whatever that price may be. The Funds will make
a profit or incur a loss as a result of a short sale depending on whether the price of the securities decreases or increases between
the date of the short sale and the date on which a Fund purchases the security to replace the borrowed securities that have been
sold. The amount of any loss would be increased (and any gain decreased) by any premium or interest the Fund is required to pay
in connection with a short sale.
A Fund’s obligation
to replace the securities borrowed in connection with a short sale will be secured by cash or liquid securities deposited as collateral
with the broker. In addition, a Fund will place in a segregated account with its custodian or a qualified sub-custodian an amount
of cash or liquid securities equal to the difference, if any, between (i) the market value of the securities sold at the time
they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the short sale (not including the proceeds of the
short sale). Until it replaces the borrowed securities, the Fund will maintain the segregated account daily at a level so that
(a) the amount deposited in the account plus the amount deposited with the broker (not including the proceeds from the short sale)
will equal the current market value of the securities sold short and (b) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will not be less than the market value of the securities at the
time they were sold short.
ReFlow Liquidity Program
The Funds may participate
in the ReFlow Fund, LLC (“ReFlow”) liquidity program, which is designed to provide an alternative liquidity source
for mutual funds experiencing net redemptions of their shares. Pursuant to the program, ReFlow provides participating mutual funds
with a source of cash to meet net shareholder redemptions by standing ready each business day to purchase fund shares up to the
value of the net shares redeemed by other shareholders that are to settle the next business day. Following purchases of Fund shares,
ReFlow then generally redeems those shares when the Funds experience net sales, at the end of a maximum holding period determined
by ReFlow (currently 28 days) or at other times at ReFlow’s discretion. While ReFlow holds Fund shares, it will have the
same rights and privileges with respect to those shares as any other shareholder. ReFlow will periodically redeem its entire share
position in a Fund and request that such redemption be met in kind in accordance with the Funds’ redemption in kind policies
described under “Redeeming Shares” below. For use of the ReFlow service, the Funds pay a fee to ReFlow each time it
purchases Fund shares, calculated by applying to the purchase amount a fee rate determined through an automated daily auction among
participating mutual funds. The minimum fee rate is 0.25% of the value of the Funds’ shares purchased by ReFlow although
the Fund may submit a bid at a higher fee rate if it determines that doing so is in the best interest of Fund shareholders. Such
fee is allocated among the Funds’ share classes based on relative net assets. ReFlow’s purchases of Fund shares through
the liquidity program are made on an investment-blind basis without regard to the Funds’ objective, policies or anticipated
performance. ReFlow will purchase Class A shares at NAV and will not be subject to any sales charges and investment minimums applicable
to such shares. In accordance with federal securities laws, ReFlow is prohibited from acquiring more than 3% of the outstanding
voting securities of the Funds. The Adviser believes that the program assists in stabilizing the Funds’ net assets to the
benefit of the Funds and its shareholders. To the extent the Funds’ net assets do not decline, the Adviser may also benefit.
PORTFOLIO TURNOVER
The Funds may engage
in a high level of trading in seeking to achieve its investment objectives. The portfolio turnover rate for the Funds is calculated
by dividing the lesser of the purchases or sales of portfolio investments for the reporting period by the monthly average value
of the portfolio investments owned during the reporting period. A 100% portfolio turnover rate results, for example, if the equivalents
of all the securities in the Funds’ portfolio are replaced in a one-year period. The calculation excludes all securities,
including options, whose maturities or expiration dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be affected by cash requirements for redemption or
shares. The Funds are not restricted by policy with regard to portfolio turnover and will make changes in its investment portfolio
from time to time as business and economic conditions as well as market prices may dictate. The Funds’ turnover ratio is
affected by buying and selling in either its long positions as well as its short positions, or hedges.
The following table displays
the portfolio turnover rates for the Funds for the fiscal year ended December 31, 2018 as shown below:
FUND
|
Portfolio Turnover Rates
|
ACM Dynamic Opportunity Fund
|
271%
|
ACM Tactical Income Fund*
|
N/A
|
*The Fund had not yet commenced operations as of December
31, 2018.
The following table displays the portfolio
turnover rates for the Funds for the fiscal year ended December 31, 2019 as shown below:
FUND
|
Portfolio Turnover Rates
|
ACM Dynamic Opportunity Fund
|
325%
|
ACM Tactical Income Fund
|
645%
|
INVESTMENT RESTRICTIONS
The Funds have adopted
the following investment restrictions that may not be changed without approval by a "majority of the outstanding shares"
of the Funds which, as used in this SAI, means the vote of the lesser of (a) 67% or more of the shares of the Funds represented
at a meeting, if the holders of more than 50% of the outstanding shares of the Funds are present or represented by proxy, or (b)
more than 50% of the outstanding shares of the Funds. The Funds may not:
|
1.
|
Issue senior securities. This limitation is not applicable to activities that may be deemed
to involve the issuance or sale of a senior security by the Funds, provided that the Funds’ engagement in such activities
is consistent with or permitted by the 1940 Act, as amended, the rules and regulations promulgated thereunder or interpretations
of the SEC or its staff;
|
|
2.
|
Borrow money, except (a) from a bank, provided that immediately after such borrowing there is
an asset coverage of 300% for all borrowings of the Funds; or (b) from a bank or other persons for temporary purposes only, provided
that such temporary borrowings are in an amount not exceeding 5% of the Funds’ total assets at the time when the borrowing
is made. This limitation does not preclude a Fund from entering into reverse repurchase transactions, provided that the Fund has
an asset coverage of 300% for all borrowings and repurchase commitments of the Fund pursuant to reverse repurchase transactions;
|
|
3.
|
Purchase securities on margin, participate on a joint or joint and several basis in any securities
trading account, or underwrite securities (does not preclude the Funds from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities, and except to the extent that the Fund may be deemed an underwriter
under the Securities Act, by virtue of disposing of portfolio securities);
|
|
4.
|
Purchase or sell real estate or interests in real estate. This limitation is not applicable
to investments in marketable securities that are secured by or represent interests in real estate. This limitation does not preclude
the Funds from investing in mortgage-related securities or investing in companies engaged in the real estate business or that have
a significant portion of their assets in real estate (including real estate investment trusts);
|
|
5.
|
Invest 25% or more of the market value of its assets in the securities of companies engaged in
any one industry (does not apply to investment in the securities of the U.S. Government, its agencies or instrumentalities);
|
|
6.
|
Purchase or sell commodities (unless acquired as a result of ownership of securities or other investments
or through commodity forward contracts, futures contracts or options), except that the Fund may purchase and sell forward and futures
contracts and options to the full extent permitted under the 1940 Act, sell foreign currency contracts in accordance with any rules
of the Commodity Futures Trading Commission, invest in securities or other instruments backed by commodities, and invest in companies
that are engaged in a commodities business or have a significant portion of their assets in commodities; or
|
|
7.
|
Make loans to others, except (a) through the purchase of debt securities in accordance with its
investment objectives and policies, (b) to the extent the entry into a repurchase agreement is deemed to be a loan, and (c) by
loaning portfolio securities.
|
The Funds observe the
following policies, which are not deemed fundamental and which may be changed without shareholder vote. The Funds may not:
|
1.
|
Invest in any issuer for purposes of exercising control or management;
|
|
2.
|
Invest in securities of other investment companies except as permitted under the 1940 Act;
|
|
3.
|
Invest, in the aggregate, more than 15% of its net assets, measured at time of purchase, in securities
with legal or contractual restrictions on resale, securities, which are not readily marketable and repurchase agreements with more
than seven days to maturity; or
|
|
4.
|
Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any assets
of the Fund except as may be necessary in connection with borrowings described in limitation (2) above. Margin deposits, security
interests, liens and collateral arrangements with respect to transactions involving options, futures contracts, short sales and
other permitted investments and techniques are not deemed to be a mortgage, pledge or hypothecation of assets for purposes of this
limitation.
|
If a restriction on the
Funds’ investments is adhered to at the time an investment is made, a subsequent change in the percentage of Fund assets
invested in certain securities or other instruments, or change in average duration of the Funds’ investment portfolio, resulting
from changes in the value of the Funds’ total assets, will not be considered a violation of the restriction; provided, however,
that the asset coverage requirement applicable to borrowings shall be maintained in the manner contemplated by applicable law.
With respect to the fundamental
investment restriction regarding concentration, each Fund will consider the concentration of any underlying funds in which it invests
when determining whether the Fund has complied with its concentration policy.
INVESTMENT ADVISER
The Adviser. Ascendant
Capital Management, LLC, d/b/a ACM Funds, located at 10866 Wilshire Blvd., Suite 1600, Los Angeles, California 90024, serves as
investment adviser to the Funds. Subject to the oversight of the Board of Trustees, the Adviser is responsible for management of
each Fund’s investment portfolio. The Adviser is responsible for selecting the Funds’ investments according to each
Fund's investment objective, policies and restrictions. The Adviser was established in 2014 for the purpose of managing the Funds
and is 100% owned by Jordan Kahn.
Pursuant to advisory
agreements between the Trust (each an “Advisory Agreement”), on behalf of each Fund, and the Adviser, the Adviser is
entitled to receive, on a quarterly basis, the annual advisory fee listed in the table below as a percentage of each Fund’s
average daily net assets.
Each Advisory Agreement
continues in effect for two (2) years initially and shall continue from year to year provided such continuance is approved at least
annually by (a) a vote of the majority of the Independent Trustees, cast in person at a meeting specifically called for the purpose
of voting on such approval and by (b) the majority vote of either all of the Trustees or the vote of a majority of the outstanding
shares of the Funds’. The Advisory Agreements may be terminated without penalty on no more than 60 days’ written notice
by a vote of a majority of the Trustees or the Adviser, or by holders of a majority of that Trust's outstanding shares. The Advisory
Agreements shall terminate automatically in the event of its assignment. The Advisory Agreement for the ACM Dynamic Opportunity
Fund was renewed by the Board of Trustees at a meeting held on November 1927-208, 20198. The Advisory Agreement for the ACM Tactical
Income Fund was approved by the Board of Trustees at a meeting held on November 27-28, 2018.
The
Adviser has contractually agreed to waive its fees and reimburse expenses of the Funds, at least until April 30, 2021 to ensure
that Total Annual Fund Operating Expenses After Fee Waiver and Reimbursement (exclusive of any taxes, interest, brokerage commissions,
dividend expense on securities sold short, acquired fund fees and expenses, or extraordinary expenses such as litigation or reorganization
costs) will not exceed the percentages show in the table below.
These fee waivers and expense reimbursements are subject to possible recoupment
from the Fund in future years on a rolling three-year basis (within the three years after the fees have been waived or reimbursed)
if such recoupment can be achieved within the foregoing expense limits and any expense limits in place at time of waiver. The Expense
Limitation Agreement may be terminated only by the Board of Trustees, on 60 days’ written notice to the Adviser. Fee waiver
and reimbursement arrangements can decrease the Fund's expenses and boost its performance.
The
table below provides information about the advisory fees paid to the Adviser by the Funds for the fiscal period or year
ended December 31, 2017.
Period or Year Ended December 31, 2017
|
Fund
|
Management Fee
|
Fees Earned by the Adviser
|
Advisory Fees Waived
|
Net Fees Earned by the Adviser
|
Expense Reimbursed
|
Amount Subject to Recoupment
|
ACM Dynamic Opportunity Fund
|
1.25%
|
$688,279
|
-
|
$688,279
|
-
|
-
|
ACM Tactical Income Fund*
|
1.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
-
|
* The
Fund had not yet commenced operations as of the end of the fiscal period.
