The following performance information provides some indication of the risks of investing in the Equity Fund.  The bar chart shows changes in the performance of the Equity Fund’s Institutional Class shares from year to year.  The table below shows how the Equity Fund’s average annual total returns of the Institutional Class and Investor Class for the 1-, 5- and 10-year periods compare to those of a broad-based market index and secondary index.  Past performance, before and after taxes, does not necessarily indicate how the Equity Fund will perform in the future.  Updated performance information is available on the Equity Fund’s website at www.mastersfunds.com.

 

 

 

 

The Equity Fund’s Investor Class commenced operations on April 30, 2009.  Performance shown prior to the inception of the Investor Class reflects the performance of the Institutional Class, adjusted to reflect expenses applicable to Investor Class shares.

 

The Equity Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes.  Your actual after-tax returns depend on your tax situation and may differ from those shown.  If you own shares of the Equity Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment.  After-tax returns are shown for only the Equity Fund’s Institutional Class, and after-tax returns for the Equity Fund’s Investor Class will vary.

 

 

Sub-Advisor	Portfolio Manager	Managed the Equity Fund Since:
Davis Selected Advisers, L.P.	Christopher Davis, Chairman	1999
	Kenneth Feinberg, Vice President	2002
Friess Associates, LLC	Bill D’Alonzo, Chief Executive Officer and Co-Chief Investment Officer	2002
Southeastern Asset Management, Inc.	Mason Hawkins, Lead Portfolio Manager	1996
Harris Associates L.P.	Clyde McGregor, CFA, Vice President and Portfolio Manager	2008

 

Summary Section

Litman Gregory Masters Equity Fund

 

Sub-Advisor	Portfolio Manager	Managed the Equity Fund Since:
Sands Capital Management, LLC	Frank Sands, Jr. , CFA, Chief Investment Officer and Chief Executive Officer	2008
	A. Michael Sramek, CFA, Senior Portfolio Manager	2008
Turner Investments, L.P.	Robert Turner, CFA, Chairman and Chief Investment Officer, Founder	2008
	Frank Sustersic, CFA, Senior Portfolio Manager/Global Security Equity Analyst	2010
	Jason Schrotberger, CFA, Senior Portfolio Manager/Global Security Equity Analyst	2010
Wells Capital Management, Inc.	Richard Weiss, Senior Portfolio Advisor	1996

 

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 33  of this Prospectus.

 

 

Summary Section

 

Litman Gregory Masters International Fund

 

The following performance information provides some indication of the risks of investing in the International Fund.  The bar chart shows changes in the performance of the International Fund’s Institutional Class shares from year to year.  The table below shows how the International Fund’s average annual total returns of the Institutional Class and Investor Class for the 1-, 5- and 10-year periods compare to those of a broad-based market index and a secondary index.  Past performance, before and after taxes, does not necessarily indicate how the International Fund will perform in the future.  Updated performance information is available on the International Fund’s website at www.mastersfunds.com.

 

 

 

Average Annual Total Returns (for the periods ended December 31, 2012)
Litman Gregory Masters International Fund	One Year	Five Years	Ten Years
Institutional Class
Return Before Taxes	19.96%	-2.54%	9.94%
Return After Taxes on Distributions	19.76%	-2.91%	8.72%
Return After Taxes on Distributions and Sale of Fund Shares	12.97%	-2.31%	8.51%
Investor Class
Return Before Taxes	19.64%	-2.79%	9.66%
S&P Global (ex U.S.) Large MidCap Index (reflects no deduction for fees, expenses or taxes)	17.24%	-2.24%	10.27%
Lipper International Large-Cap Core Funds Index (reflects no deduction for fees, expenses or taxes)	18.75%	-3.93%	7.38%

 

The International Fund’s Investor Class commenced operations on April 30, 2009.  Performance shown prior to the inception of the Investor Class reflects the performance of the Institutional Class, adjusted to reflect expenses applicable to Investor Class shares.

 

The International Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your tax situation and may differ from those shown.  If you own shares of the International Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment.  After-tax returns are shown for only the International Fund’s Institutional Class, and after-tax returns for the International Fund’s Investor Class will vary.  The “Return After Taxes on Distributions and Sale of Fund Shares” may be higher than other return figures because when a capital loss occurs upon the redemption of shares of the International Fund by an investor, a tax deduction is provided, which benefits the investor.

 

 

 

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 33  of this Prospectus.

 

 

 

Summary Section

 

Litman Gregory Masters Value Fund

 

The following performance information provides some indication of the risks of investing in the Smaller Companies Fund.  The bar chart shows changes in the performance of the Smaller Companies Fund’s Institutional Class shares from year to year.  The table below shows how the Smaller Companies Fund’s average annual total returns of the Institutional Class for the 1-year, 5-year and since inception periods compare to those of a broad-based market index and secondary index.  Past performance, before and after taxes, does not necessarily indicate how the Smaller Companies Fund will perform in the future.  Updated performance information is available on the Smaller Companies Fund’s website at www.mastersfunds.com.

 

Litman Gregory Masters Smaller Companies Fund – Institutional Class

Calendar Year Total Returns

 

 

 

 

Average Annual Total Returns (for the periods ended December 31, 2012)
Litman Gregory Masters Smaller Companies Fund	One Year	Five Years	Since Inception (6/30/03)
Institutional Class
Return Before Taxes	18.51%	3.88%	7.84%
Return After Taxes on Distributions	18.51%	3.70%	7.22%
Return After Taxes on Distributions and Sale of Fund Shares	12.03%	3.24%	6.68%
Russell 2000 ® Index (reflects no deduction for fees, expenses or taxes)	16.35%	3.56%	8.36%
Lipper Small-Cap Core Funds Index (reflects no deduction for fees, expenses or taxes)	15.95%	3.96%	8.69%

 

The Smaller Companies Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes.  Your actual after-tax returns depend on your tax situation and may differ from those shown.  If you own shares of the Smaller Companies Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment. 

 

 

The following performance information provides some indication of the risks of investing in the Focused Opportunities Fund.  The bar chart shows changes in the performance of the Focused Opportunities Fund’s Institutional Class shares from year to year.  The table below shows how the Focused Opportunities Fund’s average annual total returns of the Institutional Class for 1-year, 5-year and since inception periods compare to those of a broad-based market index.  Past performance, before and after taxes, does not necessarily indicate how the Focused Opportunities Fund will perform in the future.  Updated performance information is available on the Fund’s website at www.mastersfunds.com.

 

 

Average Annual Total Returns (for the periods ended December 31, 2012)
Litman Gregory Masters Focused Opportunities Fund	One Year	Five Years	Since Inception (6/30/06)
Institutional Class
Return Before Taxes	17.55%	1.18%	3.61%
Return After Taxes on Distributions	17.13%	0.96%	3.34%
Return After Taxes on Distributions and Sale of Fund Shares	11.40%	0.90%	3.01%
S&P 500 ® Index   (reflects no deduction for fees, expenses or taxes)	16.00%	1.66%	4.01%

 

The Focused Opportunities Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes.  Your actual after-tax returns depend on your tax situation and may differ from those shown.  If you own shares of the Focused Opportunities Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account, after-tax returns shown are not relevant to your investment.

 

 

 

 

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 33 of this Prospectus.

 

 

Investment Objective  

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The Litman Gregory Masters Alternative Strategies Fund (the “Alternative Strategies Fund”) seeks to achieve long-term returns with lower risk and lower volatility than the stock market, and with relatively low correlation to stock and bond market indexes.

Fees and Expenses of the Alternative Strategies Fund  

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This table describes the fees and expenses that you may pay if you buy and hold shares of the Alternative Strategies Fund.

 

Shareholder Fees (fees paid directly from your investment)
		Institutional Class		Investor Class
Redemption Fee   (as a percentage of amount redeemed within 180 days of purchase)		2.00%		2.00%

 

Annual Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
		Institutional Class				Investor Class
Management Fees				1.40%				1.40%
Distribution and or Service (12b-1) Fees				None				0.25%
Other Expenses		0.36%				0.36%
Dividend and Interest Expense		0. 15%				0. 15%
Total Other Expenses				0. 51%				0. 51%
Total Annual Fund Operating Expenses				1.91%				2.16%
Fee Waiver and/or Expense Reimbursement ( 1)				-0. 27%				-0. 27%
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement				1. 64%				1.89%

(1)

Litman Gregory Fund Advisors, LLC (“Litman Gregory”), the advisor to the Alternative Strategies Fund, has contractually agreed to waive a portion of the advisory fees and/or reimburse a portion of the Alternative Strategies Fund’s operating expenses (excluding any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as but not limited to litigation costs) through April 30, 2014 (unless otherwise sooner terminated) to ensure that the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement, exclusive of Dividend and Interest Expense, for the Institutional Class and the Investor Class will not exceed 1.49% and 1.74%, respectively. Operating expenses are a sum of Management Fees and Other Expenses but do not include Dividend and Interest expense which are a function of portfolio management strategies and will fluctuate. That agreement may be renewed after April 30, 2014 for periods not exceeding one year and may be terminated by the Board of Trustees (the “Board”) of Litman Gregory Funds Trust (the “Trust”) on sixty (60) days’ written notice to Litman Gregory. Litman Gregory may also decline to renew that agreement on thirty (30) days’ written notice to the Trust.  Any fee waiver or expense reimbursement made pursuant to that agreement is subject to the repayment by the Alternative Strategies Fund within three (3) years following the fiscal year in which the fee waiver or expense reimbursement occurred but only if the Alternative Strategies Fund is able to make the repayment without exceeding its current expense limitation and the repayment is approved by the Board.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

Example  

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This example is intended to help you compare the cost of investing in the Alternative Strategies Fund with the cost of investing in other mutual funds.  The example assumes that you invest $10,000 in the Alternative Strategies Fund for the time periods indicated and then redeem all of your shares at the end of those periods.  The example also assumes that your investment has a 5% return each year and that the Alternative Strategies Fund's operating expenses remain the same.  Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

	One Year	Three Years	Five Years	Ten Years
Institutional Class	$167	$574	$1,007	$2,211
Investor Class	$192	$650	$1,135	$2,472

 

Portfolio Turnover  

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The Alternative Strategies Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when shares of the Alternative Strategies Fund are held in a taxable account.  These costs, which are not reflected in the annual fund operating expenses or in the example, will affect the Alternative Strategies Fund’s performance.  During the most recent fiscal period, the Alternative Strategies Fund’s portfolio turnover rate was 160.54% of the average value of its portfolio.

Principal Strategies  

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Litman Gregory, the advisor to the Alternative Strategies Fund, believes that it is possible to identify highly skilled and experienced investment managers who can successfully execute various investment approaches that target materially lower volatility than the stock market or that have a low correlation or low sensitivity to traditional investment strategies, or both, so that the overall performance of the Alternative Strategies Fund is not heavily dependent on steadily rising stock or bond market to earn its return over a market cycle. Furthermore, Litman Gregory believes that by allocating assets among multiple investment managers with different but complementary strategies it can further enhance the risk-adjusted return potential of an overall fund portfolio over a full market cycle.

 

Based on these beliefs, the Alternative Strategies Fund’s strategy is to engage a number of established investment managers as sub-advisors (each a “sub-advisor” or “manager”) to offer investors a mix of strategies that Litman Gregory believes offer risk-return characteristics that are attractive individually and even more compelling collectively.  The Alternative Strategies Fund is intended to be used by investors as a source of diversification for traditional stock and bond portfolios to reduce volatility and potentially enhance returns relative to various measures of risk.

 

Allocations among sub-advisors are based on a number of factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goals of low volatility and relatively low correlation with broad financial markets, especially the stock market.  Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. A tactical opportunity could represent the potential for an exceptional risk-adjusted return opportunity relative to the other strategies, or it may represent a superior risk reduction opportunity that could benefit the Alternative Strategies Fund’s overall portfolio. No strategy will be allocated less than 15% of portfolio assets or more than 35% of portfolio assets as measured at the time of allocation. It is possible that additional managers and strategies will be added to the Alternative Strategies Fund in the future.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; arbitrage opportunities; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin offs; as well as other opportunities in areas such as real estate or managed futures.  In the aggregate, the managers can invest globally in stocks of companies of any size, domicile or market capitalization, government and corporate bonds and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the Alternative Strategies Fund.  They may also invest in derivatives to manage risk or enhance return and can also utilize leverage to a limited degree.  Each of the managers may invest in illiquid securities; however, the Alternative Strategies Fund as a whole may not hold more than 15% of its net assets in illiquid securities.  In some cases, the sub-advisors may seek to replicate strategies they employ in their private (hedge) funds.  In other cases, the sub-advisors may seek to enhance strategies they run in other public funds by focusing on their highest conviction ideas to a greater extent or by pursuing certain aspects of their strategies with greater flexibility.  However, the Alternative Strategies Fund will only invest directly in portfolio securities selected by the sub-advisors and will not invest in any pooled investment vehicles or accounts managed by the sub-advisors.

 

Each sub-advisor will have an investment approach that generally focuses on a particular asset class or specific strategies. Currently, the strategies the sub-advisors focus on are as follows: (1) an arbitrage oriented strategy, (2) an opportunistic income strategy which will often focus on mortgage related securities, (3) a contrarian opportunity strategy that allows tactical investments throughout the capital structure (stocks and bonds), asset classes, market capitalization, industries and geographies, and (4) an absolute return fixed income strategy that focuses on the tactical allocation of long and short global fixed income opportunities and currencies.  Litman Gregory may hire sub-advisors that focus on other strategies in the future, and not all strategies that may be appropriate will be represented in the Alternative Strategies Fund’s portfolio at all times.

 

The sub-advisor that manages the arbitrage strategy seeks to generate long-term returns of at least mid-single-digits with low correlation to the equity and bond markets and may follow merger arbitrage, convertible arbitrage and capital structure arbitrage strategies.  This objective is pursued by investing in equity and debt securities of U.S. and non-U.S. companies that are impacted by corporate events such as mergers, acquisitions, restructurings, refinancings, recapitalizations, reorganizations or other special situations.

 

The sub-advisor that manages the opportunistic income strategy allocates investments to fixed income instruments and other investments with no limit on the duration of the portfolio.  The sub-advisor may invest in, without limitation, asset-backed securities; domestic and foreign corporate bonds, including high-yield bonds; municipal bonds; bonds or other obligations issued by domestic or foreign governments, including emerging markets countries; real estate investment trust (“REIT”) debt securities; and mortgage related securities.  When investing in mortgage-related securities, the sub-advisor may invest in obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government; collateralized mortgage obligations (“CMOs”) issued by domestic or foreign private issuers that represent an interest in or are collateralized by mortgage related securities issued by agencies or instrumentalities of the U.S. Government; commercial mortgage backed securities (“CMBS”); obligations issued by private issuers that represent an interest in or are collateralized by whole mortgage loans or mortgage related securities without a government guarantee but typically with some form of private credit enhancement; “interest only” and “principal only” stripped mortgage securities; inverse floating rate securities; and debt or equity tranches of collateralized debt obligations collateralized by mortgage related securities.

 

The sub-advisor that manages the contrarian opportunity strategy focuses on investments that offer absolute rather than relative value.  The goal is to provide equity-like returns over longer periods ( i.e. , five to seven years) while protecting against the permanent loss of capital.  Attention is directed toward those companies offering the best combination of such quality criteria as strong market share, good management, and high normalized return on capital.

 

The sub-advisor that manages the absolute return fixed income strategy seeks to achieve positive total returns over a full market cycle with relatively low volatility.  The sub-advisor intends to pursue its objective by utilizing a flexible investment approach that allocates investments across a global range of investment opportunities related to credit, currencies and interest rates, while employing risk management strategies designed to mitigate downside risk.  Under normal market conditions, the sub-advisor may invest (1) up to 75% of the total assets allocated to it in below investment-grade fixed income securities and related derivatives; (2) up to 75% of the total assets allocated to it in investments denominated in non-U.S. currencies and related derivatives, including up to 50% in investments denominated in emerging market currencies and related derivatives; and (3) up to 20% of the total assets allocated to it in equity related securities and derivatives as measured at time of allocation.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

Principal Risks  

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As with all mutual funds, it is possible to lose money on an investment in the Alternative Strategies Fund. An investment in the Alternative Strategies Fund is not a deposit of any bank and is not guaranteed, endorsed or insured by any financial institution, government authority or the Federal Deposit Insurance Corporation (FDIC). The principal risks of investing in the Alternative Strategies Fund are:

 

●

Equity Securities Risk.   This is the   risk that the value of equity securities may fluctuate, sometimes rapidly and unpredictably, due to factors affecting the general market, an entire industry or sector, or particular companies.  These factors include, without limitation, adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment; increases in production costs; and significant management decisions. This risk is greater for small- and medium-sized companies, which tend to be more vulnerable to adverse developments than larger companies.

 

●

Debt Securities Risk.   This is the risk that the value and liquidity of debt securities may be reduced under certain circumstances.  The value of debt securities can fluctuate in response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates.