The
table below provides information about the advisory fees paid to the Adviser by the Funds for the fiscal period or year
ended December 31, 2018.
Period or Year Ended December 31, 2018
|
Fund
|
Management Fee
|
Fees Earned by the Adviser
|
Advisory Fees Waived
|
Net Fees Earned by the Adviser
|
Expense Reimbursed
|
Amount Subject to Recoupment
|
ACM Dynamic Opportunity Fund
|
1.25%
|
$1,065,150
|
-
|
$1,065,150
|
-
|
-
|
ACM Tactical Income Fund*
|
1.00%
|
N/A
|
N/A
|
N/A
|
N/A
|
-
|
* The
Fund had not yet commenced operations as of the end of the fiscal period.
The table below provides
information about the advisory fees paid to the Adviser by the Funds for the fiscal year ended December 31, 2019.
Year Ended December 31, 2019
|
Fund
|
Management Fee
|
Fees Earned by the Adviser
|
Advisory Fees Waived
|
Net Fees Earned by the Adviser
|
Expense Reimbursed
|
Amount Subject to Recoupment
|
ACM Dynamic Opportunity Fund
|
1.25%
|
$1,091,751
|
-
|
1,091,751
|
-
|
-
|
ACM Tactical Income Fund
|
1.00%
|
$112,601
|
$13,483
|
$99,118
|
N/A
|
$13,483
|
PORTFOLIO MANAGERS
Portfolio Managers.
As described in the Prospectus, the Portfolio Managers listed below are responsible for the management of the Funds and, as of
December 31, 2019, the other accounts set forth in the following tables.
|
Other Registered Investment Companies
|
Other Pooled Investment Vehicles
|
Other Accounts
|
Portfolio Manager
|
Number
|
Total Assets
|
Number
|
Total Assets
|
Number
|
Total Assets
|
Jordan Kahn
|
None
|
$0
|
None
|
$0
|
355
|
$210,500,000
|
Alan Savoian
|
None
|
$0
|
None
|
$0
|
0
|
None
|
Of the accounts above, the following are subject to performance-based
fees.
|
Other Registered Investment Companies
|
Other Pooled Investment Vehicles
|
Other Accounts
|
Portfolio Manager
|
Number
|
Total Assets
|
Number
|
Total Assets
|
Number
|
Total Assets
|
Jordan Kahn
|
None
|
$0
|
None
|
$0
|
None
|
$0
|
Alan Savoian
|
None
|
$0
|
None
|
$0
|
0
|
None
|
Conflicts of Interest.
As indicated in the table
above, the Portfolio Managers may manage numerous accounts for multiple clients. These accounts may include registered investment
companies, other types of pooled accounts (e.g., collective investment funds), and separate accounts (i.e., accounts managed on
behalf of individuals or public or private institutions). The Portfolio Managers make investment decisions for each account based
on the investment objectives and policies and other relevant investment considerations applicable to that portfolio.
When a Portfolio Manager
has responsibility for managing more than one account, potential conflicts of interest may arise. Those conflicts could include
preferential treatment of one account over others in terms of allocation of resources or of investment opportunities. For instance,
the Adviser may receive fees from certain accounts that are higher than the fee it receives from the Funds. In this instance, the
Portfolio Manager may have an incentive to favor the higher account over such Fund. The Adviser has adopted policies and procedures
designed to address these potential material conflicts. For instance, a Portfolio Manager is normally responsible for all accounts
within a certain investment discipline, and do not, absent special circumstances, differentiate among the various accounts when
allocating resources. Additionally, the Adviser utilizes a system for allocating investment opportunities among portfolios that
is designed to provide a fair and equitable allocation.
Compensation.
Mr. Kahn shares in the
profits of the Adviser due to his 100% ownership of the Adviser. Mr. Savoian receives a fixed salary from the Adviser.
Ownership
of Securities.
As of December 31,
2019, the Portfolio Managers beneficially owned the following amounts in the Funds:
Portfolio Manager
|
Dollar Range of Shares Beneficially Owned in the ACM Dynamic Opportunity Fund
|
Dollar Range of Shares Beneficially Owned
in the ACM Tactical Income Fund
|
Jordan Kahn
|
Over $1,000,000
|
Over $1,000,000
|
Alan Savoian
|
None
|
None
|
ALLOCATION OF BROKERAGE
Specific decisions to
purchase or sell securities for the Funds are made by the Portfolio Managers who are employees of the Adviser. The Adviser is also
responsible for the implementation of those decisions, including the selection of broker-dealers to effect portfolio transactions,
the negotiation of commissions, and the allocation of principal business and portfolio brokerage.
In purchasing and selling
the Funds’ portfolio securities, it is the Adviser’s policy to obtain quality execution at the most favorable prices
through responsible broker-dealers and, in the case of agency transactions, at competitive commission rates where such rates are
negotiable. However, under certain conditions, the Funds may pay higher brokerage commissions in return for brokerage and research
services. In selecting broker-dealers to execute the Funds’ portfolio transactions, consideration is given to such factors
as the price of the security, the rate of the commission, the size and difficulty of the
order, the reliability, integrity, financial
condition, general execution and operational capabilities of competing brokers and dealers, their expertise in particular markets
and the brokerage and research services they provide to the Adviser or the Funds. It is not the policy of the Adviser to seek the
lowest available commission rate where it is believed that a broker or dealer charging a higher commission rate would offer greater
reliability or provide better price or execution.
Transactions on stock exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated.
Traditionally, commission rates have generally not been negotiated on stock markets outside the United States. In recent years,
however, an increasing number of overseas stock markets have adopted a system of negotiated rates, although a number of markets
continue to be subject to an established schedule of minimum commission rates. It is expected that equity securities will ordinarily
be purchased in the primary markets, whether over-the-counter or listed, and that listed securities may be purchased in the over-the-counter
market if such market is deemed the primary market. In the case of securities traded on the over-the-counter markets, there is
generally no stated commission, but the price usually includes an undisclosed commission or markup. In underwritten offerings,
the price includes a disclosed, fixed commission or discount.
For fixed income securities,
it is expected that purchases and sales will ordinarily be transacted with the issuer, the issuer’s underwriter, or with
a primary market maker acting as principal on a net basis, with no brokerage commission being paid by the Funds. However, the price
of the securities generally includes compensation, which is not disclosed separately. Transactions placed through dealers who are
serving as primary market makers reflect the spread between the bid and asked prices.
With respect to equity
and fixed income securities, the Adviser may effect principal transactions on behalf of each Fund with a broker or dealer who furnishes
brokerage and/or research services, designate any such broker or dealer to receive selling concessions, discounts or other allowances
or otherwise deal with any such broker or dealer in connection with the acquisition of securities in underwritings. The prices
the Funds pay to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter. The
Adviser may receive research services in connection with brokerage transactions, including designations in fixed price offerings.
The Adviser receives a wide
range of research services from brokers and dealers covering investment opportunities throughout the world, including information
on the economies, industries, groups of securities, individual companies, statistics, political developments, technical market
action, pricing and appraisal services, and performance analyses of all the countries in which the Fund’s portfolio is likely
to be invested. The Adviser cannot readily determine the extent to which commissions charged by brokers reflect the value of their
research services, but brokers occasionally suggest a level of business they would like to receive in return for the brokerage
and research services they provide. To the extent that research services of value are provided by brokers, the Adviser may be relieved
of expenses, which it might otherwise bear. In some cases, research services are generated by third parties but are provided to
the Adviser by or through brokers.
Certain broker-dealers,
which provide quality execution services, also furnish research services to the Adviser. The Adviser has adopted brokerage allocation
policies embodying the concepts of Section 28(e) of the Securities Exchange Act of 1934, which permits an investment adviser to
cause its clients to pay a broker which furnishes brokerage or research services a higher commission than that which might be charged
by another broker which does not furnish brokerage or research services, or which furnishes brokerage or research services deemed
to be of lesser value, if such commission is deemed reasonable in relation to the brokerage and research services provided by the
broker, viewed in terms of either that particular transaction or the overall responsibilities of the adviser with respect to
the accounts as to which it exercises investment
discretion. Accordingly, the Adviser may assess the reasonableness of commissions in light of the total brokerage and research
services provided by each particular broker.
Portfolio securities
will not be purchased from or sold to the Adviser, or the Distributor, or any affiliated person of any of them acting as principal,
except to the extent permitted by rule or order of the SEC. For the year ended December 31, 2017, the ACM Dynamic Opportunity Fund
paid brokerage commissions of $126,741. For the year ended December 31, 2018, the ACM Dynamic Opportunity Fund paid brokerage commissions
of $277,946. For the year ended December 31, 2019, the ACM Dynamic Opportunity Fund and ACM Tactical Income Fund paid brokerage
commissions of $248,446 and $54,324, respectively.
POLICIES AND PROCEDURES FOR DISCLOSURE OF
PORTFOLIO HOLDINGS
The Trust has adopted
policies and procedures that govern the disclosure of the Funds’ portfolio holdings. These policies and procedures are designed
to ensure that such disclosure is in the best interests of each Funds’ shareholders.
It is the Trust's policy to: (1) ensure that
any disclosure of portfolio holdings information is in the best interest of Trust shareholders; (2) protect the confidentiality
of portfolio holdings information; (3) have procedures in place to guard against personal trading based on the information; and
(4) ensure that the disclosure of portfolio holdings information does not create conflicts between the interests of the Trust's
shareholders and those of the Trust's affiliates.
The Funds disclose its
portfolio holdings by mailing the annual and semi-annual reports to shareholders approximately two months after the end of the
fiscal year and semi-annual period. In addition, the Funds disclose its portfolio holdings reports on Forms N-CSR, N-PORT and N-CEN
two months after the end of each quarter/semi-annual period.
Within thirty days after
the end of each month, the Adviser posts on the Funds’ website a profile of each Fund which typically includes the Funds’
top twenty holdings. The Funds may choose to make available, no sooner than thirty days after the end of each month, a complete
schedule of its portfolio holdings as of the last day of the month.
The Funds may choose
to make portfolio holdings information available to rating agencies such as Lipper, Morningstar or Bloomberg earlier and more frequently
on a confidential basis.
Under limited circumstances,
as described below, the Funds’ portfolio holdings may be disclosed to, or known by, certain third parties in advance of their
filing with the SEC on Form N-CSR, N-PORT or N-CEN. In each case, a determination has been made by the Trust’s Chief Compliance
Officer that such advance disclosure is supported by a legitimate business purpose of the Funds and that the recipient is subject
to a duty to keep the information confidential and to not trade on material non-public information.
Ascendant Capital Management, LLC d/b/a
ACM Funds. Personnel of the Adviser, including personnel responsible for managing the Funds’ portfolio, may have full
daily access to the Funds’ portfolio holdings since that information is necessary in order for them to provide management,
administrative, and investment services to the Fund. As required for purposes of analyzing the impact of existing and future market
changes on the prices, availability, demand and liquidity of such securities,
as well as for the assistance of the Portfolio
Managers in the trading of such securities, Adviser personnel may also release and discuss certain portfolio holdings with various
broker-dealers.
Gemini Fund Services, LLC. Gemini
Fund Services, LLC is the transfer agent, fund accountant, administrator and custody administrator for the Funds; therefore, its
personnel have full daily access to the Funds’ portfolio holdings since that information is necessary in order for them to
provide the agreed-upon services for the Trust.
MUFG Union Bank, N.A. MUFG Union Bank,
N.A. is custodian for the Funds; therefore, its personnel have full daily access to the Funds’ portfolio holdings since that
information is necessary in order for them to provide the agreed-upon services for the Trust.
BBD, LLP. BBD,
LLP is the Funds’ independent registered public accounting firm; therefore, its personnel have access to the Funds’
portfolio holdings in connection with auditing of the Funds’ annual financial statements and providing assistance and consultation
in connection with SEC filings.
Counsel to the Trust and Counsel to the
Independent Trustees. Counsel to the Trust and Counsel to the Independent Trustees, together with their respective personnel,
have access to the Funds’ portfolio holdings in connection with the review of the Funds’ annual and semi-annual shareholder
reports and SEC filings.
Additions to List of Approved Recipients
The Trust's Chief Compliance
Officer is the person responsible, and whose prior approval is required, for any disclosure of the Funds’ portfolio securities
at any time or to any persons other than those described above. In such cases, the recipient must have a legitimate business need
for the information in connection with the operation or administration of the Funds, as determined by the Trust’s Chief Compliance
Officer, and must be subject to a duty to keep the information confidential. There are no ongoing arrangements in place with respect
to the disclosure of portfolio holdings. In no event shall the Funds, the Adviser, or any other party receive any direct or indirect
compensation in connection with the disclosure of information about the Funds’ portfolio holdings.
Compliance With Portfolio Holdings Disclosure
Procedures
The Trust’s Chief
Compliance Officer will report periodically to the Board with respect to compliance with the Funds’ portfolio holdings disclosure
procedures, and from time to time will provide the Board any updates to the portfolio holdings disclosure policies and procedures.
There is no assurance
that the Trust's policies on disclosure of portfolio holdings will protect the Funds from the potential misuse of holdings information
by individuals or firms in possession of that information.
OTHER SERVICE PROVIDERS
Fund Administration,
Fund Accounting and Transfer Agent Services
Gemini Fund Services,
LLC (the “Administrator” or “GFS”), which has its principal office at 4221 North 203rd Street, Suite 100,
Elkhorn, Nebraska 68022-3474, serves as administrator, fund accountant and transfer agent for the Funds pursuant to the Fund Services
Agreement (the “Agreement”) with the Trust and subject to the oversight of the Board. GFS is primarily in the business
of providing administrative, fund accounting and transfer agent services to retail and institutional mutual funds. GFS is an affiliate
of the Distributor. GFS may also provide persons to serve as officers of the Funds. Such officers may be directors, officers or
employees of GFS or its affiliates.
The Agreement became
effective on February 23, 2012, remained in effect for two years from the applicable effective date for the Funds, and will continue
in effect for successive twelve-month periods provided that such continuance is specifically approved at least annually by a majority
of the Board. The Agreement is terminable by the Board or GFS on 90 days’ written notice and may be assigned by either
party, provided that the Trust may not assign this agreement without the prior written consent of GFS. The Agreement provides that
GFS shall be without liability for any action reasonably taken or omitted pursuant to the Agreement.
Under the Agreement,
GFS performs administrative services, including: (1) monitoring the performance of administrative and professional services rendered
to the Trust by others service providers; (2) monitoring each Fund’s holdings and operations for post-trade compliance with
the Fund’s registration statement and applicable laws and rules; (3) preparing and coordinating the printing of semi-annual
and annual financial statements; (4) preparing selected management reports for performance and compliance analyses; (5) preparing
and disseminating materials for and attend and participating in meetings of the Board; (6) determining income and capital gains
available for distribution and calculating distributions required to meet regulatory, income, and excise tax requirements; (7)
reviewing the Trust's federal, state, and local tax returns as prepared and signed by the Trust's independent public accountants;
(8) preparing and maintaining the Trust's operating expense budget to determine proper expense accruals to be charged to the Funds
to calculate its daily NAV; (9) assisting in and monitoring the preparation, filing, printing and where applicable, dissemination
to shareholders of amendments to the Trust’s Registration Statement on Form N-1A, periodic reports to the Trustees, shareholders
and the SEC, notices pursuant to Rule 24f-2, proxy materials and reports to the SEC on Forms N-CEN, N-CSR, N-PORT, and N-PX; (10)
coordinating the Trust's audits and examinations by assisting the Funds’ independent public accountants; (11) determining,
in consultation with others, the jurisdictions in which shares of the Trust shall be registered or qualified for sale and facilitate
such registration or qualification; (12) monitoring sales of shares and ensure that the shares are properly and duly registered
with the SEC; (13) monitoring the calculation of performance data for the Funds; (14) preparing, or causing to be prepared, expense
and financial reports; (15) preparing authorization for the payment of Trust expenses and pay, from Trust assets, all bills of
the Trust; (16) providing information typically supplied in the Investment Company industry to companies that track or report price,
performance or other information with respect to investment companies; (17) upon request, assisting the Funds in the evaluation
and selection of other service providers, such as independent public accountants, printers, EDGAR providers and proxy solicitors
(such parties may be affiliates of GFS); and (18) performing other services, recordkeeping and assistance relating to the affairs
of the Trust as the Trust may, from time to time, reasonably request.
GFS also provides the
Funds with accounting services, including: (i) computing of NAV daily; (ii) maintaining of security ledgers and books and records
as required by the 1940 Act; (iii) producing the Funds’ listing of portfolio securities and general ledger reports; (iv)
reconciling accounting records; (v) calculating yield and total return for the Funds; (vi) maintaining certain books and records
described in Rule 31a-1 under the 1940 Act, and reconciling account information and balances among the Funds’ custodian and
Adviser; and (vii) monitoring and evaluating daily income and expense accruals, and sales and redemptions of shares of the Funds.
GFS also acts as transfer,
dividend disbursing, and shareholder servicing agent for the Funds pursuant to the Agreement. Under the Agreement, GFS is responsible
for administering and performing transfer agent functions, dividend distribution, shareholder administration, and maintaining necessary
records in accordance with applicable rules and regulations.
For the services rendered
to the Funds by the Administrator, the Funds pay the Administrator the greater of an annual minimum fee or an asset based fee,
which scales downward based upon net assets for fund administration, fund accounting and transfer agency services. The Funds also
pays GFS for any out-of-pocket expenses.
For the fiscal period
or year ended December 31, 2019, the Funds incurred the following fees:
Fund
|
For Administration Services
|
For Fund Accounting Services
|
For Transfer Agency Services
|
ACM Dynamic Opportunity Fund
|
$81,932
|
$55,898
|
$28,423
|
ACM Tactical Income Fund
|
$11,148
|
$6,516
|
$19,873
|
For
the fiscal period or year ended December 31, 2018, the Funds incurred the
following fees:
|
Fund
|
For Administration Services
|
For Fund Accounting Services
|
For Transfer Agency Services
|
|
|
ACM Dynamic Opportunity Fund
|
$95,041
|
$46,160
|
$26,327
|
|
|
ACM Tactical Income Fund*
|
N/A
|
N/A
|
N/A
|
|
*
|
The Fund had not yet commenced operations as of the end of the fiscal period.
|
|
|
|
|
|
|
|
For
the fiscal year ended December 31, 2017, the Funds incurred the following
fees:
Fund
|
For Administration Services
|
For Fund Accounting Services
|
For Transfer Agency Services
|
ACM Dynamic Opportunity Fund
|
$59,600
|
$39,836
|
$27,862
|
ACM Tactical Income Fund*
|
N/A
|
N/A
|
N/A
|
*
|
The Fund had not yet commenced operations as of the end of the fiscal period.
|
Effective February 1, 2019,
NorthStar Financial Services Group, LLC, the parent company of GFS, the Distributor, and Northern Lights Compliance Services, LLC
(collectively, the “Gemini Companies”), sold its interest in the Gemini Companies to a third party private equity firm
that contemporaneously acquired Ultimus Fund Solutions, LLC (an independent mutual fund administration firm) and its affiliates
(collectively, the “Ultimus Companies”). As a result of these separate transactions, the Gemini Companies and the Ultimus Companies
are now indirectly owned through a common parent entity, The Ultimus Group, LLC.
Custodian
MUFG Union Bank N.A.,
(the “Custodian”) located at 400 California Street, San Francisco, California 94104, serves as the custodian of the
Funds’ assets pursuant to a custody agreement (the "Custody Agreement") by and between the Custodian and the Trust
on behalf of the Funds. The Custodian's responsibilities include safeguarding and controlling the Funds’ cash and securities,
handling the receipt and delivery of securities, and collecting interest and dividends on the Funds’ investments. Pursuant
to the Custody Agreement, the Custodian also maintains original entry documents and books of record and general ledgers; posts
cash receipts and disbursements; and records purchases and sales based upon communications from the Adviser. The Funds may employ
foreign sub-custodians that are approved by the Board to hold foreign assets.
Compliance Services
Northern Lights Compliance
Services, LLC (“NLCS”), located at 4221 North 203rd Street, Suite 100, Elkhorn, Nebraska 68022-3474, an affiliate of
GFS and the Distributor, provides a Chief Compliance Officer to the Trust as well as related compliance services pursuant to a
consulting agreement between NLCS and the Trust. NLCS’s compliance services consist primarily of reviewing and assessing
the policies and procedures of the Trust and its service providers pertaining to compliance with applicable federal securities
laws, including Rule 38a-1 under the 1940 Act. For the services rendered to the Funds by the NLCS, the Funds pay NLCS an annual
fixed fee and an asset based fee, which scales downward based upon the Fund’s net assets.
For the fiscal period
or year ended December 31, 2019, the Funds incurred the following fees:
Fund
|
Compliance Service Fees
|
ACM Dynamic Opportunity Fund
|
$19,584
|
ACM Tactical Income Fund
|
$8,330
|
For the fiscal period
or year ended December 31, 2018, the Funds incurred the following fees:
|
Fund
|
Compliance Service Fees
|
|
ACM Dynamic Opportunity Fund
|
$20,082
|
|
ACM Tactical Income Fund*
|
N/A
|
*
|
The Fund had not yet commenced operations as of the end of the fiscal period.
|
|
|
|
|
For the fiscal year ended
December 31, 2017, the Funds incurred the following fees:
Fund
|
Compliance Service Fees
|
ACM Dynamic Opportunity Fund
|
$23,459
|
ACM Tactical Income Fund*
|
N/A
|
*
|
The Fund had not yet commenced operations as of the end of the fiscal period.
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The
Board, on behalf of the Funds, selected BBD, LLP located at 1835 Market Street, 3rd Floor, Philadelphia, Pennsylvania
19103, as the Funds’ independent registered public accounting firm for the current fiscal year. The firm provides services
including (i) audit of annual financial statements, and (ii) assistance and consultation in connection with SEC filings.
LEGAL COUNSEL
Thompson Hine LLP, located
at 41 South High Street, Suite 1700, Columbus, Ohio 43215 serves as the Trust's legal counsel.