 

●

Below Investment-Grade Fixed Income Securities Risk .  This is the risk of investing in below investment-grade fixed income securities (also known as “junk bonds”), which may be greater than that of higher rated fixed income securities.  These securities are rated Ba through C by Moody’s Investors Service (“Moody’s”) or BB through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality.  These securities have greater risk of default than higher rated securities.  The market value of these securities is more sensitive to corporate developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain.  There is no limit to the Alternative Strategies Fund’s ability to invest in below investment-grade fixed income securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in below investment-grade fixed income securities.

 

●

Interest Rate Risk .  This is the risk that debt securities will decline in value because of changes in interest rates. A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.

 

●

Credit Risk . This is the risk that the Alternative Strategies Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty of a derivatives contract or other transaction, is unable or unwilling (or is perceived to be unable or unwilling) to make timely payment of principal and/or interest, or to otherwise honor its obligations.

 

●

Convertible Securities Risk .  This is the risk that the market value of convertible securities may fluctuate due to changes in, among other things, interest rates; other general economic conditions; industry fundamentals; market sentiment; the issuer’s operating results, financial statements, and credit ratings; and the market value of the underlying common or preferred stock.

 

●

Capital Structure Arbitrage Risk .  The perceived mispricing identified by the Adviser may not disappear or may even increase, in which case losses may be realized.

 

●

Convertible Arbitrage Risk .  Arbitrage strategies involve engaging in transactions that attempt to exploit price differences of identical, related or similar securities on different markets or in different forms. A Fund may realize losses or reduced rate of return if underlying relationships among securities in which investment positions are taken change in an adverse manner or a transaction is unexpectedly terminated or delayed. Trading to seek short-term capital appreciation can be expected to cause the Fund's portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company, resulting in higher transaction costs and additional capital gains tax liabilities.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

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Mortgage-Backed Securities Risk .  This is the risk of investing in mortgaged-backed securities, which includes interest rate risk, prepayment risk and the risk of defaults on the mortgage loans underlying these securities.

 

●

Foreign Investment and Emerging Markets Risks.   This is the risk that an investment in foreign (non-U.S.) securities may cause the   Alternative Strategies Fund to experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to factors such as currency conversion rate fluctuations, currency blockages, political and economic instability, differences in financial reporting, accounting and auditing standards, nationalization, expropriation or confiscatory taxation, and smaller and less-strict regulation of securities markets.  These risks are greater in emerging markets.  There is no limit to the Alternative Strategies Fund’s ability to invest in emerging market securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in emerging market securities.

 

●

Currency Risk .  This is the risk that investing in foreign currencies may expose the Alternative Strategies Fund to fluctuations in currency exchange rates and that such fluctuations in the exchange rates may negatively affect an investment related to a currency or denominated in a foreign currency.  The Alternative Strategies Fund may invest in foreign currencies for investment and hedging purposes.

 

●

Leverage Risk.   This is the risk that leverage may cause the effect of an increase or decrease in the value of the Alternative Strategies Fund’s portfolio securities to be magnified and the Alternative Strategies Fund to be more volatile than if leverage was not used.  Leverage may result from certain transactions, including the use of derivatives and borrowing.

 

●

Derivatives Risk .  This is the risk that an investment in derivatives may not correlate completely to the performance of the underlying securities and may be volatile and that the insolvency of the counterparty to a derivative instrument could cause the Alternative Strategies Fund to lose all or substantially all of its investment in the derivative instrument, as well as the benefits derived therefrom.

 

●

Short Sale Risk .  This is the risk that the value of a security the Alternative Strategies Fund sells short does not go down as expected. The risk of loss is theoretically unlimited if the value of the security sold short continues to increase. In addition, short sales may cause the Alternative Strategies Fund to be compelled, at a time disadvantageous to it, to buy the security previously sold short, thus resulting in a loss. To meet current margin requirements, the Alternative Strategies Fund is required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short.

 

●

Merger Arbitrage Risk .  This is the risk that a proposed reorganization in which the Alternative Strategies Fund invests may be renegotiated or terminated.

 

●

Multi-Style Management Risk.   This is the risk that   the Alternative Strategies Fund could experience overlapping security transactions as a result of having different portfolio managers using different strategies to manage the Alternative Strategies Fund’s assets.   Certain portfolio managers may be purchasing securities at the same time other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a fund using a single investment strategy.

 

●

Portfolio Turnover Risk.   This is the risk that the Alternative Strategies Fund may experience high portfolio turnover rates as a result of its investment strategies.  High portfolio turnover rates may indicate higher transaction costs and may result in higher taxes when shares of the Alternative Strategies Fund are held in a taxable account.

 

●

Unfavorable Tax Treatment Risk:     This is the risk that a material portion of the Alternative Strategies Fund’s return could be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

Performance  

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The following performance information provides some indication of the risks of investing in the Alternative Strategies Fund.  The bar chart shows   the performance of the Alternative Strategies Fund’s Institutional Class shares during its first full calendar year of operations.  The table below shows how the Alternative Strategies Fund’s average annual total returns of the Institutional Class and Investor Class for the 1-year and since inception periods compare to those of a broad-based market index and two secondary indexes.  Past performance, before and after taxes, does not necessarily indicate how the Alternative Strategies Fund will perform in the future.  Updated performance information is available on the Alternative Strategies Fund’s website at www.mastersfunds.com.

 

Litman Gregory Masters Alternative Strategies Fund – Institutional Class

Calendar Year Total Returns

 

 

During the period shown above, the highest and lowest quarterly returns earned by the Alternative Strategies Fund were:
Highest:	4.07%	Quarter ended March 31, 2012
Lowest:	-0.19%	Quarter ended June 30, 2012

 

Average Annual Total Returns (for the periods ended December 31, 2012)
Litman Gregory Masters Alternative Strategies Fund	One Year		Since Fund Inception (9/30/2011)
Institutional Class
Return Before Taxes	9.41%		10.38%
Return After Taxes on Distributions	8.45%		9.54%
Return After Taxes on Distributions and Sale of Fund Shares	6.10%		8.34%
Investor Class Return Before Taxes	9.16%		10.16%
Barclay’s Aggregate Bond Index (reflects no deduction for fees, expenses or taxes)	4.23%		4.30%
S&P 500 ® Index   (reflects no deduction for fees, expenses or taxes)	16.00%		23.13%
40/60 Blend of S&P 500 & Barclays Agg Bond Index (reflects no deduction for fees, expenses or taxes)	8.96%		11.71%

 

The Alternative Strategies Fund’s after-tax returns as shown in the above table are calculated using the historical highest applicable individual federal marginal income tax rates for the period and do not reflect the impact of state and local taxes.  Your actual after-tax returns depend on your tax situation and may differ from those shown.  If you own shares of the Alternative Strategies Fund in a tax-deferred account, such as a 401(k) plan or an individual retirement account after-tax returns shown are not relevant to your investment.  After-tax returns are shown for only the Alternative Strategies Fund’s Institutional Class, and after-tax returns for the Alternative Strategies Fund’s Investor Class will vary.

 

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Summary Section

Litman Gregory Masters Alternative Strategies Fund

 

Management  

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Investment Advisor	Portfolio Manager	Managed the Alternative Strategies Fund Since:
Litman Gregory Fund Advisors, LLC	Jeremy DeGroot, CFA, Chief Investment Officer and Portfolio Manager	2011

Sub-Advisor	Portfolio Manager
DoubleLine Capital LP	Jeffrey Gundlach, Chief Executive Officer, Chief Investment Officer, Portfolio Manager	2011
First Pacific Advisors, LLC	Steven Romick, CFA, Managing Partner, Chief Investment Officer, Portfolio Manager	2011
	Brian Selmo, Portfolio Manager	2011
	Mark Landecker, Portfolio Manager	2011
Loomis Sayles and Company, LP	Matthew Eagan, CFA, Vice President and Portfolio Manager	2011
	Kevin Kearns, Vice President and Portfolio Manager	2011
	Todd Vandam, CFA, Vice President and Portfolio Manager	2011
Water Island Capital, LLC	John Orrico, President and Portfolio Manager	2011
	Todd Munn, Portfolio Manager	2011
	Roger Foltynowicz, Portfolio Manager	2011
	Gregg Loprete, Portfolio Manager	2011

 

For important information about the purchase and sale of fund shares, tax information and financial intermediary compensation, please turn to the “Summary of Other Important Information Regarding the Funds” section on page 33 of this Prospectus.

 

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Summary Section

All Funds

 

Summary of Other Important Information Regarding the Funds

 

Transaction Policies – All Funds

 

You may purchase, redeem or exchange Fund shares on any business day by written request via mail (Litman Gregory Funds Trust, c/o Boston Financial Data Services, P.O. Box 219922, Kansas City, MO 64121-9922), by wire transfer, by telephone at 1-800-960-0188, or through a financial intermediary.  The minimum initial and subsequent investment amounts for each Fund are shown below.

 

Fund/Type of Account	Minimum Initial Investment		Minimum Additional Investment		Minimum Account Balance
Equity Fund, International Fund, Value Fund, Smaller Companies Fund, and Focused Opportunities Fund
Regular
- Institutional Class	$10,000		$250		$2,500
- Investor Class	$1,000		$100		$250
Retirement Account
- Institutional Class	$1,000		$100		$250
- Investor Class	$500		$100		$250
Automatic Investment Account
- Institutional Class	$2,500		$250		$2,500
- Investor Class	n/a		n/a		n/a
Alternative Strategies Fund (1)
Regular
- Institutional Class	$100,000		$250		$2,500
- Investor Class	$1,000		$100		$250
Retirement Account
- Institutional Class	$5,000		$100		$250
- Investor Class	$500		$100		$250
Automatic Investment Account
- Institutional Class	$2,500		$250		$2,500
- Investor Class	$2,500		$250		$2,500

 

(1)

The minimum investment amounts may be waived or lowered for investments effected through banks and other institutions that have entered into arrangements with the Alternative Strategies Fund or the distributor of the Alternative Strategies Fund and for investments effected on a group basis by certain other entities and their employees, such as investments pursuant to a payroll deduction plan and asset-based or wrap programs.  Please consult your financial intermediary for information about minimum investment requirements.  The Alternative Strategies Fund reserves the right to change or waive the minimum initial and subsequent investment requirements at any time.

 

Tax Information – All Funds

 

The Funds’ distributions will be taxed as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account.  Such tax-deferred arrangements may be taxed later upon withdrawal from those accounts.

 

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Summary Section

All Funds

 

Payments to Broker-Dealers and Other Financial Intermediaries – All Funds

 

If you purchase shares of a Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and/or the Advisor may pay the intermediary for the sale of Fund shares and related services.  These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s website for more information.

 

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Description of Principal Investment Risks

Description of Principal Investment Risks

 

All mutual funds carry a certain amount of risk.  The Funds’ returns will vary, and you could lose money on your investment in the Funds.  An investment in a Fund is not a deposit of a bank and is not insured, endorsed or guaranteed by any financial institution, the Federal Deposit Insurance Corporation (FDIC) or any other government agency.  The principal risks for each Fund are identified in the Funds’ Summary Sections and are described in further detail below.  Additional information about the principal risks is included in the Funds’ Statement of Additional Information (“SAI”).

 

Below Investment-Grade Fixed Income Securities Risk		Below investment-grade fixed income securities (also known as “junk bonds”) are considered speculative.  These securities are rated Ba through C by Moody’s Investors Service (“Moody’s”) or BB through D by Standard & Poor’s Rating Group (“S&P”) (or comparably rated by another nationally recognized statistical rating organization), or, if not rated by Moody’s or S&P, are considered by the sub-advisors to be of similar quality.  These securities may be subject to greater risks than those of higher rated fixed income securities, including greater risk of default. The market value of below investment-grade fixed income securities is more sensitive to individual corporate developments and economic changes than higher rated securities. Adverse publicity and investor perceptions, whether or not accurate, regarding below investment-grade fixed income securities may depress prices and diminish liquidity for such securities. The market for below investment-grade fixed income securities may be less active than the market for higher rated securities, which can adversely affect the price at which these securities may be sold. Less active markets may diminish the Alternative Strategies Fund’s ability to obtain accurate market quotations when valuing the portfolio securities and thereby giving rise to valuation risk. In addition, the Alternative Strategies Fund may incur additional expenses if a holding defaults and the Alternative Strategies Fund has to seek recovery of its principal investment. Below investment-grade fixed income securities may also present risks based on payment expectations. For example, these securities may contain redemption or call provisions. If an issuer exercises these provisions in a declining interest rate market, the Alternative Strategies Fund would have to replace the security with a lower yielding security resulting in a decreased return for investors.  There is no limit to the Alternative Strategies Fund’s ability to invest in below investment-grade fixed income securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in below investment-grade fixed income securities as measured at time of purchase.
Capital Structure Arbitrage Risk		The perceived mispricing identified by the Adviser may not disappear or may even increase, in which case losses may be realized.
Convertible Arbitrage Risk		Arbitrage strategies involve engaging in transactions that attempt to exploit price differences of identical, related or similar securities on different markets or in different forms. A Fund may realize losses or reduced rate of return if underlying relationships among securities in which investment positions are taken change in an adverse manner or a transaction is unexpectedly terminated or delayed. Trading to seek short-term capital appreciation can be expected to cause the Fund's portfolio turnover rate to be substantially higher than that of the average equity-oriented investment company, resulting in higher transaction costs and additional capital gains tax liabilities.

 

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Description of Principal Investment Risks

 

Convertible Securities Risk		Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Because convertible securities are higher in an issuer’s capital structure than equity securities, convertible securities are generally not as risky as the equity securities of the same issuer. However, convertible securities may gain or lose value due to changes in, among other things, interest rates; other general economic conditions; industry fundamentals; market sentiment; and the issuer’s operating results, financial statements and credit ratings.  The value of convertible securities also tends to change whenever the market value of the underlying common or preferred stock fluctuates.
Credit Risk		Credit risk is the risk that the issuer or the guarantor of a fixed income security, or the counterparty to a derivatives contract or other transaction, is unable or unwilling (or is perceived to be unable or unwilling) to make timely payments of principal and/or interest, or to otherwise honor its obligations. The Alternative Strategies Fund will be subject to credit risks with respect to the counterparties of its derivative transactions. Many of the protections afforded to participants on organized exchanges, such as the performance guarantee of an exchange clearing house, are not available in connection with OTC derivative transactions, such as foreign currency transactions. As a result, in instances where the Alternative Strategies Fund enters into OTC derivative transactions, the Alternative Strategies Fund will be subject to the risk that its direct counterparties will not perform their obligations under the transactions and that the Alternative Strategies Fund will sustain losses or be unable to realize gains.
Currency Risk		The Alternative Strategies Fund may invest in foreign currencies for investment and hedging purposes.  All of the Funds may invest in foreign currencies for hedging purchases.  Investing in foreign currencies exposes the fund to fluctuations in currency exchange rates.  Fluctuations in the exchange rates between different currencies may negatively affect an investment. The Alternative Strategies Fund may be subject to currency risk because it may invest a significant portion of its assets in currency-related instruments, such as forward currency exchange contracts, foreign currency futures contracts, options on foreign currencies and foreign currency futures, cross-currency instruments (such as swaps) and direct investments in foreign currencies. The Alternative Strategies Fund also is subject to currency risk because it may invest in securities or other instruments denominated in, or receive revenues in, foreign currencies. The sub-advisors may elect not to hedge currency risk, which may cause the Alternative Strategies Fund to incur losses that would not have been incurred had the risk been hedged.
Debt Securities Risk		The value and liquidity of debt securities may be reduced under certain circumstances. The value of debt securities can fluctuate, sometimes rapidly, in response to issuer activity and changes in general economic and credit market conditions, including changes in interest rates. The prices of debt securities can be volatile, and there can be severe limitations in the ability to value or sell certain debt securities, including those that are of higher credit quality, during periods of reduced credit market liquidity such as the one that the market recently experienced.

 

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Description of Principal Investment Risks

 

Derivatives Risk		Some of the instruments in which the Alternative Strategies Fund may invest may be referred to as “derivatives,” because their value “derives” from the value of an underlying asset, reference rate or index. These instruments include options, futures contracts, forward currency contracts, swap agreements and similar instruments. The market value of derivative instruments and securities sometimes is more volatile than that of other instruments, and each type of derivative instrument may have its own special risks.  Some OTC derivative instruments may expose the Alternative Strategies Fund to the credit risk of its counterparty. In the event the counterparty to such a derivative instrument becomes insolvent, the Alternative Strategies Fund may lose all or substantially all of its investment in the derivative instrument, as well as the benefits derived therefrom.  Investing for hedging purposes or to increase the Alternative Strategies Fund’s return may result in certain additional transaction costs that may reduce the Alternative Strategies Fund’s performance. In addition, when used for hedging purposes, no assurance can be given that each derivative position will achieve a close correlation with the security or currency against which it is being hedged, or that a particular derivative position will be available when sought by the sub-advisors. While hedging strategies involving derivatives can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other investments of the Alternative Strategies Fund. Certain derivatives may create a risk of loss greater than the amount invested.
Distressed Companies Risk		Investments in distressed companies typically involve the purchase of high-yield bonds, or comparable unrated debt securities, or the purchase of direct indebtedness (or participations in the indebtedness) of such companies.  Indebtedness generally represents a specific commercial loan or portion of a loan made to a company by a financial institution such as a bank or insurance company.  Loan participations represent fractional interests in a company’s indebtedness and are generally made available by banks or insurance companies.  By purchasing all or a part of a company’s direct indebtedness, a Fund, in effect, steps into the shoes of the lender. If the loan is secured, the Fund will have a priority claim to the assets of the company ahead of unsecured creditors and stockholders.  A Fund also may purchase trade claims and other similar direct obligations or claims against companies in bankruptcy.  Trade claims are generally purchased from creditors of the bankrupt company and typically represent money due to a supplier of goods or services to the company.   The purchase of indebtedness or loan participations of a troubled company always involves the risk as to the creditworthiness of the issuer and the possibility that principal invested may be lost.  Purchasers of participations, such as a Fund, must rely on the financial institution issuing the participation to assert any rights against the borrower with respect to the underlying indebtedness.  In addition, a Fund takes on the risk as to the creditworthiness of the bank or other financial intermediary issuing the participation, as well as that of the company issuing the underlying indebtedness.  When a Fund purchases a trade claim, there is no guarantee that the debtor will ever be able to satisfy the obligation on the trade claim.

 

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Description of Principal Investment Risks

 

Emerging Markets Risk		Emerging market countries are those with immature economic and political structures, and investing in emerging markets entails greater risk than in developed markets.  Emerging markets may be under-capitalized, have less developed legal and financial systems or have less stable currencies than markets in the developed world.  Emerging market securities are securities that are issued by companies with their principal place of business or principal office in an emerging market country; or securities issued by companies for which the principal securities trading market is an emerging market country.  Emerging market securities typically present even greater exposure to the risks described under “Foreign Company Risk” and may be particularly sensitive to certain economic changes.  For example, emerging market countries are more often dependent on international trade and are therefore often vulnerable to recessions in other countries.  Emerging markets may have obsolete financial systems and volatile currencies, and may be more sensitive than more mature markets to a variety of economic factors.  Emerging market securities also may be less liquid than securities of more developed countries and could be difficult to sell, particularly during a market downturn.
Equity Securities Risk		The value of equity securities may fluctuate, sometimes rapidly and unexpectedly, due to various factors, including factors affecting the general market, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, and factors directly related to a specific company, such as significant decisions made by its management. Certain equity securities may decline in value even during periods when the prices of equity securities in general are rising, or may not perform as well as the market in general. The prices of equity securities may also experience greater volatility during periods of challenging market conditions such as the one that the market recently experienced. This risk is greater for small- and medium-sized companies, which tend to be more vulnerable to adverse developments than larger companies.
Interest Rate Risk		Changes in interest rates may cause the value of debt securities to decline. Generally, the value of debt securities rise when prevailing interest rates fall, and fall when prevailing interest rates rise.  A fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.
Foreign Investment and Emerging Markets Risks		Investing in foreign (non-U.S) securities may expose the Funds to risks not typically associated with U.S. investments. These risks include, among others, adverse fluctuations in currency conversion rate, currency blockages, and adverse political, social and economic developments affecting a foreign country. In addition, foreign securities may have less publicly available information and may be more volatile and/or less liquid. Investments in foreign securities could also be affected by factors such as differences in financial reporting, accounting and auditing standards, nationalization, expropriation or confiscatory taxation, smaller and less-strict regulation of securities markets, restrictions on receiving investment proceeds from a foreign country, and potential difficulties in enforcing contractual obligations. These risks are greater in the emerging markets.  There is no limit to the Alternative Strategies Fund’s ability to invest in emerging market securities; however, under normal market conditions, it does not expect to invest more than 50% of its total assets in emerging market securities.

 

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Description of Principal Investment Risks

 

Leverage Risk		Leverage may result from certain transactions, including the use of derivatives and borrowing. Although leverage creates an opportunity for increased income and gain, it also creates certain risks. For example, the use of leverage may cause the effect of an increase or decrease in the value of the Alternative Strategies Fund’s portfolio securities to be magnified and the Alternative Strategies Fund to be more volatile than if leverage was not used.  Under normal circumstances, the Alternative Strategies Fund may borrow amounts up to one third of the value of its total assets except that it may exceed this limit to satisfy redemption requests or for other temporary purposes.
Market Risk		The market prices of securities owned by a Fund may go up or down, sometimes rapidly or unpredictably.  Securities may decline in value or become illiquid due to factors affecting securities markets generally or particular industries represented in the securities markets.  The value or liquidity of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally.  Securities may also decline or become illiquid due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.  During a general downturn in the securities markets, multiple asset classes may decline or become illiquid in value simultaneously.
Merger Arbitrage Risk		Merger arbitrage seeks to profit from the successful completion of mergers, takeovers, tender offers, leveraged buyouts, spin offs, liquidations and other corporate reorganizations (each, a “deal”).  The success of merger arbitrage depends on the discount between the deal price and the price of the target company’s stock after the deal is announced but before it is closed.  If a proposed reorganization in which the Alternative Strategies Fund invests is renegotiated or terminated, the Alternative Strategies Fund may suffer a loss.

 

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Description of Principal Investment Risks

 

Mortgage-Backed Securities Risk		Mortgage-backed securities represent participation interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. The values of some mortgage-backed securities may expose the Alternative Strategies Fund to a lower rate of return upon reinvestment of principal. When interest rates rise, the value of mortgage-related securities generally will decline; however, when interest rates are declining, the value of mortgage related-securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If unanticipated rates of prepayment on underlying mortgages increase the effective maturity of a mortgage-related security, the volatility of the security can be expected to increase. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.  Mortgage-backed securities that are collateralized by a portfolio of mortgages or mortgage-related securities depend on the payments of principal and interest made by or through the underlying assets, which may not be sufficient to meet the payment obligations of the mortgage-backed securities.
Multi-Style Management Risk		Because portions of a Fund ’ s assets are managed by different portfolio managers using different styles/strategies, a Fund could experience overlapping security transactions. Certain portfolio managers may be purchasing securities at the same time that other portfolio managers may be selling those same securities, which may lead to higher transaction expenses compared to a Fund using a single investment management style.  Litman Gregory’s and the sub-advisors’ judgments about the attractiveness, value and potential appreciation of a particular asset class or individual security in which a Fund invests may prove to be incorrect, and there is no guarantee that Litman Gregory’s judgment will produce the desired results.  In addition, a Fund may allocate its assets so as to under- or over-emphasize certain strategies or investments under market conditions that are not optimal, in which case the Fund’s value may be adversely affected.
Non-Diversification Risk		A non-diversified Fund may hold larger positions in a smaller number of individual securities than a diversified fund.  A probable result of non-diversification is that increases or decreases in the value of any of the individual securities owned by a Fund may have a greater impact on the Fund’s net asset value (“NAV”) and total return than would be the case in a diversified fund holding a larger number of securities. This may make a Fund’s performance more volatile than would be the case if it had a diversified investment portfolio.

 

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Description of Principal Investment Risks

 

Portfolio Turnover Risk		High portfolio turnover involves correspondingly greater expenses, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which may result in adverse tax consequences to a Fund’s shareholders.  Certain of a Fund’s investment strategies may result in it having higher portfolio turnover rates. Higher portfolio turnover may cause a Fund to experience increased transaction costs, dealer markups, brokerage expenses and other acquisition costs, and may cause shareholders to incur increased taxes on their investment in a Fund. The portfolio managers do not consider portfolio turnover rate a limiting factor in making investment decisions on behalf of a Fund consistent with its investment objective and policies. Variations in portfolio turnover rates may be due to fluctuations in shareholder purchase, exchange and redemption transactions, market conditions or changes in the portfolio manager’s outlook.
Short Sale Risk		The Alternative Strategies Fund may suffer a loss if it sells a security short and the value of the security does not go down as expected.  The risk of loss is theoretically unlimited if the value of the security sold short continues to increase. Short sales expose the Alternative Strategies Fund to the risk that it may be compelled to buy the security sold short (also known as “covering” the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Alternative Strategies Fund. The Alternative Strategies Fund’s investment performance may also suffer if it is required to close out a short position earlier than it had intended. In addition, the Alternative Strategies Fund may be subject to expenses related to short sales that are not typically associated with investing in securities directly, such as costs of borrowing. These expenses may negatively impact the performance of the Alternative Strategies Fund.  To meet current margin requirements, the Alternative Strategies Fund is required to deposit with the broker additional cash or securities so that the total deposit with the broker is maintained daily at 150% of the current market value of the securities sold short.
Smaller Companies Risk		Securities of companies with smaller market capitalizations are generally more volatile and less liquid than the securities of large-capitalization companies.  Small- and mid-sized companies may be more reliant on a few products, services or key personnel, which can make it riskier than investing in larger companies with more diverse product lines and structured management.  Smaller companies may have no or relatively short operating histories or may be newer public companies.  Some of these companies have aggressive capital structures, including high debt levels, or are involved in rapidly growing or changing industries and/or new technologies, which pose additional risks.
Unfavorable Tax Treatment Risk		Various types of investments in which the Alternative Strategies Fund may invest, including derivatives, mortgage related securities, and REITs, may cause the Alternative Strategies Fund’s returns to be in the form of net investment income or short-term capital gains, some of which may be distributed to shareholders and taxed at ordinary income tax rates.

 

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Fund Management and Investment Styles

 

The Advisor

 

The Funds are managed by Litman Gregory Fund Advisors, LLC (“Litman Gregory”), 4 Orinda Way, Orinda, California, 94563.  Litman Gregory has overall responsibility for assets under management, recommends the selection of managers as sub-advisors of the Funds (each, a “manager” or “sub-advisor”) to the Board of Trustees (the “Board”) of the Litman Gregory Funds Trust (the “Trust”), evaluates the performance of the managers, monitors changes at the managers’ organizations that may impact their abilities to deliver superior future performance, determines when to rebalance the managers’ assets and the amount of cash equivalents (if any) that may be held in addition to cash in each of the managers’ sub-portfolios, coordinates with the managers with respect to diversification and tax issues and oversees the operational aspects of the Funds.

 

Kenneth E. Gregory is a Trustee and President of the Trust, a Co-Portfolio Manager of the Equity Fund, International Fund, Value Fund, Smaller Companies Fund and Focused Opportunities Fund. Gregory is also Chairman of Litman Gregory and a managing member and senior research analyst of Litman Gregory Asset Management, LLC (“LGAM”), a research-oriented money management firm that wholly owns, and provides research to, Litman Gregory.  Gregory co-founded LGAM in 1987.  LGAM also owns Litman Gregory Analytics, the publisher of AdvisorIntelligence.com, a web-based investment research service.  Litman Gregory Analytics also publishes the No-Load Fund Analyst newsletter and conducts research on financial markets and mutual funds. Gregory has been in the investment business since 1979, and he has an MBA from the University of Michigan’s Ross School of Business.

 

Jeremy DeGroot, CFA, is a Trustee and Assistant Secretary of the Trust, the Portfolio Manager of the Alternative Strategies Fund, and a Co-Portfolio Manager of the Equity Fund, International Fund, Value Fund, Smaller Companies Fund and Focused Opportunities Fund.  He is also a member of LGAM and serves as its Chief Investment Officer.  Prior to joining LGAM in 1999, DeGroot was a Manager in KPMG Peat Marwick's Economic Consulting Services practice from 1998.  From 1989 to 1997, he was a Senior Economist with the Law & Economics Consulting Group, Inc., providing economics and financial analysis to Fortune 500 clients.  He has a Master’s degree in Economics from the University of California Berkeley.

 

Together, Gregory and DeGroot are responsible for monitoring the day-to-day activities of the portfolio managers and overseeing all aspects of Litman Gregory’s responsibilities with respect to the Funds.

 

Asset Level Limitations

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Litman Gregory believes that high levels of assets under management can be detrimental to certain investment strategies.  Litman Gregory also believes that relatively low levels of assets under management can provide flexibility to skilled stock pickers that under certain circumstances may contribute positively to returns. It is Litman Gregory’s belief that asset levels are particularly relevant to the Funds given their concentrated investment strategy.  Because of this belief, each of the Funds may be closed to new shareholders, with certain exceptions approved by the Board, at asset levels that Litman Gregory and the sub-advisors believe to be optimal in allowing for a high degree of flexibility on a per-sub-advisor basis.  Alternatively, additional sub-advisors may be added to the Funds to expand capacity in order to avoid closing to new shareholders or to avoid “hard closing” to existing shareholders.  Litman Gregory will add a new sub-advisor only if, in its opinion, the sub-advisor has the exceptional stock-picking skill and other traits Litman Gregory requires of the existing managers.

 

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Fund Management and Investment Styles

The Adviser, Multi-Manager Issues & Fees

 

Sub-Advisor Evaluation and Selection

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Litman Gregory is responsible for hiring and replacing sub-advisors. Before hiring a sub-advisor, Litman Gregory performs extensive due diligence.  This includes quantitative and qualitative analysis, including (but not limited to) an evaluation of: the investment process, the consistency of its execution and discipline; individual holdings; strategies employed, past mistakes, risk controls, team depth and quality; operations and compliance; and business focus and vision.  Litman Gregory’s evaluation process includes review of literature and documents, quantitative historical performance evaluation, extensive discussions with members of the investment team and firm management and background checks through industry contacts.  Each of the sub-advisor’s management fee is also an important consideration.  It is Litman Gregory’s objective to hire sub-advisors who it believes are skilled and can deliver strong market cycle returns when taking risk into account. Litman Gregory will favor managers who it believes focus on markets or investment strategies that are inherently low risk on an absolute basis or relative to their return potential; and managers who have a clearly risk-sensitive mindset in executing their portfolio strategy. Generally, Litman Gregory prefers managers who it believes will be able to add value through security selection and from tactical allocations to securities, markets or strategies at times when it believes such allocations are compelling from a risk/return perspective.  Litman Gregory is responsible for the general overall supervision of the sub-advisors along with allocating the portfolio's assets for their investment decisions as well as rebalancing the portfolio as necessary from time to time.

 

Multi-Manager Issues

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More on Multi-Style Management:   The investment methods used by the managers in selecting securities for the Funds vary.  The segment of each Fund’s portfolio managed by a manager will, under normal circumstances, differ from the segments managed by the other managers with respect to portfolio composition, turnover, issuer capitalization and issuer financial condition.  Because selections are made independently by each manager, it is possible that a security held by one portfolio segment may also be held by other portfolio segments of the Funds or that several managers may simultaneously favor the same industry segment.  Litman Gregory monitors the overall portfolio on an ongoing basis to ensure that such overlaps do not create an unintended industry concentration or result in lack of diversification.

 

Litman Gregory is responsible for establishing the target allocation of Fund assets to each manager and may adjust the target allocations at its discretion.  Market performance may result in allocation drift among the managers of a Fund.  Litman Gregory is responsible for periodically rebalancing the portfolios, the timing and degree of which will be determined by Litman Gregory.  Each manager independently selects the brokers and dealers to execute transactions for the segment of a Fund being managed by that manager.  The Advisor may at its discretion allow a manager to hold fewer or more than the specified number of holdings in its portfolio, which may be the result of a manager’s investment decision, an involuntary spin-off by one of the companies held in the portfolio, the payment of a stock dividend or split in a separate class of stock, or an overlap in selling a portfolio security while simultaneously adding a new security.

 

At times, allocation adjustments in the Alternative Strategies Fund may be considered tactical with over- or under-allocations to certain managers based on Litman Gregory’s assessment of the risk and return potential of each manager’s strategy at that point in time.  Manager allocations are also influenced by each manager’s historical returns and volatility, which are assessed by examining the performance of strategies run by the managers in their private (hedge) funds or other accounts that Litman Gregory believes to be similar to those that will be used for the Fund.  Litman Gregory has analyzed the individual and combined performance of the Alternative Strategies’ managers in a variety of investment environments, including the 2008 financial crisis as well as other types of positive and negative market environments.

 

In the event a manager ceases to manage a segment of a Fund’s portfolio, Litman Gregory will select a replacement manager or allocate the assets among the remaining managers.  The securities that were held in the departing manager’s segment of the Fund’s portfolio may be allocated to and retained by another manager of the Fund or will be liquidated in an orderly manner, taking into account various factors, which may include but are not limited to the market for the security and the potential tax consequences.  Litman Gregory may also add additional managers in order to increase Fund diversification or capacity.

 

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Fund Management and Investment Styles

The Adviser, Multi-Manager Issues & Fees

 

The SAI provides additional information about the compensation of each portfolio manager at each sub-advisor, other accounts managed by each portfolio manager, and each such portfolio manager’s ownership of securities of the Funds.

 

Temporary Defensive Positions:   Under unusual market conditions or for temporary defensive purposes, each Fund’s total assets may be invested in short-term, high-quality debt securities.  Defensive positions may be initiated by the individual portfolio managers or by Litman Gregory.

 

Multi-Manager Exemptive Order:   Litman Gregory has obtained an exemptive order from the SEC, which permits it, subject to certain conditions, to select new managers with the approval of the Board only and without shareholder approval.  The order also permits Litman Gregory to change the terms of agreements with the managers or to continue the employment of a manager after an event that would otherwise cause the automatic termination of services. Shareholders must be notified of any manager changes.  Shareholders have the right to terminate arrangements with a manager for a Fund by vote of a majority of the outstanding shares of that Fund.  The order also permits a Fund to disclose managers’ fees only in the aggregate in its registration statement.