DISTRIBUTOR
Northern Lights Distributors,
LLC, located at 4221 North 203rd Street, Suite 100, Elkhorn, Nebraska 68022-3474 (the "Distributor") serves as the principal
underwriter and national distributor for the shares of the Funds pursuant to an underwriting agreement with the Trust (the "Underwriting
Agreement"). The Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934 and each state's securities
laws and is a member of FINRA. The offering of the Funds’ shares is continuous. The Underwriting Agreement provides that
the Distributor, as agent in connection with the distribution of each Fund’s shares, will use reasonable efforts to facilitate
the sale of the Funds’ shares.
The Underwriting Agreement
provides that, unless sooner terminated, it will continue in effect for two years initially and thereafter shall continue from
year to year, subject to annual approval by (a) the Board or a vote of a majority of the outstanding shares, and (b) by a majority
of the Trustees who are not interested persons of the Trust or of the Distributor by vote cast in person at a meeting called for
the purpose of voting on such approval.
The Underwriting Agreement
may be terminated by the Funds at any time, without the payment of any penalty, by vote of a majority of the Trust’s entire
Board or by vote of a majority of the outstanding shares of the Funds on 60 days’ written notice to the Distributor, or by
the Distributor at any time, without the payment of any penalty, on 60 days’ written notice to the Funds. The Underwriting
Agreement will automatically terminate in the event of its assignment.
The following table sets forth the
total compensation received by the Distributor from the Funds during the fiscal year ended December 31, 2019:
Fund
|
Net Underwriting Discounts and Commissions
|
Compensation on Redemptions and Repurchases
|
Brokerage Commissions
|
Other Compensation
|
ACM Dynamic Opportunity Fund - Class A
|
$1,999
|
$0
|
$0
|
*
|
ACM Dynamic Opportunity Fund - Class I
|
$0
|
$0
|
$0
|
*
|
ACM Tactical Income Fund - Class A
|
$5,774
|
$0
|
$0
|
*
|
ACM Tactical Income Fund - Class I
|
$0
|
$0
|
$0
|
*
|
* The Distributor received $21,055 from the Adviser as compensation for its distribution services to the Funds.
|
The Distributor also receives 12b-1 fees from the Funds as described under the following section entitled “Rule 12b-1 Plan”.
|
Rule 12b-1 Plan
The Trust, on behalf
of the Funds, have adopted the Trust’s Master Distribution and Shareholder Servicing Plan for Class A shares, pursuant to
Rule 12b-1 under the 1940 Act (the “Plan”) pursuant to which each Fund is authorized to pay the Distributor, as compensation
for the Distributor's account maintenance services under the Plans, a distribution and shareholder servicing fee at the rate of
up to 0.25% for Class A shares of the Funds’ average daily net assets attributable to the relevant class. Such fees are to
be paid by the Funds monthly, or at such other intervals as the Board shall determine. Such fees shall be based upon the Funds’
average daily net assets during the preceding month, and shall be calculated and accrued daily. The Funds may pay fees to the Distributor
at a lesser rate, as agreed upon by the Board of Trustees and the Distributor. The Plan authorizes payments to the Distributor
as compensation for providing account maintenance services to a Fund’s shareholders, including arranging for certain securities
dealers or brokers, administrators and others ("Recipients") to provide these services and paying compensation for these
services. The Funds will bear its own costs of distribution with respect to its shares. The Funds may make other payments, such
as contingent deferred sales charges imposed on certain redemptions of shares, which are separate and apart from payments made
pursuant to the Plan.
The services to be provided
by Recipients may include, but are not limited to, the following: assistance in the offering and sale of a Funds’ 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 Funds; assisting in the establishment and maintenance of accounts or sub-accounts in the Funds and in
processing purchase and redemption transactions; making the Funds’ investment plan and shareholder services available; and
providing such other information and services to investors in shares of the Funds as the Distributor or the Trust, on behalf of
each 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 Funds.
The Distributor is required
to provide a written report, at least quarterly to the Board of Trustees, specifying in reasonable detail the amounts expended
pursuant to the Plans 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 Plan may not be amended
to increase materially the amount of the Distributor's compensation to be paid by the Funds, unless such amendment is approved
by the vote of a majority of the outstanding voting securities of the affected class of the Funds (as defined in the 1940 Act).
All material amendments must be approved by a majority of the Board and a majority of the Trustees by votes cast in person at a
meeting called for the purpose of voting on a Plan. During the term of the Plans, 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 Plans, 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 Funds at any time upon 60 days' written
notice, without the payment of any penalty, by vote of a majority of the Trustees, or by vote of a majority of the outstanding
voting securities of the Trust or the Funds; (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
Trustees by votes cast in person at a meeting called for the purpose of voting on such agreement.
During the fiscal year
ended December 31, 2019, the ACM Dynamic Opportunity Fund and ACM Tactical Income Fund paid $18,502 and $1,896, respectively, in
distribution related fees pursuant to the Plan, as allocated below:
Actual 12b-1 Expenditures Paid by
|
ACM Dynamic Opportunity Fund - Class A Shares
|
During the Fiscal Period Ended December 31, 2019
|
|
ACM Dynamic Opportunity Fund - Class A
|
ACM Dynamic Opportunity Fund - Class I
|
ACM Tactical Income Fund - Class A
|
ACM Tactical Income Fund - Class I
|
|
Total Dollars Allocated
|
Total Dollars Allocated
|
Total Dollars Allocated
|
Total Dollars Allocated
|
Advertising/Marketing
|
None
|
None
|
None
|
None
|
Printing/Postage
|
None
|
None
|
None
|
None
|
Payment to distributor
|
$6,156
|
$0
|
$823
|
$0
|
Payment to dealers
|
$12,346
|
$0
|
$1,073
|
$0
|
Compensation to sales personnel
|
None
|
None
|
None
|
None
|
Other
|
$0
|
$0
|
$0
|
$0
|
Total
|
$18,502
|
$0
|
$1,896
|
$0
|
DESCRIPTION OF SHARES
Each share of beneficial
interest of the Trust has one vote in the election of Trustees. Cumulative voting is not authorized for the Trust. This means that
the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to
do so, and, in that event, the holders of the remaining shares will be unable to elect any Trustees.
Shareholders of the Trust
and any other future series of the Trust will vote in the aggregate and not by series except as otherwise required by law or when
the Board determines that the matter to be voted upon affects only the interest of the shareholders of a particular series or classes.
Matters such as election of Trustees are not subject to separate voting requirements and may be acted upon by shareholders of the
Trust voting without regard to series.
The Trust is authorized
to issue an unlimited number of shares of beneficial interest. Each share has equal dividend, distribution and liquidation rights.
There are no conversion or preemptive rights applicable to any shares of the Funds. All shares issued are fully paid and non-assessable.
CODE OF ETHICS
The Trust, the Adviser
and the Distributor have each adopted codes of ethics under Rule 17j-1 under the 1940 Act that governs the personal securities
transactions of their board members, officers and employees who may have access to current trading information of the Trust. Under
the code of
ethics adopted by the Trust, the Trustees
are permitted to invest in securities that may also be purchased by the Funds.
In addition, the Trust
has adopted a code of ethics, which applies only to the Trust's executive officers (the "Code") to ensure that these
officers promote professional conduct in the practice of corporate governance and management. The purpose behind these guidelines
is to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; (ii) full, fair, accurate, timely, and understandable disclosure in reports and documents
that a registrant files with, or submits to, the SEC and in other public communications made by the Funds; (iii) compliance with
applicable governmental laws, rule and regulations; (iv) the prompt internal reporting of violations of this Code to an appropriate
person or persons identified in the Code; and (v) accountability for adherence to the Code.
PROXY VOTING POLICIES
The Board has adopted
Proxy Voting Policies and Procedures ("Policies") on behalf of the Trust, which delegate the responsibility for voting
proxies to the Adviser or its designee, subject to the Board's continuing oversight. The Policies require that the Adviser or its
designee vote proxies received in a manner consistent with the best interests of the Funds and shareholders. The Policies also
require the Adviser or its designee to present to the Board, at least annually, the Policies, or the proxy policies of the Adviser's
designee, and a record of each proxy voted by the Adviser or its designee on behalf of the Funds, including a report on the resolution
of all proxies identified by the Adviser as involving a conflict of interest.
Where a proxy proposal
raises a material conflict between the Adviser's interests and the Funds’ interests, the Adviser will resolve the conflict
by voting in accordance with the policy guidelines or at the client's directive using the recommendation of an independent third
party. If the third party's recommendations are not received in a timely fashion, the Adviser will abstain from voting the securities
held by that client's account. A copy of the Policies is attached hereto as Appendix B.
Information regarding
how the Funds voted proxies during the most recent 12-month period ended June 30 is available without charge, upon request, by
calling toll free, 1-844-798-3833 and by accessing the information on proxy voting filed by the Funds on Form N-PX on the SEC's
website at www.sec.gov. In addition, a copy of the Policies is also available by calling 1-844-798-3833 and will be sent within
three business days of receipt of a request.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Calculation of Share Price
As indicated in the Prospectus
under the heading "How to Purchase Shares," the NAV of each Fund's shares, by class, is determined by dividing the total
value of the Fund's portfolio investments and other assets, less any liabilities, by the total number of shares outstanding of
each Fund, by class, respectively.
Generally, the Funds’
domestic securities (including underlying ETFs which hold portfolio securities primarily listed on foreign (non-U.S.) exchanges)
are valued each day at the last quoted sales price on each security’s primary exchange. Securities traded or dealt in upon
one or more securities
exchanges for which market quotations are
readily available and not subject to restrictions against resale shall be valued at the last quoted sales price on the primary
exchange or, in the absence of a sale on the primary exchange, at the mean between the current bid and ask prices on such exchange.
Securities primarily traded in the NASDAQ National Market System for which market quotations are readily available shall be valued
using the NASDAQ Official Closing Price. If market quotations are not readily available, securities will be valued at their fair
market value as determined in good faith by the Funds’ fair value committee in accordance with procedures approved by the
Board of Trustees and as further described below. Securities that are not traded or dealt in any securities exchange (whether domestic
or foreign) and for which over-the-counter market quotations are readily available generally shall be valued at the last sale price
or, in the absence of a sale, at the mean between the current bid and ask price on such over-the- counter market.
Certain securities or
investments for which daily market quotes are not readily available may be valued, pursuant to guidelines established by the Board
of Trustees, with reference to other securities or indices. Debt securities not traded on an exchange may be valued at prices supplied
by a pricing agent(s) based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference
to the value of other securities with similar characteristics, such as rating, interest rate and maturity. Short-term investments
having a maturity of 60 days or less may be generally valued at amortized cost when it approximated fair value.
Exchange traded options
are valued at the last quoted sales price or, in the absence of a sale, at the mean between the current bid and ask prices on the
exchange on which such options are traded. Futures and options on futures are valued at the settlement price determined by the
exchange. Other securities for which market quotes are not readily available are valued at fair value as determined in good faith
by the Board of Trustees or persons acting at their direction. Swap agreements and other derivatives are generally valued daily
based upon quotations from market makers or by a pricing service in accordance with the valuation procedures approved by the Board
of Trustees.
Under certain circumstances,
the Funds may use an independent pricing service to calculate the fair market value of foreign equity securities on a daily basis
by applying valuation factors to the last sale price or the mean price as noted above. The fair market values supplied by the independent
pricing service will generally reflect market trading that occurs after the close of the applicable foreign markets of comparable
securities or the value of other instruments that have a strong correlation to the fair-valued securities. The independent pricing
service will also take into account the current relevant currency exchange rate. A security that is fair valued may be valued at
a price higher or lower than actual market quotations or the value determined by other funds using their own fair valuation procedures.
Because foreign securities may trade on days when Fund shares are not priced, the value of securities held by the Funds can change
on days when Fund shares cannot be redeemed or purchased. In the event that a foreign security’s market quotations are not
readily available or are deemed unreliable (for reasons other than because the foreign exchange on which it trades closed before
the Funds’ calculation of NAV), the security will be valued at its fair market value as determined in good faith by the Funds’
fair value committee in accordance with procedures approved by the Board of Trustees as discussed below. Without fair valuation,
it is possible that short-term traders could take advantage of the arbitrage opportunity and dilute the NAV of long-term investors.
Fair valuation of the Funds’ portfolio securities can serve to reduce arbitrage opportunities available to short-term traders,
but there is no assurance that it will prevent dilution of the Funds’ NAV by short-term traders. In addition, because the
Funds may invest in underlying ETFs which hold portfolio securities primarily listed on foreign (non-U.S.) exchanges, and these
exchanges may trade on weekends or other days when the underlying ETFs do not price their shares, the value of these portfolio
securities may change on days when you may not be able to buy or sell Fund shares.
Investments initially
valued in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services.
As a result, the NAV of the Funds’ shares may be affected by changes in the value of currencies in relation to the U.S. dollar.
The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may
be affected significantly on a day that the New York Stock Exchange is closed and an investor is not able to purchase, redeem or
exchange shares.
Fund shares are valued
at the close of regular trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time) (the "NYSE Close")
on each day that the New York Stock Exchange is open. For purposes of calculating the NAV, the Funds normally use pricing data
for domestic equity securities received shortly after the NYSE Close and does not normally take into account trading, clearances
or settlements that take place after the NYSE Close. Domestic fixed income and foreign securities are normally priced using data
reflecting the earlier closing of the principal markets for those securities. Information that becomes known to the Fund or its
agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of the
security or the NAV determined earlier that day.
When market quotations
are insufficient or not readily available, the Funds may value securities at fair value or estimate their value as determined in
good faith by the Board of Trustees or its designees, pursuant to procedures approved by the Board. Fair valuation may also be
used by the Board of Trustees if extraordinary events occur after the close of the relevant market but prior to the NYSE Close.
The Funds may hold securities,
such as private placements, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which
market quotations are not readily available or are determined to be unreliable. These securities will be valued at their fair market
value as determined using the “fair value” procedures approved by the Board. The Board has delegated execution of these
procedures to a fair value committee composed of one of more officers from each of the (i) Trust, (ii) administrator, and (iii)
Adviser. The committee may also enlist third party consultants such as an audit firm or financial officer of a security issuer
on an as-needed basis to assist in determining a security-specific fair value. The Board reviews and ratifies the execution of
this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Value Committee
and Valuation Process. The fair value committee is composed of one of more officers from each of the (i) Trust, (ii) administrator,
and (iii) Adviser. The applicable investments are valued collectively via inputs from each of these groups. For example, fair value
determinations are required for the following securities: (i) securities for which market quotations are insufficient or not readily
available on a particular business day (including securities for which there is a short and temporary lapse in the provision of
a price by the regular pricing source), (ii) securities for which, in the judgment of the Adviser, the prices or values available
do not represent the fair value of the instrument. Factors which may cause the Adviser to make such a judgment include, but are
not limited to, the following: only a bid price or an asked price is available; the spread between bid and asked prices is substantial;
the frequency of sales; the thinness of the market; the size of reported trades; and actions of the securities markets, such as
the suspension or limitation of trading; (iii) securities determined to be illiquid; (iv) securities with respect to which an event
that will affect the value thereof has occurred (a “significant event”) since the closing prices were established on
the principal exchange on which they are traded, but prior to the Funds’ calculation of its NAV. Specifically, interests
in commodity pools or managed futures pools are valued on a daily basis by reference to the closing market prices of each futures
contract or other asset held by a pool, as adjusted for pool expenses. Restricted or illiquid securities, such as private placements
or non-traded securities are valued via inputs from the Adviser valuation based upon the current bid for the security from two
or more independent dealers or other
parties reasonably familiar with the facts
and circumstances of the security (who should take into consideration all relevant factors as may be appropriate under the circumstances).
If the Adviser is unable to obtain a current bid from such independent dealers or other independent parties, the fair value committee
shall determine the fair value of such security using the following factors: (i) the type of security; (ii) the cost at date of
purchase; (iii) the size and nature of the Funds’ holdings; (iv) the discount from market value of unrestricted securities
of the same class at the time of purchase and subsequent thereto; (v) information as to any transactions or offers with respect
to the security; (vi) the nature and duration of restrictions on disposition of the security and the existence of any registration
rights; (vii) how the yield of the security compares to similar securities of companies of similar or equal creditworthiness; (viii)
the level of recent trades of similar or comparable securities; (ix) the liquidity characteristics of the security; (x) current
market conditions; and (xi) the market value of any securities into which the security is convertible or exchangeable.
Standards For Fair
Value Determinations. As a general principle, the fair value of a security is the amount that the Fund might reasonably
expect to realize upon its current sale. The Trust has adopted Financial Accounting Standards Board Statement of Financial Accounting
Standards Codification Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). In accordance with ASC 820, fair
value is defined as the price that the Funds would receive upon selling an investment in a timely transaction to an independent
buyer in the principal or most advantageous market of the investment. ASC 820 establishes a three-tier hierarchy to maximize the
use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements
for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed
based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the
reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability, developed
based on the best information available under the circumstances.
Various inputs are used
in determining the value of each Fund's investments relating to ASC 820. These inputs are summarized in the three broad levels
listed below.
Level 1 – quoted
prices in active markets for identical securities.
Level 2 – other
significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk,
etc.)
Level 3 – significant
unobservable inputs (including a Fund’s own assumptions in determining the fair value of investments).
The fair value committee
takes into account the relevant factors and surrounding circumstances, which may include: (i) the nature and pricing history (if
any) of the security; (ii) whether any dealer quotations for the security are available; (iii) possible valuation methodologies
that could be used to determine the fair value of the security; (iv) the recommendation of a portfolio manager of the Funds with
respect to the valuation of the security; (v) whether the same or similar securities are held by other funds managed by the Adviser
or other funds and the method used to price the security in those funds; (vi) the extent to which the fair value to be determined
for the security will result from the use of data or formulae produced by independent third parties and (vii) the liquidity or
illiquidity of the market for the security.
Board of Trustees’
Determination. The Board meets at least quarterly to consider the valuations provided by the fair value committee and to ratify
the valuations made for the applicable securities. The Board of Trustees considers the reports provided by the fair value committee,
including follow up studies of subsequent market-provided prices when available, in reviewing and determining in good faith the
fair value of the applicable portfolio securities.
The Trust expects that
the New York Stock Exchange (“NYSE”) will be closed on the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Purchase of Shares
Orders for shares received
by the Funds in good order prior to the close of business on the NYSE on each day during such periods that the NYSE is open for
trading are priced at the public offering price, which is NAV plus any sales charge, or at NAV per share (if no sales charges apply)
computed as of the close of the regular session of trading on the NYSE. Orders received in good order after the close of the NYSE,
or on a day it is not open for trading, are priced at the close of such NYSE on the next day on which it is open for trading at
the next determined NAV per share plus sales charges, if any.
Notice to Texas Shareholders
Under section 72.1021(a)
of the Texas Property Code, initial investors in a Fund who are Texas residents may designate a representative to receive notices
of abandoned property in connection with the Funds shares. Texas shareholders who wish to appoint a representative should notify
the Trust’s Transfer Agent by writing to the address below to obtain a form for providing written notice to the Trust:
ACM Dynamic Opportunity Fund
ACM Tactical Income Fund
c/o Gemini Fund Services, LLC
4221 North 203rd Street, Suite 100
Elkhorn, Nebraska 68022-3474
Redemption of Shares
The Funds will redeem
all or any portion of a shareholder's shares of the Fund when requested in accordance with the procedures set forth in the "How
to Redeem Shares" section of the Prospectus. Under the 1940 Act, a shareholder's right to redeem shares and to receive payment
therefore may be suspended at times: (a) when the NYSE is closed, other than customary weekend and holiday closings; (b) when trading
on that exchange is restricted for any reason; (c) when an emergency exists as a result of which disposal by a Fund of securities
owned is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of net assets,
provided that applicable rules and regulations of the SEC (or any succeeding governmental authority) will govern as to whether
the conditions prescribed in (b) or (c) exist; or (d) when the SEC by order permits a suspension of the right to redemption or
a postponement of the date of payment on redemption.
In case of suspension of
the right of redemption, payment of a redemption request will be made based on the NAV next determined after the termination of
the suspension.
Supporting documents
in addition to those listed under "How to Redeem Shares" in the Prospectus will be required from executors, administrators,
trustees, or if redemption is requested by someone other than the shareholder of record. Such documents include, but are not restricted
to, stock powers, trust instruments, certificates of death, appointments as executor, certificates of corporate authority and waiver
of tax required in some states when settling estates.
TAX STATUS
The following discussion
is general in nature and should not be regarded as an exhaustive presentation of all possible tax ramifications. All shareholders
should consult a qualified tax adviser regarding their investment in the Funds.
The Funds intend to qualify
as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Tax Code"),
which requires compliance with certain requirements concerning the sources of its income, diversification of its assets, and the
amount and timing of its distributions to shareholders. Such qualification does not involve supervision of management or investment
practices or policies by any government agency or bureau. By so qualifying, the Funds should not be subject to federal income or
excise tax on its net investment income or net capital gain, which are distributed to shareholders in accordance with the applicable
timing requirements. Net investment income and net capital gain of each Fund will be computed in accordance with Section 852 of
the Tax Code.
The Funds intend to distribute
all of its net investment income, any excess of net short-term capital gains over net long-term capital losses, and any excess
of net long-term capital gains over net short-term capital losses in accordance with the timing requirements imposed by the Tax
Code and therefore should not be required to pay any federal income or excise taxes. Distributions of net investment income and
net capital gain will be made after the end of each fiscal year. Both types of distributions will be in shares of a Fund unless
a shareholder elects to receive cash.
At December 31, 2019,
utilized remaining capital loss carry forwards for federal income tax purposes were as follows:
|
|
Non-Expiring
|
|
|
|
|
|
|
|
Portfolio
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
|
CLCF Utilized
|
|
Dynamic Opportunity
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Tactical Income
|
|
|
59,894
|
|
|
|
—
|
|
|
|
59,894
|
|
|
|
—
|
|
To be treated as a regulated
investment company under Subchapter M of the Tax Code, the Funds must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain publicly traded partnerships and gains from the sale
or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures
or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Funds’ assets are represented
by cash, U.S. government securities and securities of other regulated investment companies, and other securities (for purposes
of this calculation, generally limited in respect of any one issuer, to an amount not greater than 5% of the market value of the
Funds’ assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its
assets is invested in the securities of (other than U.S. government securities or the securities of other regulated investment
companies) any one issuer, two
or more issuers which the Funds control
and which are determined to be engaged in the same or similar trades or businesses, or the securities of certain publicly traded
partnerships.