 

Portfolio Holdings Information  

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A description of the Funds’ policies and procedures regarding disclosure of the Funds’ portfolio holdings can be found in the SAI, which can be obtained free of charge by contacting the Funds’ transfer agent at 1-800-960-0188.

 

Advisory Fees  

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Each Fund pays a monthly investment advisory fee to Litman Gregory based on that Fund’s average daily net assets.  The table below illustrates the base fees paid to Litman Gregory along with reduced fees paid on assets in excess of certain levels (breakpoints).

 

Fund	Advisory Fee (as a percentage of net assets)
Equity Fund	First $750 million	1.10%
	Over $750 million	1.00%
International Fund	First $1 billion	1.10%
	Over $1 billion	1.00%
Value Fund	First $1 billion	1.10%
	Over $1 billion	1.00%
Smaller Companies Fund	First $450 million	1.14%
	Over $450 million	1.04%
Focused Opportunities Fund	First $1 billion	1.10%
	Over $1 billion	1.00%
Alternative Strategies Fund	Up to $2 billion	1.40%
	Between $2 and $3 billion	1.30%
	Between $3 and $4 billion	1.25%
	Excess over $4 billion	1.20%

 

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Fund Management and Investment Styles

The Adviser, Multi-Manager Issues & Fees

 

Litman Gregory, not the Funds, is responsible for payment of the sub-advisory fees to the managers, each of whom is compensated monthly on the basis of the assets committed to its individual discretion.  As of March 31, 2013, based on the assets of each Fund and the asset allocation targets, Litman Gregory pays fees to the sub-advisors as follows, which may change in the future because assets and allocations will fluctuate:

 

Fund	Aggregate Annual Fee Rates Litman Gregory Pays to Sub-Advisors
Equity Fund	0.68%
International Fund	0.52%
Value Fund	0.68%
Smaller Companies Fund	0.72%
Focused Opportunities Fund	0.60%
Alternative Strategies Fund	0.83%

 

Through April 30, 2014, Litman Gregory has contractually agreed to waive a portion of its advisory fees for the International Fund, Value Fund and Focused Opportunities Fund as follows:  for the International Fund, Litman Gregory has agreed to waive a portion of its advisory fees so that after paying all of the sub-advisory fees, the net advisory fee as a percentage of the International Fund’s daily net assets retained by Litman Gregory is 0.40% on the first $1 billion of the International Fund’s assets and 0.30% for assets over $1 billion; for the Value Fund, Litman Gregory has agreed to waive its advisory fee by 0.02% of the average daily net assets of the Value Fund; and for the Focused Opportunities Fund, Litman Gregory has agreed to waive its advisory fee by 0.08% of the average daily net assets of the Focused Opportunities Fund.  Litman Gregory also voluntarily waives a portion of its advisory fee from time to time.  Litman Gregory has agreed not to seek recoupment of any advisory fee waived.

 

Litman Gregory has also contractually agreed to waive a portion of its advisory fees and/or reimburse a portion of the Alternative Strategies Fund’s operating expenses (excluding any taxes, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, borrowing costs (including commitment fees), dividend expenses, acquired fund fees and expenses and extraordinary expenses such as but not limited to litigation costs) through April 30, 2014 (unless otherwise sooner terminated) to ensure that the Alternative Strategies Fund’s total annual fund operating expenses after fee waiver and/or expense reimbursement will not exceed 1.49% and 1.74% on the daily net assets attributable to the Institutional Class and the Investor Class, respectively, subject to possible recoupment from the Alternative Strategies Fund in the future by Litman Gregory on a rolling three-year basis ( i.e. , within three years following the fiscal year in which the fees were waived or the expenses were reimbursed) if such recoupment can be achieved within the foregoing expense limits and the recoupment is approved by the Board.

 

In 2012, the advisory fees paid and net fees retained by Litman Gregory with respect to the Funds, after fee waivers and breakpoint adjustments, were as follows:

 

Fund	2012 Advisory Fees Paid by the Fund after Fee Waivers	2012 Aggregate Sub- Advisory Fees Paid by Litman Gregory to Sub-Advisors	2012 Net Fees Retained by Litman Gregory after Fee Waivers and Payments to Sub- Advisors
Equity Fund	1.08%	0.68%	0.40%
International Fund	0.91%	0.55%	0.36%
Value Fund	1.07%	0.67%	0.40%
Smaller Companies Fund	1.13%	0.72%	0.41%
Focused Opportunities Fund	1.00%	0.60%	0.40%
Alternative Strategies Fund	1.13%	0.72%	0.41%

 

A discussion regarding the Board’s basis for approving the Funds’ investment advisory agreements with Litman Gregory and each sub-advisor is included in the Funds’ Annual Report to Shareholders for the fiscal year ended December 31, 2012.

 

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Litman Gregory Masters Equity Fund – Sub-Advisors

 

The Equity Fund’s seven sub-advisors emphasize different stock-picking styles and invest in stocks spanning a range of market capitalizations.  Litman Gregory believes that during any given year certain stock-picking styles will generate higher returns than comparable market indexes, while others will lag.  By including a variety of stock-picking styles in this single mutual fund, Litman Gregory believes that the variability and volatility of returns can be lessened.

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the managers who, based on Litman Gregory’s research, are judged to be among the best in their respective style groups.  The sub-advisors manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks.  Under normal conditions, the Equity Fund invests at least 80% of the Equity Fund’s net assets in equity securities.  This investment policy may be changed by the Board without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs.  Under normal conditions, each manager’s portfolio segment typically includes a minimum of 5 and a maximum of 15 securities.  A manager may occasionally hold more than 15 securities.  Though the total number of securities the Equity Fund may hold at any point in time will vary, it is generally expected that the Equity Fund will hold between 60 and 100 securities.  The target allocation of assets to the managers was designed with the specific objective of maintaining significant exposure to stocks of large- and mid-sized companies with a greater emphasis on U.S. domiciled companies.

 

The following table provides a description of the Equity Fund’s seven sub-advisors and their target levels of assets.  Asset levels will fluctuate and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the Equity Fund follows the table.

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR	TARGET MANAGER ALLOCATION	MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO	STOCK-PICKING STYLE
Christopher Davis Kenneth Feinberg   Davis Selected Advisers, L.P.	20%	Mostly large companies	Blend
Bill D’Alonzo  and Team   Friess Associates, LLC	10%	All sizes but mostly small- and mid-sized companies	Growth
Mason Hawkins   Southeastern Asset Management, Inc.	20%	All sizes and global; may have up to 50% in foreign stocks	Value
Clyde McGregor   Harris Associates L.P.	20%	All sizes but mostly large- and mid-sized companies	Value
Frank Sands, Jr. A. Michael Sramek   Sands Capital Management, LLC	10%	All sizes but mostly large- and mid-size companies	Growth

 

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PORTFOLIO MANAGER(S)/SUB- ADVISOR	TARGET MANAGER ALLOCATION	MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO	STOCK-PICKING STYLE
Robert Turner Frank Sustersic Jason Schrotberger   Turner Investments, L.P.	10%	All sizes	Growth
Richard Weiss   Wells Capital Management, Inc.	10%	All sizes but mostly small- and mid-sized companies	Blend

 

Litman Gregory Masters Equity Fund Portfolio Managers

 

Christopher Davis

Kenneth Feinberg

Davis Selected Advisers, L.P.

2949 East Elvira Road, Suite 101

Tucson, AZ  85756

 

Christopher C. Davis and Kenneth Feinberg are the co-portfolio managers for the segment of the Equity Fund’s assets managed by Davis Selected Advisers, L.P. (“Davis Advisors”).   Davis has served as a Portfolio Manager of Davis New York Venture Fund since October 1995, and also manages other equity funds advised by Davis Advisors.  Davis served as Assistant Portfolio Manager and Research Analyst working with Shelby M.C. Davis from September 1989 through September 1995 .   Feinberg has served as a Portfolio Manager of Davis New York Venture Fund since May 1998 and also manages other equity funds advised by Davis Advisors.  Feinberg started with Davis Advisors as a Research Analyst in December 1994.  Davis Advisors has been a sub-advisor to the Equity Fund since 1996.

 

Approximately 20% of the Equity Fund’s assets are managed by Davis and Feinberg. Davis Advisors manages equity funds using the “Davis Investment Discipline.” Davis Advisors conducts extensive research to try to identify businesses that possess characteristics it believes foster the creation of long-term value, such as proven management, a durable franchise and business model, and sustainable competitive advantages. Davis Advisors aims to invest in such businesses when they are trading at a discount to their intrinsic worth. Davis Advisors emphasizes individual stock selection and believes that the ability to evaluate management is critical. Davis Advisors routinely visits management teams at their places of business in order to gain insight into the relative value of different businesses. Such research, however rigorous, involves predictions and forecasts that are inherently uncertain.

 

Over the years, Davis Advisors has developed a list of characteristics that it believes help companies to create shareholder value over the long term and manage risk. While few companies possess all of these characteristics at any given time, Davis Advisors searches for companies that demonstrate a majority or an appropriate mix of the following characteristics:

 

First-Class Management

●

Proven track record

●

Significant alignment of interests in business

●

Intelligent application of capital

 

Strong Financial Condition and Satisfactory Profitability

●

Strong balance sheet

 

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●

Low cost structure

●

High returns on capital

 

Strong Competitive Positioning

●

Non-obsolescent products / services

●

Dominant or growing market share

●

Global presence and brand names

 

After determining which companies it wishes to invest in, Davis Advisors then turns its analysis to determining the intrinsic value of those companies’ common stocks. Davis Advisors seeks common stocks that can be purchased at attractive valuations relative to their intrinsic value. Davis Advisors’ goal is to invest in companies for the long term. Davis Advisors considers selling a company if it believes the stock’s market price exceeds the Advisor’s estimates of intrinsic value, or if the ratio of the risks and rewards of continuing to invest in the company is no longer attractive.

 

Bill D’Alonzo and Team

Friess Associates, LLC

115 E. Snow King Avenue

Jackson, WY 83001

 

Bill D’Alonzo is the lead portfolio manager for the segment of the Equity Fund’s assets managed by Friess Associates, LLC (“Friess”).  Bill D’Alonzo has been in the investment business since 1978, is Chairman of the Brandywine Funds and is Chief Executive and Co-Chief Investment Officer of Friess. 

 

Approximately 10% of the Equity Fund’s assets are managed by the Friess team.  Friess invests in stocks of well-financed issuers that have proven records of profitability and strong earnings momentum.  Emphasis is placed on companies with market capitalization of less than $5 billion.  These companies are likely to be lesser-known companies moving from a lower to higher market share position within their industry groups, rather than the largest and best-known companies in these groups.

 

Friess may, however, purchase common stocks of well-known, highly researched mid- and large-sized companies if the team believes that their common stocks offer particular opportunity for long-term capital growth.

 

In selecting investments, Friess considers financial characteristics of an issuer, including historical sales and net income, debt/equity and price/earnings ratios, and book value.  Friess may also review research reports of broker-dealers and trade publications and, in appropriate situations, meet with management.  Greater weight is given to internal factors, such as product or service development, than to external factors, such as interest rate changes, commodity price fluctuations, general stock market trends and foreign-currency exchange values.  A particular issuer’s dividend history is not considered important.

 

Mason Hawkins

Southeastern Asset Management, Inc.

6410 Poplar Avenue

Memphis, TN 38119

 

Mason Hawkins is the lead portfolio manager for the segment of the Equity Fund’s assets managed by Southeastern Asset Management, Inc. (“Southeastern”).  Hawkins has been in the investment business since 1972 and was one of the original founders of Southeastern, which was founded in 1975 and of which he is now the majority owner.  He has managed the Longleaf Partners Fund since its inception in 1987 and the Longleaf Partners International Fund since its inception in 1998. Southeastern has been a sub-advisor to the Equity Fund since its inception in 1996.

 

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Approximately 20% of the Equity Fund’s assets are managed by Southeastern, which uses a value-oriented approach to picking stocks.  Southeastern considers companies of all sizes, although most of its portion of the Equity Fund’s assets is expected to be invested in mid- and large-sized companies.  Southeastern has the flexibility, but is not required, to invest up to 50% of its portfolio segment in the securities of foreign companies.

 

Southeastern focuses on securities of companies believed to have unrecognized intrinsic value and the potential to grow their economic worth.  Southeastern believes that superior long-term performance can be achieved when positions in financially strong, well-managed companies are acquired at prices significantly below their business value and are sold when they approach their corporate worth.  Corporate intrinsic value is determined through careful securities analysis and the use of established disciplines consistently applied over long periods of time.  Securities that can be identified and purchased at a price significantly discounted from their intrinsic worth not only protect investment capital from significant loss but also facilitate major rewards when the true business value is ultimately recognized.  Seeking the largest margin of safety possible, Southeastern requires at least a 40% market value discount from its appraisal of an issuer’s intrinsic value before purchasing a security.

 

To determine intrinsic value, current publicly available financial statements are carefully scrutinized, and two primary methods of appraisal are applied.  The first assesses what Hawkins believes to be the real economic value of an issuer’s net assets; the second examines an issuer’s ability to generate free cash flow after required or maintenance capital expenditures.  After free cash flow is determined, conservative projections about its rate of future growth are made.  The present value of that stream of cash flow plus its terminal value are then calculated using a discount rate based on expected interest rates.  If the calculations are accurate, the present value would be the price at which buyers and sellers negotiating at arm’s length would accept for the whole company.  In a concluding analysis, the asset value determination and/or the discounted free cash flow value are compared with business transactions of comparable corporations.  Other considerations used in selecting potential investments include the following:

 

●

Indications of shareholder-oriented management

 

●

Evidence of financial strength

 

●

Potential earnings improvement

 

Clyde S. McGregor, CFA

Harris Associates L.P.

Two North LaSalle Street

Suite 500

Chicago, IL  60602

 

Clyde McGregor is the portfolio manager for the segment of the Equity Fund’s assets managed by Harris Associates L.P. (“Harris”).  McGregor is a Vice President and portfolio manager at Harris and currently manages the Oakmark Equity and Income Fund and the Oakmark Global Fund.  He earned a B.A. degree from Oberlin College and an M.B.A. from the University of Wisconsin-Madison.  McGregor joined Harris in 1981 as an analyst with broad industry coverage across the market capitalization spectrum.  He has 31 years of experience in the investment business.  McGregor became a portfolio manager at Harris in 1986.  Harris has been a sub-advisor to the Equity Fund since 2008.

 

Approximately 20% of the Fund’s assets are managed by McGregor, who employs Harris’ value investment philosophy and process.  This investment philosophy is based upon the belief that, over time, a company’s stock price converges with the company’s intrinsic or true business value.  By “true business value,” Harris means an estimate of the price a knowledgeable buyer would pay to acquire the entire business.  In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

 

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The chief consideration in the selection of stocks is the size of the discount of a company’s stock price compared to the company’s perceived true business value.  In addition, Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company.  Once Harris determines that a stock is selling at a significant discount and that the company has some of the aforementioned attributes, Harris generally will consider buying that stock for a strategy.  Harris usually sells a stock when the price approaches its estimated worth.  This means Harris sets specific “buy” and “sell” targets for each stock held in its clients’ discretionary accounts.  Harris also monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals.  Harris attempts to manage some of the risks of investing in stocks of companies by purchasing stocks whose prices it considers low relative to the companies’ intrinsic value.  In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio holding.

 

Frank Sands, Jr., CFA

A. Michael Sramek, CFA

Sands Capital Management, LLC

1101 Wilson Boulevard

Suite 2300

Arlington, VA 22209

 

Frank M. Sands, Jr., CFA is the lead portfolio manager for the segment of the Equity Fund managed by Sands Capital Management, LLC (“Sands Capital”).  Mr. Sands, Jr. is the Chief Investment Officer and Chief Executive Officer at Sands Capital. Prior to joining Sands Capital, he was a portfolio manager and research analyst for Fayez, Sarofim and Company.  A. Michael Sramek, CFA began his investment career as a research analyst at Mastrapasqua & Associates in 2000 prior to joining Sands Capital in 2001. He is a Senior Research Analyst, Senior Portfolio Manager and Managing Director at Sands Capital.  Sands Capital was founded in February 1992 by Frank Sands, Sr., CFA with the belief that a team of investment professionals dedicated to the execution of a single growth-oriented investment philosophy could create wealth for its clients over time. Including Sands, Jr. and Sramek, the investment team is comprised of eight senior members, who are supported by research analysts and associates.  Sands Capital is independent, 100% staff owned, and has been a sub-advisor to the Equity Fund since 2008.

 

The Sands Capital team manages approximately 10% of the assets of the Equity Fund.  The team believes that over time stock price appreciation follows earnings growth.  The investment objective is to identify companies that can sustain above-average earnings growth relative to the broader market, typically over the next three to five years.  The team believes great investment ideas are rare and runs a concentrated portfolio of high-quality, seasoned, growing businesses across an array of attractive and growing business spaces.  Independent research—bottom-up and company focused—is the cornerstone of the team’s investment process.   All research analyses and conclusions are internally generated using a variety of fundamental techniques and external data sources.