If a Fund fails to qualify
as a regulated investment company under Subchapter M in any fiscal year, it will be treated as a corporation for federal income
tax purposes. As such, each Fund would be required to pay income taxes on its net investment income and net realized capital gains,
if any, at the rates generally applicable to corporations. Shareholders of the Funds generally would not be liable for income tax
on the Funds’ net investment income or net realized capital gains in their individual capacities. Distributions to shareholders,
whether from the Funds’ net investment income or net realized capital gains, would be treated as taxable dividends to the
extent of current or accumulated earnings and profits of the Funds.
The Funds are subject
to a 4% nondeductible excise tax on certain undistributed amounts of ordinary income and capital gain under a prescribed formula
contained in Section 4982 of the Tax Code. The formula requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Funds’ ordinary income for the calendar year and at least 98.2% of its capital gain net
income (i.e., the excess of its capital gains over capital losses) realized during the one-year period ending October 31 during
such year plus 100% of any income that was neither distributed nor taxed to the Funds during the preceding calendar year. Under
ordinary circumstances, the Funds expect to time their distributions so as to avoid liability for this tax.
The following discussion
of tax consequences is for the general information of shareholders that are subject to tax. Shareholders that are IRAs or other
qualified retirement plans are exempt from income taxation under the Tax Code.
Distributions of taxable
net investment income and the excess of net short-term capital gain over net long-term capital loss are generally taxable to shareholders
as ordinary income, unless such distributions are attributable to “qualified dividend income” eligible for the reduced
federal income tax rates applicable to long-term capital gains, provided certain holding period and other requirements are satisfied.
Distributions of net
capital gain (“capital gain dividends”) generally are taxable to shareholders as long-term capital gain, regardless
of the length of time the shares of the Funds have been held by such shareholders.
Certain U.S. shareholders,
including individuals and estates and trusts, are subject to an additional 3.8% Medicare tax on all or a portion of their “net
investment income,” which should include dividends from each Fund and net gains from the disposition of shares of the Fund.
U.S. shareholders are urged to consult their own tax advisers regarding the implications of the additional Medicare tax resulting
from an investment in the Funds.
A
redemption of Fund shares by a shareholder will result in the recognition of taxable gain or loss in an amount equal to the difference
between the amount realized and the shareholder's tax basis in his or her Fund shares. Such gain or loss is treated as a capital
gain or loss if the shares are held as capital assets. The gain or loss will generally be treated as long-term capital gain or
loss if the shares were held for more than one year and if not held for such period, as short-term capital gain or loss. However,
any loss realized upon the redemption of shares within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as capital gain dividends during such six-month period. All or a portion of any
loss realized upon the redemption of shares may be disallowed to the extent shares are purchased (including shares acquired by
means of reinvested dividends) within 30 days before or after such redemption.
Distributions of taxable
net investment income and net capital gain will be taxable as described above, whether received in additional shares or cash. Shareholders
electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share on the reinvestment date.
All distributions of taxable
net investment income and net capital gain, whether received in shares or in cash, must be reported by each taxable shareholder
on his or her federal income tax return. Dividends or distributions declared in October, November or December as of a record date
in such a month, if any, will be deemed to have been received by shareholders on December 31, if paid during January of the following
year. Redemptions of shares may result in tax consequences (gain or loss) to the shareholder and are also subject to these reporting
requirements.
Under the Tax Code, the
Funds are required to report to the Internal Revenue Service all distributions of income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain exempt shareholders. Under the backup withholding
provisions of Section 3406 of the Tax Code, distributions of net investment income and net capital gain and proceeds from the redemption
or exchange of the shares of a regulated investment company may be subject to withholding of federal income tax in the case of
non-exempt shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law, or if the Fund is notified by the IRS or a broker that
withholding is required due to an incorrect TIN or a previous failure to report taxable interest or dividends. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will
be reduced by the amounts required to be withheld.
Payments to a shareholder
that is either a foreign financial institution (“FFI”) or a non-financial foreign entity (“NFFE”) within
the meaning of the Foreign Account Tax Compliance Act (“FATCA”) may be subject to a generally nonrefundable 30% withholding
tax on: (a) income dividends paid by the Fund after June 30, 2014 and (b) certain capital gain distributions and the proceeds arising
from the sale of Fund shares paid by the Funds after December 31, 2016. FATCA withholding tax generally can be avoided: (a) by
an FFI, subject to any applicable intergovernmental agreement or other exemption, if it enters into a valid agreement with the
IRS to, among other requirements, report required information about certain direct and indirect ownership of foreign financial
accounts held by U.S. persons with the FFI and (b) by an NFFE, if it: (i) certifies that it has no substantial U.S. persons as
owners or (ii) if it does have such owners, reports information relating to them. The Funds may disclose the information that it
receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA. Withholding
also may be required if a foreign entity that is a shareholder of the Funds fail to provide the Funds with appropriate certifications
or other documentation concerning its status under FATCA.
Options, Futures, Forward
Contracts and Swap Agreements
To the extent such investments
are permissible for the Funds, the Funds’ transactions in options, futures contracts, hedging transactions, forward contracts,
straddles and foreign currencies will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash
sale and short sale rules), the effect of which may be to accelerate income to a Fund, defer losses to a Fund, cause adjustments
in the holding periods of the Funds’ securities, convert long-term capital gains into short-term capital gains and convert
short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of
distributions to shareholders.
To the extent such investments
are permissible, certain of the Funds’ hedging activities (including its transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Funds’
book income exceeds its taxable income, the distribution (if any) of such excess book income will be treated as (i) a dividend
to the extent of the Funds’ remaining earnings and profits (including earnings and profits arising from tax-exempt income),
(ii) thereafter, as a return of capital to the extent of the recipient's basis in the shares, and (iii) thereafter, as gain from
the sale or exchange of a capital asset. If a Fund's book income is less than taxable income, the Fund could be required to make
distributions exceeding book income to qualify as a regular investment company that is accorded special tax treatment.
Passive Foreign Investment
Companies
Investment by the Funds
in certain passive foreign investment companies (“PFICs”) could subject the Fund to a U.S. federal income tax (including
interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company,
which tax cannot be eliminated by making distributions to Fund shareholders. However, a Fund may elect to treat a PFIC as a qualified
electing fund (“QEF”), in which case the Fund will be required to include its share of the company's income and net
capital gains annually, regardless of whether they receive any distribution from the company.
The Funds also may make
an election to mark the gains (and to a limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those PFICs on the last day of the Funds’ taxable year. Such gains and losses are treated
as ordinary income and loss. The QEF and mark-to-market elections may accelerate the recognition of income (without the receipt
of cash) and increase the amount required to be distributed for the Funds to avoid taxation. Making either of these elections therefore
may require the Funds to liquidate other investments (including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect the Funds’ total return.
Foreign Currency Transactions
The Funds’ transactions
in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in the value of the foreign currency concerned.
Other Regulated Investment Companies
Generally, the character
of the income or capital gains that the Funds receive from another investment company will pass through to the Funds’ shareholders
as long as the Fund and the other investment company each qualify as a regulated investment company. However, to the extent that
another investment company that qualifies as a regulated investment company realizes net losses on its investments for a given
taxable year, the Funds will not be able to recognize its share of those losses until it disposes of shares of such investment
company. Moreover, even when the Funds do make such a disposition, a portion of its loss may be recognized as a long-term capital
loss, which will not be treated as favorably for federal income tax purposes as an ordinary deduction. In particular, the Funds
will not be able to offset any capital losses from its dispositions of shares of other investment companies against its ordinary
income. As a result of the foregoing rules, and certain other special rules, it is possible that the amounts of net investment
income and net capital gains that the Funds will be required to distribute to shareholders will be greater than such amounts would
have been had the Fund invested
directly in the securities held by the investment
companies in which it invests, rather than investing in shares of the investment companies. For similar reasons, the character
of distributions from the Funds (e.g., long-term capital gain, qualified dividend income, etc.) will not necessarily be the same
as it would have been had the Fund invested directly in the securities held by the investment companies in which it invests.
Foreign Taxation
Income received by the
Funds from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax treaties
and conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the value of the
Funds' total assets at the close of its taxable year consists of securities of foreign corporations, the Fund may be able to elect
to "pass through" to the Funds’ shareholders the amount of eligible foreign income and similar taxes paid by the
Fund. If this election is made, a shareholder generally subject to tax will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign taxes paid by the Funds, and may be entitled either
to deduct (as an itemized deduction) his or her pro rata share of foreign taxes in computing his or her taxable income or to use
it as a foreign tax credit against his or her U.S. federal income tax liability, subject to certain limitations. In particular,
a shareholder must hold his or her shares (without protection from risk of loss) on the ex-dividend date and for at least 15 more
days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a gain
dividend. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each shareholder will
be notified within 60 days after the close of the Funds’ taxable year whether the foreign taxes paid by the Fund will pass
through for that year.
Generally, a credit for
foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made, the source of the Funds’ income will flow
through to shareholders of the Fund. With respect to each Fund, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source passive income, and to certain other types of income. A shareholder may be unable to claim
a credit for the full amount of his or her proportionate share of the foreign taxes paid by the Funds. The foreign tax credit can
be used to offset only 90% of the revised alternative minimum tax imposed on corporations and individuals and foreign taxes generally
are not deductible in computing alternative minimum taxable income.
Original Issue Discount
and Pay-In-Kind Securities
Current federal tax law
requires the holder of a U.S. Treasury or other fixed income zero coupon security to accrue as income each year a portion of the
discount at which the security was purchased, even though the holder receives no interest payment in cash on the security during
the year. In addition, pay-in-kind securities will give rise to income which is required to be distributed and is taxable even
though the Funds holding the security receives no interest payment in cash on the security during the year.
Some of the debt securities
(with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Funds may be treated as
debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID")
is treated as interest income and is included in income over the term of the debt security, even though payment of that amount
is
not received until a later time, usually when
the debt security matures. A portion of the OID includable in income with respect to certain high-yield corporate debt securities
(including certain pay-in-kind securities) may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities
(with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Funds in the secondary
market may be treated as having market discount. Generally, any gain recognized on the disposition of, and any partial payment
of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment,
does not exceed the "accrued market discount" on such debt security. Market discount generally accrues in equal daily
installments. The Funds may make one or more of the elections applicable to debt securities having market discount, which could
affect the character and timing of recognition of income.
Some debt securities
(with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Funds may be treated as
having acquisition discount, or OID in the case of certain types of debt securities. Generally, the Funds will be required to include
the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received
until a later time, usually when the debt security matures. The Funds may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character and timing of recognition of income.
If the Funds hold the
foregoing kinds of securities, it may be required to pay out as an income distribution each year an amount, which is greater than
the total amount of cash interest the Funds actually received. Such distributions may be made from the cash assets of the Funds
or by liquidation of portfolio securities, if necessary (including when it is not advantageous to do so). The Funds may realize
gains or losses from such liquidations. In the event the Funds realize net capital gains from such transactions, its shareholders
may receive a larger capital gain distribution, if any, than they would in the absence of such transactions.
Shareholders of the Funds
may be subject to state and local taxes on distributions received from the Fund and on redemptions of the Funds’ shares.
A brief explanation of
the form and character of the distribution accompany each distribution. After the end of each year each Fund issues to each shareholder
a statement of the federal income tax status of all distributions.
Shareholders should consult
their tax advisers about the application of federal, state and local and foreign tax law in light of their particular situation.