The team seeks to identify leading growth businesses that can withstand the continual scrutiny of following six investment criteria:

 

(1)	Sustainable above-average earnings growth.

(2)	Leadership position in a promising business space.

 

 

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(3)	Significant competitive advantage/unique business franchise.

(4)	Clear mission and value-added focus.

(5)	Financial strength.

(6)	Rational valuation relative to market and business prospects.

 

In collaboration with the whole Sands Capital investment team, Sands Jr. and Sramek seek to identify and own the companies that appear to be the strongest fits with the above criteria by doing the following: monitoring status/activity in other portfolios (e.g., absolute weights and weight trends); meeting regularly with the various Sands Capital PM teams, sector teams, and individual analysts/ associates; reading internal and external research and participating in research activities (management meetings, field trips, etc.); holding regular team meetings and soliciting/encouraging recommendations from all Sands Capital team members.

 

The strongest fits are determined by de-composing each of the six criteria into its sub-components and then evaluating the universe of Sands Capital holdings versus those characteristics. For instance, "leadership in an attractive business space" can be broken into characteristics such as: large/growing market share; innovation; pricing power; strategic position in value chain; and attractive business model (high margins, high/rising ROIC, etc.). Companies are evaluated against these characteristics in a consensus-building process between the PM Team and the rest of the Investment Team. The companies whose investment cases exhibit in great depth the qualities that Sands Capital values are regarded as the strongest fits and thus included in the Equity Fund.

 

Robert Turner, CFA

Frank Sustersic, CFA

Jason Schrotberger, CFA

Turner Investments, L.P.

1205 Westlakes Drive

Suite 100

Berwyn, PA 19312

 

Robert (Bob) Turner is the lead portfolio manager for the segment of the Equity Fund’s assets managed by Turner Investments, L.P. (“Turner Investments”). Turner has served as Chairman and Chief Investment Officer of Turner Investments since 1990. He is the lead portfolio manager for Turner Investments’ Large Cap Growth and Highly Concentrated Growth investment strategy and co-lead portfolio manager for the Global Growth and Concentrated Global Growth Equity strategies.  He is a member of the analyst team that covers the technology sector.

 

Frank Sustersic is a senior portfolio manager/global security analyst at Turner Investments.  He is a member of the analyst team that covers stocks in the health care sector.  Mr. Sustersic is lead manager of the Micro Cap Growth Equity, Select Opportunities and Turner’s Concentrated Small/Micro Cap Growth strategies.  He has worked at Turner Investments since 1994 and has 24 years of investment experience.  Prior to joining Turner Investments, Mr. Sustersic was a portfolio manager at First Fidelity Bank Corporation.

 

Jason Schrotberger is a senior portfolio manager/global security analyst at Turner Investments.  He is a member of the analyst team that covers stocks in the consumer sector.  Mr. Schrotberger is the lead portfolio manager of Turner Investment’s Global Consumer Long/Short and SMID Growth strategies.  He has worked at Turner Investments since 2001 and has 19 years of investment experience.  Prior to joining Turner Investments, Mr. Schrotberger was an investment analyst at BlackRock Financial Management, and also served as an equity analyst at PNC Asset Management and for the Public School Employees’ Retirement System for the Commonwealth of Pennsylvania.

 

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Turner Investments was founded in 1990 by Bob Turner, Mark Turner, and Chris McHugh. It is 100% employee owned, and approximately 80% of employees are owners (as of December 31, 2012).  Turner Investments has been a sub-advisor to the Equity Fund since 2008.

 

Turner Investments manages approximately 10% of the assets of the Equity Fund.  Turner Investments takes a team approach to investment management. Each member of the Investment Team at Turner Investments has responsibility for the analysis of and purchase/sale recommendations for stocks within a specific market sector. Some team members have additional responsibility as lead or back-up managers for Turner Investments’ various equity strategies ( e.g. , small-cap growth, mid-cap growth, large-cap growth). Turner Investments believes the best investment decisions result from informed collaboration between the senior portfolio manager and a team of experienced analysts. Analysts are expected to be experts in their sectors, and portfolio managers are relied upon to implement Turner Investments’ investment discipline for their particular strategy.

 

Turner Investments’ investment philosophy is that earnings drive stock prices. Turner Investments believes that investing in companies with sustainable and improving earnings dynamics generates superior returns over time.  Turner Investments’ investment philosophy, which is the basis for their domestic, international, and global equity strategies, has been applied consistently since the founding of the firm and Turner Investments adheres to its philosophy and process in all market environments.

 

Turner Investments employs a consistent, disciplined investment process, incorporating multi-disciplinary research and analysis, clear portfolio construction parameters and sell disciplines, and fully integrated risk management.  The research process aims to identify growth companies with superior earnings prospects.  The firm’s Investment Team members are grouped into five sector teams, and each analyst is assigned specific industry research responsibilities within each market sector.  Turner Investments believes that the benefits of industry-specific research versus product- or capitalization-specific research are significant, as the same analysts maintain coverage of companies that may migrate from small-cap to mid-cap, or mid-cap to large-cap.  Industry-specific research ensures that the same personnel follow a security through its lifecycle.

 

Analysts meet frequently with company management to identify the dynamics driving a company’s earnings growth.  In addition to direct contact with company management, analysts attend trade conferences and evaluate information from competitors, industry consultants and suppliers.  Turner Investments’ industry experts use customized state-of-the-art software and database technology to assist them in decision making, including Bloomberg, RiskMetrics, and Compustat.  External research data is integrated daily with the internal database to provide comprehensive information and a complete set of research tools for managers and analysts.

 

The heart of Turner Investments’ stock selection process is industry-focused fundamental analysis.  Specifically, its analysts seek to identify:

 

Companies benefiting from:

 

●

Accelerated earnings

●

Improving expectations

●

High returns on capital

 

Industry leaders:

 

●

Strong management

●

Sustainable earnings, margins, and revenue growth

●

Compelling new products and services

●

Open-ended business opportunities

●

Market share gains

 

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Current holdings generally become candidates for sale at the first sign of earnings concern.  Each holding is closely monitored for any changes in company fundamentals, including deterioration in revenues, earnings, and balance sheet strength.  Analysts also seek to identify changes in market dynamics, management, product cycles and regulatory profiles.  Additionally, holdings will become candidates for sale as they approach assigned price targets.  Finally, the application of portfolio construction parameters may position certain securities as candidates for sale.  Positions will generally be trimmed to adhere to capitalization or capacity constraints, or to adjust stock position size relative to the target index.  Sell candidates are reviewed jointly by portfolio managers and sector analysts.  However, the lead portfolio manager has final decision-making authority.

 

Richard T. Weiss

Wells Capital Management, Inc.

100 Heritage Reserve

Menomonee Falls, WI 53051

 

Dick Weiss is the portfolio manager for the segment of the Equity Fund's assets managed by Wells Capital Management, Inc. (“WellsCap”).  Weiss has been in the investment business for over 30 years and is currently Senior Portfolio Advisor for WellsCap.  Previously, he had been the manager or co-manager of the Wells Fargo Advantage Common Stock Fund and the Wells Fargo Advantage Opportunity Fund (previously known as the Strong Common Stock Fund and Strong Opportunity Fund) from March 1991 until March 2008.  Prior to this, Weiss was a partner/portfolio manager at Stein Roe & Farnham in Chicago where he began his career, starting as a research analyst, in 1975.  Weiss continues an informal relationship with the Wells Capital Management Core Equity team, which manages the Wells Fargo Advantage Common Stock Fund and Wells Fargo Advantage Opportunity Fund.  Weiss has managed a portion of the Equity Fund’s assets since the inception of the Equity Fund in 1996.

 

Approximately 10% of the Equity Fund's assets are managed by Weiss.  He invests in stocks of small- and mid-sized companies that are undervalued either because they are not broadly recognized, are in transition, or are out of favor based on short-term factors.  Weiss also has the flexibility to invest in the stocks of larger companies if in his opinion they offer the potential for better returns. In seeking attractively valued companies, Weiss focuses on companies with above-average growth potential that also exhibit some or all of the following:

 

●

Low institutional investor ownership and low analyst coverage

●

High-quality management

●

Sustainable competitive advantage

 

Weiss evaluates the degree of under-valuation relative to his estimate of each company's private market value.  This private market value approach is based on an assessment of what a private buyer would be willing to pay for the future cash flow stream of the target company.  Based on his experience, Weiss believes that, except for technology and other high-growth stocks, most stocks trade at between 50% and 80% of the private market value.  When trading at the low end of this range, companies take steps to prevent takeover, or they are taken over.  The private market value estimate is applied flexibly, based on the outlook for the industry and the company's fundamentals.

 

The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

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Litman Gregory Masters International Fund – Sub-Advisors

 

The International Fund’s seven sub-advisors pursue the International Fund’s objective primarily through investments in common stocks of issuers located outside of the United States.  Under normal market conditions, the International Fund will invest at least 80% of its net assets in the securities of companies organized or located outside of the United States, including large-, mid-, and small-cap companies and companies located in emerging markets.  This investment policy may be changed by the Board without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs.  Each manager may invest in securities traded in both developed and emerging markets.  Though there is no limit on emerging market exposure, it is not expected to be a primary focus, and the majority of the International Fund’s assets is expected to be invested in stocks of companies listed and domiciled in foreign developed countries.  There are no limits on the International Fund’s geographic asset distribution but, to provide adequate diversification, the International Fund ordinarily invests in the securities markets of at least five countries outside of the United States.  In most periods it is expected that the International Fund will hold securities in more than five countries.  Although the International Fund intends to invest substantially all of its assets in issuers located outside of the United States, it may invest in U.S. issues on a limited basis, and at times of abnormal market conditions it may invest all of its assets in fewer than five countries.

 

The International Fund’s managers emphasize different stock-picking styles and invest in stocks spanning a range of market capitalization.  Litman Gregory believes that during any given year certain stock-picking styles will generate higher returns than comparable market indexes, while others will lag.  By including a variety of stock-picking styles in this single mutual fund, Litman Gregory believes that the variability and volatility of returns can be lessened.  Although each manager has the flexibility to invest on a worldwide basis in non-U.S. companies with market capitalization of any size, it is expected that the International Fund will have significant exposure to large- and mid-sized foreign companies under normal market conditions.

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the managers who, based on Litman Gregory’s research, are judged to be among the best relative to their respective peer groups.  With respect to managers for the International Fund, Litman Gregory has focused exclusively on stock pickers who emphasize bottom-up stock-picking rather than macro-driven, top-down country picking.

 

Litman Gregory believes that bottom-up stock pickers have an advantage in foreign markets because:

 

●

It is Litman Gregory’s opinion that the dynamics that influence individual countries’ markets, including currencies, inflation, economic growth, political factors, regulation and the like, are much more difficult to assess than the prospects and valuation characteristics of individual companies.

 

●

Litman Gregory believes that some individual stocks in foreign markets are less closely analyzed (the markets are less “efficient”) than those in the United States.  Litman Gregory believes that this will result in greater opportunities for skilled stock pickers to add value through pure stock selection.

 

●

Based on Litman Gregory’s observations, bottom-up stock pickers in foreign markets, on average, seem to perform better than top-down-oriented managers.

 

Though bottom-up stock picking is emphasized, each manager also monitors specific macro-factors that it believes are relevant in specific countries.

 

The sub-advisors manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks.  Under normal conditions, each manager’s portfolio segment typically includes a minimum of 8 and a maximum of 15 securities.  A manager may occasionally hold more than 15 securities.  Though the total number of securities the International Fund may hold at any point in time will vary, it is generally expected that the International Fund will hold between 60 and 105 securities.

 

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The following table provides a description of the International Fund’s seven sub-advisors and their target levels of assets.  Asset levels will fluctuate and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the International Fund follows the table.

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR	TARGET MANAGER ALLOCATION	MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO	STOCK-PICKING STYLE
Bill Fries Vinson Walden   Thornburg Investment Management, Inc.	14-15%	All sizes	Eclectic, may invest in traditional value stocks or growth stocks
James Gendelman   Marsico Capital Management, LLC	14-15%	All sizes but mostly large- and mid-sized companies	Growth
David Herro   Harris Associates L.P.	14-15%	All sizes but mostly large- and mid-sized companies	Value
Amit Wadhwaney   Third Avenue Management, LLC	14-15%	All sizes	Value
Howard Appleby Jean-Francois Ducrest Jim LaTorre Edward E. Wendell, Jr. Northern Cross, LLC	14-15%	Mostly large- and mid-sized companies	Blend
Mark Little   Lazard Asset Management LLC	14-15%	All sizes	Blend
Jean-Marc Berteaux   Wellington Management Company, LLP	14-15%	All sizes	Growth

 

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Litman Gregory Masters International Fund Portfolio Managers

 

Bill Fries, CFA

W. Vinson Walden, CFA

Thornburg Investment Management, Inc.

2300 North Ridgetop Road

Santa Fe, NM  87506

 

Bill Fries and Vinson Walden are the co-managers for the portion of the International Fund's assets managed by the team at Thornburg Investment Management, Inc. (“Thornburg”).  Fries joined Thornburg in 1995 as a managing director and founding portfolio manager of the Thornburg Value Fund and US Equity Strategy.  He also founded the Thornburg International Value Fund and International Equity Strategy three years later in 1998.  Vinson Walden joined Thornburg in 2002 and is portfolio manager and a managing director at Thornburg.  He is portfolio manager of Thornburg's Global Opportunities and Global Equity Income Strategies.  Thornburg has been a sub-advisor to the International Fund since 2003.

 

Fries has been in the investment management business since the early 1970s.  Prior to joining Thornburg he was Vice President of equities at USAA Investment Management Company, where he created the investment strategy for the USAA Income Stock Fund and was its original portfolio manager.  Fries also began managing the USAA Aggressive Growth Fund in early 1994, and he was in charge of the Basic Value Sector of the USAA Cornerstone Fund from 1984 to 1988.  Also at USAA, he served as investment advisor to the company's employee benefit plans and managed its insurance company equity portfolios from 1984 to 1988.  Fries began his investment career as a securities analyst and bank investment officer.  He received his designation as a Chartered Financial Analyst in 1974.  Fries also served in the U.S. Marine Corps as a Communications Officer from 1961 to 1964.  Walden began his investment career as an Associate at Lehman Brothers in 1998 and also worked as an Associate at IBIS Management prior to joining Thornburg in 2002.

 

Fries and Walden believe that a bottom-up approach to investing in undervalued securities will generate above-average returns with below market risk.  The team’s idea of value centers on their assessment of the intrinsic worth of an investment.  The goal is to uncover promising companies with sound business fundamentals at a time when their intrinsic value is not fully recognized by the marketplace.

 

The Fries/Walden team’s initial search for investment ideas involves the use of quantitative screens as well as other sources.  Starting with the international equity universe, the team screens Thornburg’s databases for companies that appear attractive across a number of value parameters.  The team looks for securities that have low price-to earnings, low price-to-cash flow and low price-to-book ratios.  Companies ranging from small-cap to large-cap are considered.  Additionally, screens are employed in order to identify stocks where business prospects may be improving.  The typical screen generates a list exceeding 50 stocks from which only a few may be selected for further research.

 

The team will not purchase a security simply because it is priced cheaply relative to the market.  The team spends the majority of its time on bottom-up research in its efforts to understand the fundamental merit of each stock that has been identified as promising.  These efforts include financial statement analysis, discussions with senior management of the companies, as well as consideration of the company's competitors, suppliers and clientele.  The team seeks to uncover companies with promising prospects that are not yet reflected in the price of the stock.  Many of the investments made may be contrary to the popular consensus at the time of purchase.  Ultimately, the team attempts to estimate the business value of each company.  In addition to estimating the business value for each stock, the analysis also seeks to identify where potential weaknesses may lie in an attempt to minimize downside risk.  Each of the researched stocks is classified into a category of value:

 

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Basic Value – Stocks of financially sound companies with established businesses that are selling at low valuations relative to the company's net assets or potential earning power

 

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Consistent Earners – Companies with steady earnings and dividend growth that are selling at attractive values and are priced below historical norms

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Emerging Franchises – Companies in the process of establishing a leading position in a product, service or market that is expected to grow at an above-average rate

 

The dynamics of the companies in those categories differ and, therefore, merit specific consideration within the context of that category.  For example, Basic Value companies are generally more cyclically oriented than Emerging Franchises and require analysis of the companies' product cycles and the historical and prospective impact of the economy on their business.  Within the context of each value category, the team evaluates the most attractive prospects.  Generally, the segment of the International Fund's portfolio allocated to the team is expected to include stocks from each category.  Because of the diversification across these categories, the segment of the International Fund’s portfolio managed by the team will typically be eclectic and cannot be easily labeled as "growth" or "value."