ANTI-MONEY LAUNDERING PROGRAM
The Trust has established
an Anti-Money Laundering Compliance Program (the "Program") as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA PATRIOT Act"). To ensure compliance
with this law, the Trust's Program provides for the development of internal practices, procedures and controls, designation of
anti-money laundering compliance officers, an ongoing training program and an independent audit function to determine the effectiveness
of the Program. The Trust's secretary serves as its Anti-Money Laundering Compliance Officer.
Procedures to implement
the Program include, but are not limited to, determining that the Funds’ Distributor and Transfer Agent have established
proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity and providing a complete and thorough
review of all new opening account applications. The Trust will not transact business with any person or entity whose identity cannot
be adequately verified under the provisions of the USA PATRIOT Act.
As a result of the Program,
the Trust may be required to "freeze" the account of a shareholder if the shareholder appears to be involved in suspicious
activity or if certain account information matches information on government lists of known terrorists or other suspicious persons,
or the Trust may be required to transfer the account or proceeds of the account to a governmental agency.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
A principal shareholder
is any person who owns of record or beneficially 5% or more of the outstanding shares of the Funds. A control person is one who
owns beneficially or through controlled companies more than 25% of the voting securities of a company or acknowledges the existence
of control. A shareholder owning of record or beneficially more than 25% of the Funds’ outstanding shares may be considered
a controlling person. That shareholder's vote could have more significant effect on matters presented at a shareholder's meeting
than votes of other shareholders.
As
of April 14, 2020, the following shareholder(s) of record owned 5% or more of the outstanding shares of each class of the ACM Dynamic
Opportunity Fund.
Name & Address
|
Shares
|
Percentage of Class
|
Class A
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
22,782.9240
|
15.61%
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
55,803.1270
|
38.23%
|
National Financial Services, LLC
499 Washington Blvd
Jersey City, NJ 07310
|
8,038.0000
|
5.51%
|
Class I
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
2,237,565.4160
|
57.37%
|
TD Ameritrade
PO Box 2226
Omaha, NE 68103
|
891,891.6350
|
22.87%
|
E*Trade Savings Bank
PO Box 6503
Englewood, CO 80155-6503
|
310,102.9400
|
7.95%
|
As
of April 14, 2020, the following shareholder(s) of record owned 5% or more of the outstanding shares of each class of the ACM Tactical
Income Fund.
Name & Address
|
Shares
|
Percentage of Class
|
Class A
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
8,800.9820
|
5.44%
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
49,110.0480
|
30.33%
|
Pershing LLC
P.O. BOX 2052
JERSEY CITY, NJ 07303-9998
|
17,089.2560
|
10.55%
|
Pershing LLC
P.O. BOX 2052
JERSEY CITY, NJ 07303-9998
|
11,649.5810
|
7.19%
|
Pershing LLC
P.O. BOX 2052
JERSEY CITY, NJ 07303-9998
|
9,687.3920
|
5.98%
|
Pershing LLC
P.O. BOX 2052
JERSEY CITY, NJ 07303-9998
|
16,150.9080
|
9.97%
|
Class I
|
Charles Schwab & Company, Inc.
211 Main St.
San Francisco, CA 64105
|
1,576,246.5530
|
75.61%
|
TD Ameritrade
PO Box 2226
Omaha, NE 68103
|
233,970.9060
|
11.22%
|
Charles Schwab &
Co., Inc. is organized in the state of California and the parent company is Schwab Holdings Inc.; organized in the state of Delaware.
The ultimate parent company of Schwab Holdings, Inc. is Charles Schwab Corporation; organized in the state of Delaware. Charles
Schwab & Co., Inc.
Management Ownership
Information. As of April 14, 2020, the Trustees and officers of the Trust, as a group, beneficially owned less than
1% of the outstanding shares of the Funds.
MANAGEMENT
The business of the Trust
is managed under the direction of the Board in accordance with the Agreement and Declaration of Trust and the Trust's By-laws (the
"Governing Documents"), which have been filed with the SEC and are available upon request. The Board consists of five
individuals, all of whom are not "interested persons" (as defined under the 1940 Act) of the Trust and the Adviser ("Independent
Trustees"). Pursuant to the Governing Documents, the Trustees shall elect officers including a President, a Secretary, a Treasurer,
a Principal Executive Officer and a Principal Accounting Officer. The Board retains the power to conduct, operate and carry on
the business of the Trust and has the power to incur and pay any expenses, which, in the opinion of the Board, are necessary or
incidental to carry out any of the Trust's purposes. The Trustees, officers, employees and agents of the Trust, when acting in
such capacities, shall not be subject to any personal liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties.
Board Leadership Structure.
The Board is led by John V. Palancia, who has served as the Chairman of the Board since May 2014. The Board has not appointed a
Lead Independent Trustee because all Trustees are Independent Trustees. Under the Trust's Agreement and Declaration of Trust and
By-Laws, the Chairman of the Board is responsible for (a) presiding at Board meetings, (b) calling special meetings on an as-needed
basis, and (c) execution and administration of Trust policies, including (i) setting the agendas for Board meetings and (ii) providing
information to Board members in advance of each Board meeting and between Board meetings. Generally, the Trust believes it best
to have a non-executive Chairman of the Board, who together with the President (principal executive officer), are seen by our shareholders,
business partners and other stakeholders as providing strong leadership. The Trust believes that its Chairman, the independent
chair of the Audit Committee, and, as an entity, the full Board of Trustees, provide effective leadership that is in the best interests
of the Trust, the Fund and each shareholder.
Board Risk Oversight. The Board of Trustees
is comprised entirely of Independent Trustees with an Audit Committee with a separate chair. The Board is responsible for overseeing
risk management, and the full Board regularly engages in discussions of risk management and receives compliance reports that inform
its oversight of risk management from its Chief Compliance Officer at quarterly meetings and on an ad hoc basis, when and if necessary.
The Audit Committee considers financial and reporting the risk within its area of responsibilities. Generally, the Board believes
that its oversight of material risks is adequately maintained through the compliance-reporting chain where the Chief Compliance
Officer is the primary recipient and communicator of such risk-related information.
Trustee Qualifications.
Generally, the Fund believes
that each Trustee is competent to serve because of his or her individual overall merits including: (i) experience, (ii) qualifications,
(iii) attributes and (iv) skills.
James Jensen has over
40 years of business experience in a wide range of industries including the financial services industry. His experience includes
over 30 years of mutual fund board experience with service as chairman of the Audit Committee, chairman of the Nominating and Governance
Committee and, from 2006 to December 31, 2019, as Chairman of the Board of Wasatch Funds. Since April 2008, Mr. Jensen has served
as the Chief Executive Officer of Clearwater Law & Governance Group, where he devotes himself full time to corporate law practice,
board governance consulting for operating companies and private investing. In May 2014, Mr. Jensen and his firm conducted the 11th
Green River Conference on Corporate Governance for lawyers, accountants, directors and service providers. In 2001, Mr. Jensen co-founded
Intelisum, Inc., a company pursuing computer and measurement technology and products, and was Chairman of the Board from 2001 to
2008. From 1986 to 2004, Mr. Jensen held key positions with NPS Pharmaceuticals, Inc., including Vice President, Corporate Development,
Legal Affairs and General Counsel and Secretary. In addition to his business experience, Mr. Jensen was Chairman of the Board of
Agricon Global Corporation, formerly BayHill Capital Corporation from 2008 to 2014 and was a Director of the University of Utah
Research Foundation from 2000 to 2018. Mr. Jensen was the founder and first President of the MountainWest Venture Group (now "MountainWest
Capital Network") in 1983. Mr. Jensen is a member of the National Association of Corporate Directors. Mr. Jensen graduated
with a Bachelor of Arts degree from the University of Utah in 1967 and received degrees of Juris Doctor and Master of Business
Administration from Columbia University in 1971. His three-act play about board governance entitled “Pure Play” was
published in the February 2018 issue of the Utah Bar Journal.
Patricia
Luscombe, CFA, has more than 30 years in financial advisory and valuation services. She has delivered a broad range of corporate
finance advice including fairness opinions and
valuations. Ms.
Luscombe joined Lincoln International in 2007 as a Managing Director and co-head of Lincoln's Valuations & Opinions Group.
In this position, she assists regulated investment funds, business development companies, private equity funds and hedge funds
in the valuation of illiquid securities for fair value accounting purposes. Ms. Luscombe's clients range from closely-held businesses
to large, publicly-traded companies. Previously, Ms. Luscombe spent 16 years with Duff & Phelps Corporation, as a Managing
Director in the firm's valuation and financial advisory business. Prior to joining Duff & Phelps Corporation, Ms. Luscombe
was an Associate at Smith Barney, a division of Citigroup Capital Markets, Inc., where she managed a variety of financial transactions,
including mergers and acquisitions, leveraged buyouts, and equity and debt financings. Ms. Luscombe is a member of the Chicago
Chapter of the Association for Corporate Growth, the Chartered Financial Analyst Society of Chicago and former president of the
Chicago Finance Exchange. Ms. Luscombe holds a Bachelor of Arts degree in economics from Stanford University, a Master's degree
in economics from the University of Chicago and a Master of Business Administration degree from the University of Chicago Booth
School of Business. In addition, Ms. Luscombe is licensed under the Series 24, 79 and 63 of FINRA.
John V. Palancia has
over 40 years of business experience in the financial services industry including serving as the Director of Global Futures Operations
for Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”). Mr. Palancia possesses an in depth understanding
of broker-dealer operations from having served in various management capacities and has held industry registrations in both securities
and futures. Based on his service at Merrill Lynch, he also possesses a strong understanding of risk management, balance sheet
analysis, compliance and the regulatory framework under which regulated financial entities must operate. Additionally, he is well
versed in the regulatory framework under which investment companies must operate based on his service as a member of three other
mutual fund boards. This practical and extensive experience in the securities industry provides valuable insight into fund operations
and enhances his ability to effectively serve as chairman of the Board. Mr. Palancia holds a Bachelor of Science degree in Economics.
Mark H. Taylor has 30
years of academic and professional experience in the accounting and auditing fields which makes him particularly qualified to serve
as the Trust’s Audit Committee chair. He holds PhD, Master’s and Bachelor’s degrees in Accounting and is a licensed
Certified Public Accountant. Dr. Taylor is a Director of the Lynn Pippenger School of Accountancy at the Muma College of Business
at the University of South Florida. Commencing August 2017, Dr. Taylor is serving a three-year term as Vice President-Finance on
the Board of Directors of the American Accounting Association (AAA). From 2012 to 2015, he served a 3-year term as President of
the Auditing Section of the AAA (Vice-President 2012-2013, President 2013-2014, and Past President (2014-2015). Dr. Taylor serves
as a member of two other mutual fund boards within the Northern Lights Fund Complex, and completed a fellowship in the Professional
Practice Group of the Office of the Chief Accountant at the headquarters of the United States Securities Exchange Commission. He
also served a three-year term on the AICPA’s Auditing Standards Board (2010-2012). Dr. Taylor is a member of two research
teams that recently received grants from the Center for Audit Quality to study how auditors manage the process of auditing fair
value measurements in financial statements and how accounting firms’ tone-at-the top messaging impacts audit performance.
Dr. Taylor has published extensively in leading academic accounting journals, teaches corporate governance and accounting policy
as well as auditing and assurance services at the graduate and undergraduate levels and possesses a strong understanding of the
regulatory framework under which investment companies operate.
Jeffery D. Young has
over 40 years of business management experience, including in the transportation industry and operations and information technologies.
He is currently Co-owner and Vice President of the Latin America Agriculture Development Corporation, an agribusiness exporting
fruit to the United States and other Central American countries. He has served as Assistant Vice President of
Transportation Systems at Union Pacific
Railroad Company, where he was responsible for the development and implementation of large scale command and control systems that
support railroad operations and safety. In this position, Mr. Young was heavily involved in the regulatory compliance of safety
and mission critical systems. Mr. Young also served as Chairman of the Association of American Railroads Policy Committee and represented
both Union Pacific Railroad and the railroad industry in safety and regulatory hearings with the National Transportation Safety
Board and the Federal Railroad Administration in Washington, DC. Mr. Young was a member of the Board of Directors of PS Technologies,
a Union Pacific affiliate serving as a technology supplier to the railroad industry. His practical business experience and understanding
of regulatory compliance provides a different perspective that will bring diversity to Board deliberations.
Trustees and Officers.
The Trustees and officers of the Trust, together with information as to their principal business occupations during the past five
years and other information, are shown below. The business address of each Trustee and Officer is 225 Pictoria Drive, Suite 450,
Cincinnati, OH 45246. All correspondence to the Trustees and Officers should be directed to c/o Gemini Fund Services, LLC, P.O.
Box 541150, Omaha, Nebraska 68154.
Independent Trustees
|
Name, Address, Year of Birth
|
Position(s) Held with Registrant
|
Length of Service and Term
|
Principal Occupation(s) During Past 5 Years
|
Number of Funds Overseen In The Fund Complex*
|
Other Directorships Held During Past 5 Years**
|
James U.
Jensen
1944
|
Trustee
|
Since February 2012, Indefinite
|
Chief Executive Officer, ClearWater Law & Governance Group, LLC (an operating board governance consulting company) (since 2004).
|
2
|
Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Wasatch Funds Trust, (since 1986); University of Utah Research Foundation (April 2000 to May 2018); Agricon Global Corporation, formerly Bayhill Capital Corporation (large scale farming in Ghana, West Africa) (October 2009 to June 2014).
|
Patricia
Luscombe
1961
|
Trustee
|
Since January 2015, Indefinite
|
Managing Director of the Valuations & Opinions Group, Lincoln International LLC (since August 2007).
|
2
|
Northern Lights Fund Trust III (for series not affiliated with the Funds since 2015); Monetta Mutual Funds (since November 2015).
|
John V.
Palancia
1954
|
Trustee, Chairman
|
Trustee, since February 2012, Indefinite; Chairman of the Board since May 2014
|
Retired (since 2011); Formerly, Director of Global Futures Operations Control, Merrill Lynch, Pierce, Fenner & Smith, Inc. (1975-2011).
|
2
|
Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2011); Northern Lights Variable Trust (since 2011); Alternative Strategies Fund (since 2012).
|
Mark H.
Taylor
1964
|
Trustee, Chairman of the Audit Committee
|
Since February 2012, Indefinite
|
Director, Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida (since August 2019); Chair, Department of Accountancy and Andrew D. Braden Professor of Accounting and Auditing, Weatherhead School of Management, Case Western Reserve University
|
2
|
Northern Lights Fund Trust III (for series not affiliated with the Fund since 2012); Northern Lights Fund Trust (since 2007); Northern Lights Variable Trust (since 2007); Alternative Strategies Fund (since June 2010).
|
|
|
Since February 2012, Indefinite
|
(2009-2019); Vice President-Finance, American Accounting Association (2017-2020); President, Auditing Section of the American Accounting Association (2012-15); AICPA Auditing Standards Board Member (2009-2012). Former Academic Fellow, United States Securities and Exchange Commission (2005-2006).
|
|
|
Jeffery D. Young
1956
|
Trustee
|
Since January 2015, Indefinite
|
Co-owner and Vice President, Latin America Agriculture Development Corp. (since May 2015); Formerly Asst. Vice President - Transportation Systems, Union Pacific Railroad Company (June 1976 to April 2014); President, Celeritas Rail Consulting (since June 2014).
|
2
|
Northern Lights Fund Trust III (for series not affiliated with the Fund since 2015); PS Technology, Inc. (2010-2013).
|
* As of December 31, 2019, the Trust was
comprised of 38 active portfolios managed by 15 unaffiliated investment advisers. The term “Fund Complex” applies only
to the ACM Dynamic Opportunity Fund and the ACM Tactical Income Fund. The Funds do not hold themselves out as related to any other
series within the Trust for investment purposes, nor does it share the same investment adviser with any other series.
** Only includes directorships held within the
past 5 years in a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934, or any company registered as an investment
company under the 1940 Act.
Officers of the Trust
Name, Address, Year of Birth
|
Position(s) Held with Registrant
|
Length of Service and Term
|
Principal Occupation(s) During Past 5 Years
|
Richard Malinowski
1983
|
President
|
Since
August 2017, indefinite
|
Senior Vice President and Senior Managing Counsel, Gemini Fund Services, LLC, (since 2020); Senior Vice President Legal Administration, Gemini Fund Services, LLC (2017-2020); Vice President and Counsel (2016-2017) and AVP and Staff Attorney (2012-2016).
|
Brian Curley
1970
|
Treasurer
|
Since
February 2013, indefinite
|
Vice President, Gemini Fund Services, LLC (since 2015), Assistant Vice President, Gemini Fund Services, LLC (2012-2014); Senior Controller of Fund Treasury, The Goldman Sachs Group, Inc. (2008-2012); Senior Associate of Fund Administration, Morgan Stanley (1999-2008).
|
Eric Kane
1981
|
Secretary
|
Since
November 2013, indefinite
|
Vice President and Managing Counsel, Gemini Fund Services, LLC (since 2020); Vice President and Counsel, Gemini Fund Services, LLC (2017-2020), Assistant Vice President, Gemini Fund Services, LLC (2014- 2017), Staff Attorney, Gemini Fund Services, LLC (2013-2014), Law Clerk, Gemini Fund Services, LLC (2009-2013), Legal Intern, NASDAQ OMX (2011), Hedge Fund Administrator, Gemini Fund Services, LLC (2008), Mutual Fund Accountant/Corporate Action Specialist, Gemini Fund Services, LLC (2006-2008).
|
William Kimme
1962
|
Chief Compliance Officer
|
Since
February 2012, indefinite
|
Senior Compliance Officer of Northern Lights Compliance Services, LLC (since 2011); Due Diligence and Compliance Consultant, Mick & Associates (2009-2011); Assistant Director, FINRA (2000-2009).
|
Audit Committee. The Board has an
Audit Committee that consists solely of Trustees who are not "interested persons" of the Trust within the meaning of
the 1940 Act. The Audit Committee's responsibilities include: (i) recommending to the Board of Trustees the selection, retention
or termination of the Trust's independent auditors; (ii) reviewing with the independent auditors the scope, performance and anticipated
cost of their audit; (iii) discussing with the independent auditors certain matters relating to the Trust's financial statements,
including any adjustment to such financial statements recommended by such independent auditors, or any other results of any audit;
(iv) reviewing on a periodic basis a formal written statement from the independent auditors with respect to their independence,
discussing with the independent auditors any relationships or services disclosed in the statement that may impact the objectivity
and independence of the Trust's independent auditors and recommending that the Board take appropriate action in response thereto
to satisfy itself of the auditor's independence; and (v) considering the comments of the independent auditors and management's
responses thereto with respect to the quality and adequacy of the Trust's accounting and financial reporting policies and practices
and internal controls. The Audit Committee operates pursuant to an Audit Committee Charter. Dr. Taylor is Chairman of the Audit
Committee. During the past fiscal year, the Audit Committee held four meetings.
Compensation of Directors.
Effective April 1, 2019, each Trustee who is not affiliated with the Trust or an investment adviser to any series of the Trust
will receive a quarterly fee of $21,500, allocated among each of the various portfolios comprising the Trust, for his or her attendance
at the regularly scheduled meetings of the Board of Trustees, to be paid in advance of each calendar quarter, as well as reimbursement
for any reasonable expenses incurred. From January 1, 2017 through March 31, 2019, each Trustee who is not affiliated with the
Trust or an investment adviser to any series of the Trust received a quarterly fee of $20,000 for his or her attendance at the
regularly scheduled meetings of the Board of Trustees, paid in advance of each calendar quarter, as well as reimbursement for any
reasonable expenses incurred. Since January 1, 2017, in addition to the quarterly fees and reimbursements, the Chairman of the
Board receives a quarterly fee of $5,000, and the Audit Committee Chairmen receive a quarterly fee of $3,750.
Additionally, in the event
a meeting of the Board of Trustees other than its regularly scheduled meetings (a “Special Meeting”) is required, each
Independent Trustee will receive a fee of $2,500 per Special Meeting, as well as reimbursement for any reasonable expenses incurred,
to be paid by the relevant series of the Trust or its investment adviser depending on the circumstances necessitating the Special
Meeting. None of the executive officers receive compensation from the Trust.
The table below details
the amount of compensation received by the Trustees during the Funds’ fiscal year ended December 31, 2019. The Trust
does not have a bonus, profit sharing, pension or retirement plan.
Name and Position
|
ACM Dynamic Opportunity Fund
|
ACM Tactical Income Fund
|
Pension or Retirement Benefits Accrued as Part of Fund Expenses
|
Estimated Annual Benefits Upon Retirement
|
Total Compensation From Trust and Fund Complex* Paid to Trustees
|
James U. Jensen
|
$2,286.99
|
$1,703.26
|
None
|
None
|
$3,990.25
|
Patricia Luscombe
|
$2,286.99
|
$1,703.26
|
None
|
None
|
$3,990.25
|
John V. Palancia
|
$3,049.32
|
$2,271.01
|
None
|
None
|
$5,320.33
|
Mark H. Taylor
|
$2,795.21
|
$2,081.76
|
None
|
None
|
$4,876.97
|
Jeffery D. Young
|
$2,286.99
|
$1,703.26
|
None
|
None
|
$3,990.25
|
* There are currently numerous series comprising
the Trust. The term “Fund Complex” refers only to the ACM Dynamic Opportunity Fund and ACM Tactical Income Fund, and
not to any other series of the Trust. For the fiscal year ended December 31, 2019, the aggregate independent Trustees’ fees
paid by the entire Trust were $457,500.
Trustees' Ownership
of Shares in the Funds. As of December 31, 2019, the Trustees beneficially owned the following amounts in the Funds:
Name of Trustee
|
Dollar Range of Equity Securities in the Funds
|
Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Companies*
|
James U. Jensen
|
None
|
$10,001-$50,000
|
Patricia Luscombe
|
None
|
$10,001-$50,000
|
John V. Palancia
|
None
|
$10,001-$50,000
|
Mark H. Taylor
|
None
|
$10,001-$50,000
|
Jeffery D. Young
|
None
|
None
|
* The "Family of Investment
Companies" includes the following registered management investment companies in addition to the Trust: Northern Lights Fund
Trust, Northern Lights Fund Trust II, Northern Lights Fund Trust IV and Northern Lights Variable Trust.
FINANCIAL STATEMENTS
The
audited financial statements and report of the independent registered public accounting firm required to be included in this SAI
are hereby incorporated by reference to the Annual Report for the Funds for the fiscal year ended December 31, 2019. You may obtain
a copy of the Annual Report without charge by calling the Fund at 1-844-798-3833.