 

James Gendelman

Marsico Capital Management, LLC

1200 17th Street, Suite 1600

Denver, CO  80202

 

James Gendelman is the portfolio manager for the segment of the International Fund’s assets managed by Marsico Capital Management, LLC (“Marsico”).  Gendelman has been in the investment business since 1987, and has served as the international equities portfolio manager and a senior analyst of Marsico since May 2000.  Prior to joining Marsico, Gendelman spent 13 years as a Vice President of International Sales for Goldman, Sachs & Co.  He holds a Bachelor’s degree in Accounting from Michigan State University and an MBA in Finance from the University of Chicago.  Gendelman was a certified public accountant with Ernst & Young from 1983 to 1985.  Marsico has been a sub-advisor to the International Fund since 2005.

 

In selecting investments for the International Fund, Gendelman takes a research intensive, hands-on fundamental approach.  Gendelman believes in combining top-down macroeconomic and thematic views with bottom-up stock selection to identify high-quality companies with attractive growth characteristics.  The ultimate objective is to find companies with earnings-growth potential that may not be recognized by the market at large.  He is typically drawn to companies where he can tangibly identify a sustainable market advantage, an event that could realize franchise value, or a unique low-cost advantage relative to competition.  In determining whether a particular company is suitable for investment, Gendelman and his team consider a number of different attributes.  These may include the company’s specific market expertise or dominance, its franchise durability and pricing power, financial attributes (with a preference for strong balance sheets, improving returns on equity, and the ability to generate free cash flow), the quality of management, and valuations in the context of the team’s projected growth rates.

 

In order to be flexible across the growth spectrum, Gendelman divides the growth universe into three categories—core growth, aggressive growth, and lifecycle change.  Core growth companies represent a group that the team has extensively modeled and where, in Gendelman’s view, the conviction level is high.  Aggressive growth companies are those that are generally trading at a premium valuation to their sector and/or market, but that also have higher growth expectations.  This category could also include higher-risk companies such as those in emerging markets or industries that are in the early stages of fast growth.  Lifecycle change companies are those that Gendelman believes to be undergoing meaningful fundamental changes such as new management, new products, or divestiture.

 

In identifying specific companies to research, Gendelman may consider macro-economic factors such as interest rates, inflation, central bank policy, credit spreads, the regulatory environment and the global competitive landscape.  In addition, Gendelman may also examine other factors such as industry consolidation and the sustainability of economic trends.  The objective of this “top-down” analysis is to identify sectors, industries and companies that may benefit from the overall trends Gendelman has observed.

 

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In researching companies, Gendelman and his team rely heavily on fundamental analysis.   Fundamental work generally starts with building a detailed financial model of a company.  The objective of this exercise is to identify key leverage points in the business that may drive earnings and cash flow.  Fundamental work also involves meeting with a company’s management and conducting other research to gain thorough knowledge of the company.  These meetings help Gendelman and his team confirm key leverage points in a business model and gain confidence in the overall business strategy.

 

Gendelman does not follow a rigid valuation discipline.  Rather, a company’s valuation is assessed on an ongoing basis in the context of its fundamentals, industry, and its stage of growth. Gendelman’s assessment of what stage the economic cycle is in may impact his valuation sensitivity.  Gendelman uses a variety of valuation metrics depending upon company-specific circumstances.  For example, he may use discounted-cash-flow analysis if he expects significant change in future cash flow, while for more mature industries he may find “metrics” such as price-to-earnings and free cash flow yield just as useful.

 

A stock may be sold for four main reasons.  A significant change in Gendelman’s macro or thematic outlook could lead to a shift in portfolio emphasis and trigger a sale. Valuations may become too expensive in relation to underlying earnings growth fundamentals.  An adverse change in fundamentals relative to the team’s expectations may also result in a sale.  Finally, a superior new idea can displace an existing holding.

 

David G. Herro, CFA

Harris Associates L.P.

Two North LaSalle Street

Suite 500

Chicago, IL 60602

 

David Herro is the portfolio manager for the segment of the International Fund’s assets managed by Harris.  Herro is a Vice President, Chief Investment Officer International Equity and a portfolio manager at Harris.  He has managed The Oakmark International Fund, The Oakmark International Small Cap Fund and The Oakmark Global Select Fund since their inception in 1992, 1995 and 2006, respectively.  Herro earned a B.S. degree in Accounting from the University of Wisconsin-Platteville and an M.A. degree from the University of Wisconsin-Milwaukee.  He has been in the investment business since 1986.  Harris has been a sub-advisor to the International Fund since the International Fund’s inception in 1997.

 

Herro employs Harris’ value investment philosophy and process to manage his portion of the Fund’s assets.  This investment philosophy is based upon the belief that, over time, a company’s stock price converges with the company’s intrinsic or true business value.  By “true business value,” Harris means an estimate of the price a knowledgeable buyer would pay to acquire the entire business.  In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

 

The chief consideration in the selection of stocks is the size of the discount of a company’s stock price compared to the company’s perceived true business value.  In addition, Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company.  Once Harris determines that a stock is selling at a significant discount and that the company has some of the aforementioned attributes, Harris generally will consider buying that stock for a strategy.  Harris usually sells a stock when the price approaches its estimated worth.  This means Harris sets specific “buy” and “sell” targets for each stock held in its clients’ discretionary accounts.  Harris also monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals.  Harris attempts to manage some of the risks of investing in stocks of companies by purchasing stocks whose prices it considers low relative to the companies’ intrinsic values.  In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio holding.  Harris attempts to manage some of the risks of investing in foreign securities by considering the relative political and economic stability of a company’s home country, the company’s ownership structure, and the company’s accounting practices.

 

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Litman Gregory Masters International Fund

 

Amit Wadhwaney

Third Avenue Management, LLC

622 Third Avenue

New York, NY  10017

 

Amit Wadhwaney is the portfolio manager for the segment of the International Fund’s assets managed by Third Avenue Management, LLC (“Third Avenue”).  Wadhwaney has managed foreign stock portfolios since 1996.  Wadhwaney has been a manager of the Third Avenue International Value Fund, an open end mutual fund since its inception in December 2001.  He manages the Third Avenue Global Value Fund, L.P., the Third Avenue Emerging Markets Fund, L.P. and a sub-advised portfolio. Wadhwaney also co-manages the Third Avenue International Value Fund UCITS for overseas investors, as well as institutional separate accounts.  Earlier in his career, Wadhwaney was a securities analyst, and subsequently Director of Research, for M.J. Whitman, LLC. Wadhwaney was also a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm.  He holds an M.B.A. in Finance from the University of Chicago, a B.A. with honors and an M.A. in Economics from Concordia University in Montreal (where he also taught economics) and B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota.  Third Avenue has been a sub-advisor to the International Fund since 2005.

 

Wadhwaney manages portfolios with a value-oriented style that is focused on buying and holding stocks of businesses that are selling significantly below their intrinsic value.  Businesses must be understandable and have strong finances and competent management.  A business’s finances are considered strong if the company has quality assets and if it is not heavily dependent on external capital by virtue of low debt levels in comparison to its existing and future cash resources.  Value is measured in various ways depending on the nature of a business, but in general, valuations are assessed based on either liquidation value or what a private buyer is willing to pay for the business.  In addition, Wadhwaney prefers businesses that are likely to compound their value over time.  This could arise from a company’s leadership position in the industry or management’s ability to convert its resources in a competent fashion (such as sales of surplus land, purchases of businesses, re-financings, spin-offs, reorganizations, or repurchases of stock).

 

Wadhwaney’s research objective is to develop a comprehensive understanding of a company’s business model and its environment, assess its true value, and to compare the company’s position within its industry.  Significant emphasis is placed on the quality of management and the transparency a company provides with respect to real and contingent liabilities that may affect the integrity of the balance sheet.  Fundamental research is relied on to make these assessments, and focuses on analyzing the balance sheet rather than forecasting future revenues and earnings.  Wall Street research is seldom utilized.  Stockholder mailings, regulatory filings, financial statements, industry publications and conferences, and field research are utilized as primary sources of information on a company.  Interviewing company management, and meeting its peers, suppliers, and customers is also an important part of the process.

 

Wadhwaney tends to hold stocks for multi-year periods.  He will generally sell an investment only when there has been a fundamental change in the business or capital structure of the company that significantly reduces the investment's inherent value, or when he believes the stock is clearly overvalued relative to his assessment of the underlying intrinsic value of the business.

 

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Fund Management and Investment Styles

Litman Gregory Masters International Fund

 

Howard Appleby, CFA

Jean-Francois Ducrest

James LaTorre, CFA

Edward E. Wendell, Jr.

Northern Cross, LLC

125 Summer Street, Suite 1470

Boston, MA 02110

 

Howard Appleby, Jean-Francois Ducrest, Jim LaTorre and Edward E. Wendell, Jr. are the portfolio managers for the segment of the International Fund’s assets managed by Northern Cross, LLC (“Northern Cross”). Appleby, Ducrest, LaTorre and Wendell are the co-founders and principal owners of Northern Cross.  The architect of the Northern Cross investment philosophy was Hakan Castegren of Northern Cross Investments Ltd.  Appleby, a British citizen, has been engaged in the investment business since 1982.  Having started as an equity analyst for W. Greenwell & Co. covering basic materials and energy, Appleby moved to the USA in 1986 to pursue a 16-year sell-side career serving U.S. portfolio managers investing in non-U.S. equities in various research, sales and management roles.  This culminated in a senior equity sales/management position with ABN AMRO from 1994 to 2002.  In 2003 he became a founding partner and portfolio manager of Northern Cross.  Ducrest, a French citizen, has been engaged in the international equity business since 1988.  He started his career on the sell-side as an equity analyst at Paris-based European broker Cheuvreux, covering multiple sectors including industrials, consumers and utilities.  Between 1995 and 2001 he was a Senior Vice President and Principal of Cheuvreux’ New York-based U.S. operation serving U.S. institutions investing in European equities.  Ducrest joined the investment group as an analyst in 2002, and in 2003, he became a founding partner and portfolio manager of Northern Cross.  LaTorre began his career in the investment industry in 1982 with Merrill Lynch in New York.  In 1989, he became Vice President of Investments with the Ivy Fund group where he managed the Ivy Growth with Income Fund and co-managed the Ivy Growth Fund.  In 1992, LaTorre began working with Hakan Castegren who was managing the Ivy International Fund and the Harbor International Fund.  He became Director of Research for Castegren in 1993.  From 1996 to 2002 LaTorre also managed the Harbor International Fund II.  In 2003, he became a founding partner and portfolio manager of Northern Cross.  Wendell has been involved in the investment management business since 1985.  Wendell provided operational support to the investment process developed by Castegren, and provided non-U.S. equity investment programs for mutual funds, ERISA plans and high net worth individuals. Wendell is also a founding partner and portfolio manager of Northern Cross.  Northern Cross has been a sub-advisor to the International Fund since 2007.

 

The team’s investment philosophy and process are characterized by:

 

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An in-depth understanding of a company and its industry, which leads to a long investment time horizon (3-5+ years) and results in low portfolio turnover

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Analysis of the attractiveness of countries and industries from a top-down perspective, though stocks are selected on a bottom-up basis

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Stock selection, not top-down views, which determines industry and country weightings

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Low portfolio turnover, which minimizes transaction and market-impact costs

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An emphasis on quality “blue chip” companies with long-term catalysts that will lead to expanding profit margins

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A willingness to think independently and deviate significantly from benchmark industry and country weightings

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Concentration in its best ideas with the most attractive risk/reward potential

 

The investment process encompasses a top-down, thematic approach coupled with intensive, fundamental, bottom-up industry and company analysis.  It is not uncommon for an idea to be monitored for years before a position is taken.  Research is focused on identifying secular trends (rather than shorter-term cycles) that will drive margin expansion.  Patient due diligence of companies, countries and regions are critical to the investment process.  Northern Cross believes this due diligence, in combination with a top-down investment theme, provides the best opportunity to invest in truly undervalued companies. Before qualifying a country for investment, Northern Cross analyzes the stability of its currency, political, social, and economic environment and its legal infrastructure.  Consequently, the team focuses on companies located in Europe, the Pacific Basin and emerging industrialized countries whose economic and political regimes appear stable and are believed to provide adequate protection to foreign shareholders.

 

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Among the long-term drivers of stock price appreciation the team looks for are the following:

 

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Margin expansion

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Pricing power driven by industry consolidation

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Franchise value

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Restructuring

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Asset plays

 

On-site company meetings play an important role in the portfolio construction process, with each company held in the portfolio typically visited at least twice per year. Contact with company management and other key people serve to help the team gain insight and understanding of the business’s operations and judge the strength of company management.  The team utilizes a worldwide network of brokers/traders and local contacts for additional insight and trade execution.

 

Rigid buy/sell price targets are avoided, and the relative attractiveness of a stock or group of similar stocks is continuously evaluated.  No single set of metrics is used to value all companies.  Typically, the team looks for companies with strong and sustainable market positions that are selling at low price/earnings multiples relative to other stocks in the same country and industry.  In addition to assessing a company’s relative price/earnings (“P/E”) ratio, other valuation metrics considered include the potential for long-term margin expansion compared to the enterprise value/sales multiple, the long-term sustainable free cash flow yield, and the absolute P/E ratio looking many years out.

 

Positions are commonly sold when:

 

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A new idea presents better risk/reward characteristics

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The stock’s price reaches the underlying business value

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There is an adverse change in the economic, political or regulatory environment

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Management fails to execute their business plan

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There is an overwhelming change in the company’s policy of shareholder rights

 

The team does not plan to hedge currencies.  However, in a market where the local currency is expected to be weak, investments are often made in companies with assets or earning streams denominated in U.S. dollars.

 

The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

Mark Little

Lazard Asset Management LLC

30 Rockefeller Plaza

New York, NY 10112

 

Summary of Investment Experience

 

Mark Little is the lead portfolio manager for the segment of the International Fund’s assets managed by Lazard Asset Management LLC (“Lazard”). Little is a managing director, portfolio manager/analyst on the International Strategic Equity portfolio-management team at Lazard. He has been a portfolio manager of the Lazard International Strategic Equity Portfolio since that fund’s inception in October 2005. He began working in the investment field in 1992. Prior to joining Lazard in 1997, he was a manager in the corporate finance practice of Coopers & Lybrand and earned his Associated Chartered Accountant (ACA) qualification with Rees Pollock Chartered Accountants. Little has an MA in Economics from Clare College, Cambridge University.

 

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Investment Philosophy and Process

 

Little and the portfolio management team at Lazard believe a company that can improve and/or sustain its profitability at a relatively high level can compound returns at an attractive rate. At the same time, they believe in buying such companies trading at discounts relative to their profitability prospects.

 

Generally, Lazard categorizes any purchased stock into one or more of the following three categories:

 

o

Compounders: These are companies that Little and the team think can sustain relatively high levels of profitability and companies whose management may enhance shareholder returns through share buybacks and dividend payments. Lazard will purchase these companies if Little and the team believe they can compound total return, i.e., earnings growth, dividends, and share buybacks, at a relatively high rate over the long term and are reasonably priced in relation to their profitability prospects.

 

o	Mispriced Situations: These are companies that are trading inexpensively relative to what Little and the team think their assets and cash flows should be worth longer term. They may or may not be compounders.

 

o	Restructuring: These are companies whose profitability is depressed relative to their history and companies who are taking steps—such as cutting costs, investing in an underinvested area, selling non-core businesses, etc.—to return to higher profitability. They may or may not become compounders.

 

Lazard’s 50-plus analysts are largely responsible for generating ideas. They do so by running valuation screens in their sectors and monitoring developments at companies that fall under their coverage. They do most of the fundamental analysis, though Little and the other portfolio managers at Lazard are also involved. Little and the portfolio management team review and debate the assumptions analysts use in their financial modeling, meet with company management, and lead analysis on some small-cap companies. The goal of the team’s fundamental company analysis is to identify Lazard’s research edge and estimate how much return can be generated from this edge. Lazard’s research edge is generally a function of its analysts having a differentiated view than the market on the profitability a company can generate, the duration of its profitability, and/or what the company should be worth.

 

Little and the team use several valuation metrics to gauge a company’s worth and set price targets. A company has to be priced in a way that Lazard believes is reasonably valued for the profitability it can generate. This assessment is based upon free-cash-flow yield, valuation relative to peers or relative to businesses with similar profitability and growth characteristics, discounted-cash-flow modeling, and sum of the parts (valuing different segments of a company separately). There is a fair amount of judgment involved in balancing these different approaches to assess a company’s worth and set price targets.

 

Jean-Marc Berteaux

Wellington Management Company, LLP

280 Congress Street

Boston, MA 02210

 

Jean-Marc Berteaux is the portfolio manager for the segment of the International Fund’s assets managed by Wellington Management Company, LLP (“Wellington Management”). Berteaux is a Senior Vice President and Equity Portfolio Manager at Wellington Management. Berteaux has been an investment professional at Wellington Management since 2001. Prior to joining Wellington Management, Berteaux was the senior telecommunications analyst at John Hancock Funds from 1998 to 2001 and an analyst with Fidelity Investments in London and Boston from 1994 to 1998. Berteaux was also in corporate lending at Banque Nationale de Paris in Canada from 1991 to1993 and National Bank of Canada from 1990 to 1991. Berteaux received his MBA from INSEAD in 1994, his MA in international relations from the Institut d’Etudes Politiques de Paris in 1989, and his BA from the University of Massachusetts, Amherst in1986.

 

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Investment Philosophy and Process

 

Berteaux invests in non-U.S. companies across the capital spectrum where his longer-term earnings growth expectations are significantly above consensus estimates. Berteaux’s investment philosophy is based on his belief that although the market can be overly focused on short-term earnings, inflections in margins are often the more powerful, quantifiable drivers of longer-term earnings growth. Also, companies can be misclassified or difficult to categorize into sectors or industries and may not be well followed or understood. Finally, the size and scope of a company’s growth prospects can be underappreciated when incorrect parallels are drawn among business models, industries, or regions.

 

Ideas for the portfolio are generated by Berteaux and his team who travel extensively and meet with hundreds of companies. Berteaux also draws ideas from Wellington Management’s broad team of experienced analysts and portfolio managers. This deep analytical resource helps Berteaux supplement his own primary research on companies and allows him to analyze multiple fundamental data points and views on companies and industries.

 

Once an idea is generated, Berteaux’s primary research focuses on identifying one or more material earnings drivers that may be incorrectly analyzed by others. To do that, he meets with company management, suppliers, customers, competitors, and industry experts to gain an understanding of the company’s business model, key earnings drivers, and competitive advantages. Berteaux and his team build detailed earnings models to assess whether or not their view on earnings is different from that of the consensus and if so by what magnitude. For some companies, typically the more cyclical ones, Berteaux may have a differentiated view on earnings one or two years out and for others over a much longer period. His highest-conviction names are typically those where he has the largest earnings variance relative to consensus expectations. When that earnings variance disappears, due to either fundamentals of the company changing/deteriorating or the market catching up to his earnings numbers, he will sell the company from his portfolio.

 

While valuation is not the primary consideration at the time of purchase or sale, valuations must be reasonable relative to growth expectations. In addition, Berteaux will look at how a stock is trading relative to its history and industry peers to ensure he is paying in his opinion a reasonable price.

 

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Litman Gregory Masters Value Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the Value Fund’s three sub-advisors (but four portfolio managers) who, based on Litman Gregory’s research, are judged to be among the best in the value style.  The portfolio managers manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks.  Under normal conditions, each portfolio manager’s portfolio segment typically includes a minimum of 8 and a maximum of 15 securities.  A portfolio manager may occasionally hold more than 15 securities.  Though the total number of securities the Value Fund may hold at any point in time will vary, it is generally expected that the Value Fund will hold between 32 and 60 securities.

 

Each of the Value Fund’s managers has its own unique approach to company analysis and may define value differently.  Each has the freedom to invest to a limited extent in foreign stocks and the stocks of smaller companies.  However, with the exception of Peter Langerman, the portfolio managers primarily focus on mid- and large-sized U.S.-based companies and are less likely to own foreign domiciled companies or stocks of small companies.  Langerman is more likely to invest in foreign stocks and securities of distressed companies.

 

The Value Fund is structured as a non-diversified fund.  Diversification is a way to reduce risk by investing in a wide range of securities.  Although the Value Fund is structured as a non-diversified fund, it is likely that most of the time the portfolio will be diversified.  In instances when the Value Fund’s portfolio is not diversified, it may own large positions in a small number of securities.   Because the change in value of any one security owned by the Value Fund may have a significant effect on the daily NAV of the Value Fund, the share price may be expected to fluctuate more than that of a diversified fund.  Significant fluctuations may affect the performance of the Value Fund.

 

The following table provides a description of the Value Fund’s three sub-advisors and four portfolio managers and their target levels of assets.  Asset levels will fluctuate and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the Value Fund follows the table.

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR		TARGET MANAGER ALLOCATION		MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO		STOCK-PICKING STYLE
Mason Hawkins   Southeastern Asset Management, Inc.		30%		All sizes		Value
Clyde McGregor   Harris Associates L.P.		20%		Mostly large- and mid-sized companies		Value
Bill Nygren   Harris Associates L.P.		20%		Mostly large- and mid-sized companies		Value
Peter Langerman Philippe Brugere-Trelat   Franklin Mutual Advisers, LLC		30%		All sizes		Value

 

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Approximately 20% of the Fund’s assets are managed by McGregor, who employs Harris’ value investment philosophy and process.  This investment philosophy is based upon the belief that, over time, a company’s stock price converges with the company’s intrinsic or true business value.  By “true business value,” Harris means an estimate of the price a knowledgeable buyer would pay to acquire the entire business.  In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

 

The chief consideration in the selection of stocks is the size of the discount of a company’s stock price compared to the company’s perceived true business value.  In addition, Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company.  Once Harris determines that a stock is selling at a significant discount and that the company has some of the aforementioned attributes, Harris generally will consider buying that stock for a strategy.  Harris usually sells a stock when the price approaches its estimated worth.  This means Harris sets specific “buy” and “sell” targets for each stock held in its clients’ discretionary accounts.  Harris also monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals.  Harris attempts to manage some of the risks of investing in stocks of companies by purchasing stocks whose prices it considers low relative to the companies’ intrinsic value.  In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio holding.

 

William C. Nygren, CFA

Harris Associates L.P.

Two North LaSalle Street

Suite 500

Chicago, IL 60602

 

Bill Nygren is the portfolio manager for one of the segments of the Value Fund’s assets managed by Harris.  Nygren is a Vice President, portfolio manager and analyst at Harris and has managed The Oakmark Select Fund since its inception in 1996, The Oakmark Fund since April 2000 and The Oakmark Global Select Fund since its inception in 2006.  He earned a B.S. degree in Accounting from the University of Minnesota and an M.S. degree in Finance from the University of Wisconsin-Madison.  He has been in the investment business since 1981.  Nygren joined Harris in 1983 as an Investment Analyst and later served as Harris’ Director of Research from 1990 through 1998.  Nygren has been a portfolio manager to the Value Fund since its inception in 2000.

 

Approximately 20% of the Value Fund’s assets are managed by Nygren, who employs Harris’ value investment philosophy and process.  This investment philosophy is based upon the belief that, over time, a company’s stock price converges with the company’s intrinsic or true business value.  By “true business value,” Harris means an estimate of the price a knowledgeable buyer would pay to acquire the entire business.  In making its investment decisions, Harris uses a “bottom-up” approach focused on individual companies, rather than focusing on specific economic factors or specific industries.

 

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The chief consideration in the selection of stocks is the size of the discount of a company’s stock price compared to the company’s perceived true business value.  In addition, Harris looks for companies with the following characteristics, although not all companies will have all of these attributes: free cash flows and intelligent investment of excess cash, earnings that are growing and are reasonably predictable, and a high level of management ownership in the company.  Once Harris determines that a stock is selling at a significant discount and that the company has some of the aforementioned attributes, Harris generally will consider buying that stock for a strategy.  Harris usually sells a stock when the price approaches its estimated worth.  This means Harris sets specific “buy” and “sell” targets for each stock held in its clients’ discretionary accounts.  Harris also monitors each holding and adjusts those price targets as warranted to reflect changes in a company’s fundamentals.  Harris attempts to manage some of the risks of investing in stocks of companies by purchasing stocks whose prices it considers low relative to the companies’ intrinsic values.  In addition, Harris seeks companies with solid finances and proven records and continuously monitors each portfolio holding.

 

Peter Langerman

Philippe Brugere-Trelat

Franklin Mutual Advisers, LLC

101 John F. Kennedy Parkway

Short Hills, NJ 07078

 

Peter Langerman and Philippe Brugere-Trelat are the portfolio managers for the segment of the Value Fund’s assets managed by Franklin Mutual Advisers, LLC (“Franklin Mutual”).  Langerman, the Chairman, Chief Executive Officer and President of Franklin Mutual, is also the portfolio manager of the Mutual Shares Fund.  He was employed by the State of New Jersey Division of Investments from December 2002 to March 2005; prior to that, he spent 17 years at Heine Securities Corporation, the predecessor of Franklin Mutual.  Brugere-Trelat is executive vice president of Mutual Series.  He is portfolio manager of the Mutual European Fund, co-portfolio manager of the Mutual International Fund and co-portfolio manager of the Mutual Global Discovery products, which include:  Mutual Global Discovery Fund, FTVIP Franklin Mutual Global Discovery Securities Fund, the Luxemberg-registered FTIF Franklin Mutual Global Discovery Fund and the Canadian Mutual Discovery Fund.  He also manages the Luxemburg-registered FTIF Franklin Mutual European Fund.  Brugere-Trelat brings over 25 years of experience in the European equity markets.  He is intimately familiar with Mutual Series’ approach to investing, having begun his career with the team in 1984 under Max Heine and Michael Price.  He spent over 10 years (1984-1994) following European investments for the funds.  Prior to rejoining Mutual Series in 2004, Brugere-Trelat was president and portfolio manager of Eurovest, a French-registered fund exclusively invested in European equity markets (1996-2004).  Before that, he was a principal of Omega Advisors, Inc., a large New York based hedge fund, where he was responsible for European equity markets (1994-1996).  Franklin Mutual has been a sub-advisor to the Value Fund since the inception of the Value Fund in 2000.

 

Langerman and Brugere-Trelat manage approximately 30% of the Value Fund’s assets.  They work closely with the Franklin Mutual team of research analysts who employ a value approach to investing that seeks to invest in securities selling at a substantial discount to their intrinsic value, taking into consideration, among other factors, the ratios of price-to-cash flow, price-to-free cash flow, price-to-earnings, and price-to-book value.  Franklin Mutual considers companies of all sizes, although most of its investments are in mid- and large-sized companies.  Franklin Mutual determines what a company would be worth if it were put up for auction and sold and then seeks to invest in companies at significant discounts.  Consistent with this value approach, Franklin Mutual generally invests in three areas: (1) cheap stocks based on asset values, (2) arbitrage, and (3) bankruptcy situations.  Investments in the latter two categories do not necessarily track broader market moves and, therefore, may tend to mitigate volatility in overall performance.

 

Franklin Mutual’s research process is bottom-up, with new ideas often coming from news about a company such as corporate restructurings, spin-offs, tender offers, 13D filings and proxy fights. Franklin Mutual also analyzes companies whose share prices have suffered significant declines for reasons such as earnings disappointments and adverse legal judgments.  After identifying a new investment possibility, Langerman, Brugere-Trelat and the analysts engage in intensive fundamental research of the company, which often includes meetings with company management, visits to facilities, and discussions with competitors and others knowledgeable about the business.  In addition, Franklin Mutual sometimes takes an activist approach in its investments to try to influence management to create value for all shareholders.

 

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The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

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Fund Management and Investment Styles

Litman Gregory Masters Smaller Companies Fund

Litman Gregory Masters Smaller Companies Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the portfolio’s assets among the Smaller Companies Fund’s five sub-advisors who, based on Litman Gregory’s research, are judged to be among the best in their respective style groups.  The sub-advisors manage their individual portfolio segments by building a focused portfolio representing their highest-confidence stocks.  Under normal market conditions, the Smaller Companies Fund invests at least 80% of the Smaller Companies Fund’s net assets in securities of small and mid-sized U.S. companies. This investment policy may be changed by the Board without shareholder approval, but shareholders would be given at least 60 days’ notice if any change occurs.  Under normal conditions, each manager’s portfolio segment typically includes a minimum of 8 and a maximum of 15 securities.  A manager may occasionally hold more than 15 securities.  Though the total number of securities the Smaller Companies Fund may hold at any point in time will vary, it is generally expected that the Smaller Companies Fund will hold between 50 and 75 securities.

 

As used in this Prospectus, Litman Gregory defines a “Smaller Company” as one whose market capitalization falls within the range of market capitalizations of any company in the Russell 2500 ®  Index, as of the most recent reconstitution.  Though the primary capitalization focus of the Smaller Companies Fund is in the small-cap sector, Litman Gregory does not believe that small-cap investors should be forced to sell a stock that appreciates beyond the upper thresholds of the small-cap range if the stock picker continues to maintain a high level of conviction with respect to the holding.  This has been a problem with many small-cap funds, as they have, at times, been forced to sell some of their most compelling holdings.  Moreover, occasionally companies in the mid-cap range will be extraordinarily attractive to the Smaller Companies Fund’s investment managers.  Overall, Litman Gregory expects the majority of the Smaller Companies Fund’s holdings at any point in time to meet the definition of a Small Company, but the Smaller Companies Fund has the flexibility to hold mid-sized companies if the managers believe that holding these companies will lead to higher overall returns.  The managers have the flexibility to invest up to 50% (measured at the time of original investment) of their respective portfolios in mid-cap companies if these stocks qualify as their “highest conviction” holdings.

 

The following table provides a description of the Smaller Companies Fund’s five sub-advisors and their target levels of assets. Asset levels will fluctuate and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the Smaller Companies Fund follows the table.

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR		TARGET MANAGER ALLOCATION		MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO		STOCK-PICKING STYLE
Bill D’Alonzo and Team   Friess Associates, LLC		20%		Small- and mid-sized companies		Growth
Jeff Bronchick   Cove Street Capital, LLC		20%		Small- and mid-sized companies		Value
Dennis Bryan Rikard Ekstrand   First Pacific Advisors, LLC		20%		Small- and mid-sized companies		Value
Frank Sustersic   Turner Investments, L.P.		20%		Small- and mid-sized companies		Growth

 

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PORTFOLIO MANAGER(S)/SUB- ADVISOR		TARGET MANAGER ALLOCATION		MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO		STOCK-PICKING STYLE
Richard Weiss   Wells Capital Management, Inc.		20%		Small- and mid-sized companies		Blend

Litman Gregory Masters Smaller Companies Fund Portfolio Managers

 

Bill D’Alonzo and Team

Friess Associates, LLC

115 E. Snow King Avenue

Jackson, WY 83001

 

Bill D’Alonzo is the lead portfolio manager for the segment of the Smaller Companies Fund’s assets managed by Friess.  Bill D’Alonzo has been in the investment business since 1978, is Chairman of the Brandywine Funds and is Chief Executive Officer and Co-Chief Investment Officer of Friess. Friess has been a sub-advisor to the Smaller Companies Fund since the inception of the Smaller Companies Fund in June 2003.

 

Approximately 20% of the Smaller Companies Fund’s assets are managed by the Friess team.  Friess invests in stocks of well-financed issuers that have proven records of profitability and strong earnings momentum.  Emphasis is placed on companies with a market capitalization of less than $5 billion with a majority of holdings likely to be in companies with a market capitalization of less than $1.5 billion. These companies are likely to be lesser-known companies moving from a lower to higher market share position within their industry groups, rather than the largest and best-known companies in these groups.

 

Friess may, however, purchase common stocks of well-known, highly researched mid-sized companies if the team believes that their common stocks offer particular opportunity for long-term capital growth.

 

In selecting investments, Friess considers financial characteristics of the issuer, including historical sales and net income, debt/equity and price/earnings ratios, and book value.  Friess may also review research reports of broker-dealers and trade publications and, in appropriate situations, meet with management.  Greater weight to internal factors, such as product or service development, than to external factors, such as interest rate changes, commodity price fluctuations, general stock market trends and foreign-currency exchange values.  A particular issuer’s dividend history is not considered important.

 

Jeffrey Bronchick, CFA

Cove Street Capital, LLC

2323 Rosecrans Avenue, Suite 3275

El Segundo, CA 90245

 

Jeff Bronchick is the portfolio manager for the segment of the Smaller Companies Fund’s assets managed by Cove Street Capital, LLC (“Cove Street”).  Bronchick is the principal owner of Cove Street, which he founded in 2011.  Prior to founding Cove Street, Bronchick was a partner at Reed Conner and Birdwell (“RCB”), which he joined in 1989 as a research analyst.  He was later promoted to Chief Investment Officer, portfolio manager and equity analyst, and co-portfolio manager for the CNI Charter RCB Small Cap Value Fund and co-managed RCB’s small-cap value investment strategy.  Prior to joining RCB, Bronchick did equity research and trading at Neuberger Berman, Bankers Trust and First Boston. RCB was a sub-advisor to the Smaller Companies Fund from June 2007 through June 2011, and Bronchick was the co-manager of that segment of the Smaller Companies Fund during RCB’s tenure.

 

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Bronchick is responsible for managing approximately 20% of the Smaller Companies Fund’s assets.  The objective of Bronchick’s fundamental research is to identify the best combination of attractive businesses, valuation, and shareholder-oriented management.  His small-cap universe consists of companies between $100 million and $3 billion.

 

Idea generation is driven by both quantitative and qualitative processes.  As a value-based, bottom-up manager, Cove Street consistently screens markets for securities that appear statistically inexpensive and allows that pool of ideas to drive its efforts and work rather than begin the day with a preconceived notion of securities it would like to buy.  Cove Street also screens for “good businesses” as defined by classic characteristics like consistency of growth and profitability, high returns on invested capital and sustainable competitive advantages; and determine if the valuation is cheap enough to provide a proper margin of safety.  Lastly, Cove Street screens on corporate and executive behavior such as share repurchase and insider buying and selling.  On a qualitative basis, ideas are produced from the team’s collective experience, Cove Street’s deep contact network, out of office experiences and obvious headline issues.

 

Once the team has determined that an idea has promise, they begin Stage II, which consists of the data download of all relevant company financial information into the Cove Street analytical spreadsheet and the then digest all public company information.  They then ask the question:  Does it appear to either be a great business at a reasonable price or an exceedingly cheap security that provides a deeper margin of safety to compensate for potential business issues?

 

Stage III is the Team Tackle and Deep Dive.  The research team performs intensive analysis on valuation and business characteristics, with two analysts focused on the stock as a “purchase” and one analyst focused on the stock as a “short-sale,” a version of the so-called Socratic method of reasoning.  Key pivot points include:

 

●

What is a reasonable estimate of intrinsic value? We incorporate a multivariate approach that utilizes a discounted cashflow analysis, private market values, and a historical calculation of enterprise value to normalized earnings, cashflow and revenue.

●

Classic Porter value chain analysis of competitors, suppliers, potential entrants, customers and substitutes.

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Is there a competitive advantage that can generate sustainably strong returns on invested capital?

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Management: friend, neutral or foe?

●

PEST Control:  political, economic, social, technological issues.

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What is the team thinking that others are not?

●

What will it cost Cove Street if things go very wrong?

 

Stage IV is Portfolio Consideration.  Is there sufficient risk adjusted upside – on an absolute basis and versus other stocks that Cove Street owns?  How does it fit with the portfolio’s industry concentration?

 

The final decision is made by Bronchick.

 

Less is more in regard to portfolio turnover, as experience has proven that the quality of decision-making decreases with frequency.  That said, mistakes are inevitable and Cove Street’s concentrated research assists in identifying errors relatively early.

 

Cove Street’s sell discipline is also based upon a blend of qualitative and quantitative measures:

 

Valuation:

 

●

A good business is excessively valued or a reasonable business is fairly valued.

 

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●

A better idea is found that materially improves the risk/reward characteristics.

 

People:

 

●

Unexpectedly poor decisions are made allocating shareholder capital.

●

Loss of confidence that management and the Board are best representing shareholders and the cost and effort to influence this process are deemed prohibitive.

 

Business:

 

●

Cove Street is incorrect in its expectations about long-term economic margins and earnings power.

●

Actual or likely prospects of balance sheet deterioration.

●

Cyclical industry problems reveal themselves as secular.

 

Dennis Bryan

Rikard Ekstrand

First Pacific Advisors, LLC

11400 West Olympic Blvd., Suite 1200

Los Angeles, CA 90064

 

Dennis Bryan and Rikard Ekstrand are the portfolio managers for the segment of the Smaller Companies Fund’s assets managed by First Pacific Advisors, LLC (“FPA”).  Bryan joined FPA in 1993 and has been a partner in FPA since 2006.  Ekstrand joined FPA in 1999 and has been a partner in FPA since 2006.  Together, they co-manage equity separate accounts and the FPA Capital Fund in FPA’s small-mid cap absolute value style (“SMAV”).  Steven Romick, also a partner in FPA, collaborates with Bryan and Ekstrand as a member of the SMAV team at FPA.  FPA has been a sub-advisor to the Smaller Companies Fund since the inception of the Smaller Companies Fund in June 2003.

 

The team is responsible for managing approximately 20% of the Smaller Companies Fund’s assets.  The general objective of the team’s stock research is to identify stocks from a variety of sources that are cheap relative to their peer group and are characterized by strong balance sheets, solid or improving fundamentals and strong competitive positions in their industry.  In addition, they focus on companies that exhibit strong free cash flow, quality management and understandable business strategies.  The team also emphasizes above-average return-on-capital though the team tends not to focus on rapidly growing companies that generate very high returns on assets because these companies rarely meet the team’s valuation criteria.

 

Statistical screens that generate research ideas include “new low” lists and various value-oriented measures.  In addition to quantitative screens, the team also looks at insider transactions, management changes and spin-offs.  Big-picture trends or developments may also lead the FPA team to look at certain stocks or industries.

 

Specific company research is intensive and involves finding as much information as possible from as many sources as possible.  The first step is an in-depth look at the financials to gain an understanding of the operating history, trends and the financial health of a company.  Following that, research focuses on gaining an understanding of the company’s business model, management quality, growth potential, strengths and weaknesses and competitive position.  Because there is a preference for out-of-favor companies there is a particular focus on assessing whether profits are down because of issues that are transitory or permanent.  As part of the research process, there is usually contact with management (to assess the quality of the people), competitors, customers and others who are potential sources of information.

 

The overall assessment of fundamentals is not measured against a standard set of criteria; rather, each is relative to the specific type of business or industry.  In general, the team is looking for situations where certainty is high; thus, a business that has strong long-term fundamentals but is temporarily out of favor is typical of a new buy.  Since there is a preference for companies with strong free cash flow, it is also important to have confidence in management’s ability to add value through the deployment of excess cash.

 

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Valuation is critical to the assessment of each stock-picking opportunity.  Valuation assessments usually involve looking at a variety of valuation measures including price-to-earnings, price-to-cash flow, price-to-book value, price-to-sales and enterprise value and market capitalization to total revenue.  The valuation measures that are applicable to any particular stock depend on company-specific facts and circumstances as well as broader valuation trends in the industry.  In assessing valuations, the FPA team is cognizant of factoring in where the company is in its earnings cycle, its normalized earnings, and how the cycle has played out in the past. In assessing multiples the team studies what multiple levels were in past cycles and considers whether this information is relevant to assessing the potential for future multiples.  The valuation assessment then often becomes a function of the expected profitability recovery and multiple expansion from current levels.

 

The team usually sells stocks for one of four reasons: (1) the stock reaches full valuation; (2) there has been a full profit recovery; (3) a superior alternative value appears; or (4) the company does not perform as expected.

 

Frank Sustersic, CFA

Turner Investments, L.P.

1205 Westlakes Drive

Suite 100

Berwyn, PA 19312

 

Frank Sustersic is the portfolio manager for the segment of the Smaller Companies Fund’s assets managed by Turner Investments. Sustersic is a senior portfolio manager and security analyst at Turner Investments —he leads the Health Care Sector Team with coverage responsibility for medical-devices and health-care information-technology. He is the lead manager of the Turner Emerging Growth Fund (the mutual fund counterpart of his Micro Cap Growth Equity institutional portfolio) the Select Opportunities long/short fund,  a strategy which is also rolled into the Spectrum fund, a multi-strategy long/short fund.  Sustersic has worked at Turner Investments since 1994 and has 23 years of investment experience.

 

Approximately 20% of the Smaller Companies’ fund assets are managed by Sustersic.  He invests primarily in domestic companies that he believes have the potential for strong earnings growth, with a focus on companies between $200 million and $3 billion in market capitalization. Sustersic specifically looks for companies with strong operating business models that will lead to accelerating earnings and improving earnings expectations. Typically these are companies with a specific edge, such as a compelling or unique product or service. Investment ideas are generated from a number of sources, and include quantitative screens, daily investment-team meetings/sector commentaries, fundamental analysis and/or trade checks of existing or potential holdings, as well as Sustersic’s general knowledge of the micro/small-cap universe.

 

The goal of his fundamental company analysis is to produce full-circle analysis utilizing input from company financials, competitors, suppliers, customers, and independent research providers to determine if a company will exceed, meet, or fall short of consensus earnings expectations. Company-level analysis begins by establishing an understanding of historical results from financial and fundamental perspectives. Revenue growth is ultimately the most important metric he looks for, while consistency and predictability of cash flows are also essential, i.e. , he does not invest in turnaround situations. Sustersic also wants to understand historical trends in margins, research & development budgets, tax rates, etc. From there he questions management teams about past cycles, but also focuses on corporate management’s goals for the business, as well as competitive pressures. This is followed up by trade checks, where Sustersic wants to obtain broad-based confirmation of a thesis before investing. Unemotional and objective decision making is a key focus for Sustersic. At the time of purchase he believes it’s critical to identify and quantify the key factors driving growth, as well as operating weaknesses. He is also specific about defining whether his thesis is company-specific or is related to a broader industry tailwind, and whether the idea is secular in nature, cyclical, or catalyst-driven. Sustersic is valuation-sensitive, and he places considerable emphasis on historical valuation ratios such as price-to-sales and price-to-earnings ratios but relies more on a company’s EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) ratio.

 

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Litman Gregory Masters Smaller Companies Fund

 

When constructing the portfolio, Sustersic is attentive to understanding and managing risk. This impacts which stocks are selected for Masters as well as position size within the Masters portfolio. For a stock to be held in the portfolio, conviction must be high. Often conviction is a function of companies Sustersic is very familiar with, and that have more visibility with respect to the earnings outlook. In the Masters portfolio there may a tendency to own more niche businesses if they have a specific edge. Sustersic may also give a higher weight to companies where he can identify specific, favorable near-term events. Sustersic is conscious of macro environments, and this may influence the selection of stocks for Masters as well as the size of positions within the portfolio, but the primary driver is Sustersic’s assessment of each company’s operating fundamentals and valuations.

 

Richard T. Weiss

Wells Capital Management, Inc.

100 Heritage Reserve

Menomonee Falls, WI 53051

 

Dick Weiss is the portfolio manager for the segment of the Smaller Companies Fund ’ s assets managed by WellsCap.  Weiss has been in the investment business for over 30 years and is currently Senior Portfolio Advisor for WellsCap.  Previously, he had been the manager or co-manager of the Wells Fargo Advantage Common Stock Fund and the Wells Fargo Advantage Opportunity Fund (previously known as the Strong Common Stock Fund and Strong Opportunity Fund) from March 1991 until March 2008.  Prior to this, Weiss was a partner/portfolio manager at Stein Roe & Farnham in Chicago where he began his career, starting as a research analyst, in 1975.  Weiss continues an informal relationship with the Wells Capital Management Core Equity team, which manages the Wells Fargo Advantage Common Stock Fund and Wells Fargo Advantage Opportunity Fund.  Weiss has managed a portion of the Smaller Companies Fund’s assets since the inception of the Smaller Companies Fund in 2003.

 

Approximately 20% of the Smaller Companies Fund ’ s assets are managed by Weiss.  He invests in stocks of small- and mid-sized companies that are undervalued either because they are not broadly recognized, are in transition, or are out of favor based on short-term factors.  Weiss also has the flexibility to invest in the stocks of larger companies if in his opinion they offer the potential for better returns.  In seeking attractively valued companies, Weiss focuses on companies with above-average growth potential that also exhibit some or all of the following:

 

●

Low institutional investor ownership and low analyst coverage

●

High-quality management

●

Sustainable competitive advantage

 

Weiss evaluates the degree of under-valuation relative to his estimate of each company ’ s private market value.  This private market value approach is based on an assessment of what a private buyer would be willing to pay for the future cash flow stream of the target company.  Based on his experience, Weiss believes that, except for technology and other high-growth stocks, most stocks trade at between 50% and 80% of the private market value.  When trading at the low end of this range, companies take steps to prevent takeover, or they are taken over.  The private market value estimate is applied flexibly, based on the outlook for the industry and the company ’ s fundamentals.

 

The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

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Fund Management and Investment Styles

Litman Gregory Masters Focused Opportunities Fund

Litman Gregory Masters Focused Opportunities Fund – Sub-Advisors

 

Litman Gregory’s strategy is to allocate the Focused Opportunities Fund’s assets among three sub-advisors who, based on Litman Gregory’s research, are judged to be among the best in their respective style categories and who can add additional value by managing an extremely concentrated portfolio of securities. The sub-advisors manage their individual portfolio segments by building a highly focused portfolio representing their highest-confidence stocks. Under normal conditions, each manager’s portfolio segment includes a minimum of 5 and a maximum of 7 securities. A manager may, on a temporary basis, hold more than 7 securities. For example, a manager may be in the process of selling one security and buying a new holding. Alternatively, for tax management purposes, a manager may temporarily retain a portion of a position in order to avoid realizing short-term capital gains.

 

The Focused Opportunities Fund is structured as a non-diversified fund. Litman Gregory and the managers believe that limiting the number of holdings improves the Focused Opportunities Fund’s long-term return opportunity because the portfolio contains only the managers’ highest-conviction ideas. Owning fewer companies also enables each security to have a meaningful impact on the overall Fund performance.   As a result, the Focused Opportunities Fund may own large positions in a small number of securities.  Because the change in value of any one security owned by the Focused Opportunities Fund may have a significant effect on the daily NAV of the Focused Opportunities Fund, its share price may fluctuate more than that of a diversified fund.  Significant fluctuations may affect the performance of the Focused Opportunities Fund.  For these reasons, Litman Gregory believes that the Focused Opportunities Fund is appropriate only for longer-term investors.

 

Each of the managers utilizes a different stock-picking approach and style. Litman Gregory believes that during any given year certain stock-picking styles will generate higher returns than others.  By including a variety of stock-picking styles in this single mutual fund, Litman Gregory believes that the variability and volatility of returns can be lessened. The Focused Opportunities Fund will typically invest in the securities of large- and mid-sized U.S. companies, although the managers may also invest in the securities of non-U.S. companies. At times, securities of non U.S. companies may make up a material portion of the overall portfolio. The managers may also invest in securities of smaller companies, though these are expected to be a lesser portion of the overall fund portfolio.

 

The following table provides a description of the Focused Opportunities Fund’s three sub-advisors and their target levels of assets.  Asset levels will fluctuate and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the Focused Opportunities Fund follows the table.

 

PORTFOLIO MANAGER(S)/SUB- ADVISOR		TARGET MANAGER ALLOCATION		MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO		STOCK-PICKING STYLE
Christopher Davis Kenneth Feinberg   Davis Selected Advisers, L.P.		33.33%		Mostly large companies		Blend
Peter Langerman Philippe Brugere-Trelat   Franklin Mutual Advisers, LLC		33.33%		All sizes and global		Value

 

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PORTFOLIO MANAGER(S)/SUB- ADVISOR		TARGET MANAGER ALLOCATION		MARKET CAPITALIZATION OF COMPANIES IN PORTFOLIO		STOCK-PICKING STYLE
Frank Sands, Jr. A. Michael Sramek   Sands Capital Management, LLC		33.33%		All sizes but mostly large and mid-sized companies		Growth

 

Litman Gregory Masters Focused Opportunities Fund Portfolio Managers

 

Christopher Davis

Kenneth Feinberg

Davis Selected Advisers, L.P.

2949 East Elvira Road, Suite 101

Tucson, AZ  85756

 

Christopher C. Davis and Kenneth Feinberg are the co-portfolio managers for the segment of the Focused Opportunities Fund’s assets managed by Davis Advisers. Davis joined Davis Advisors in 1991, and began his tenure as a portfolio manager of the Davis New York Venture Fund in 1995. Before joining Davis Advisors, Davis was an associate at Tanaka Capital Management.  Feinberg joined Davis Advisors in 1994 and was named co-manager of the Davis New York Venture Fund in 1998.  Their investment approach has been strongly influenced by working closely with veteran investor Shelby Davis.  Davis Advisors has been a sub-advisor to the Focused Opportunities Fund since 2006.

 

Approximately one-third of the Focused Opportunities Fund’s assets are managed by Davis and Feinberg.  Through their research process, Davis and Feinberg seek to identify high-quality companies with sustainable business models that can be purchased at a discount to their estimate of intrinsic value.  They believe the evaluation of company management is critical, and they and their research team spend considerable time conducting on-site visits to management teams as part of their research process.  Davis and Feinberg believe that high-quality companies are evidenced by some or all of the following characteristics:

 

First-Class Management

●

Proven track record

●

Significant alignment of interests in business

●

Intelligent application of capital

 

Strong Financial Condition and Satisfactory Profitability

●

Strong balance sheet

●

Low cost structure

●

High returns on capital

 

Strong Competitive Positioning

●

Non-obsolescent products / services

●

Dominant or growing market share

●

Global presence and brand names

 

Davis and Feinberg seek to invest in companies exhibiting some or all of these characteristics at attractive prices and then hold them for the long term.  Positions are built strategically when companies can be purchased at strong discounts to intrinsic value. They consider selling a position if they believe the stock market price exceeds their estimate of the intrinsic value of the company, or if they believe the risk of continuing to hold a company’s stock outweighs the potential reward.

 

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Peter Langerman

Philippe Brugere-Trelat

Franklin Mutual Advisers, LLC

101 John F. Kennedy Parkway

Short Hills, NJ 07078

 

Peter Langerman and Philippe Brugere-Trelat are the portfolio managers for the segment of the Focused Opportunities Fund’s assets managed by Franklin Mutual.  Langerman, the Chairman, Chief Executive Officer and President of Franklin Mutual, is also the portfolio manager of the Mutual Shares Fund.  He was employed by the State of New Jersey Division of Investments from December 2002 - March 2005; prior to that he spent 17 years at Heine Securities Corporation, the predecessor of Franklin Mutual.  Brugere-Trelat is executive vice president of Mutual Series.  He is portfolio manager of the Mutual European Fund, co-portfolio manager of the Mutual International Fund and co-portfolio manager of the Mutual Global Discovery products, which include:  Mutual Global Discovery Fund, FTVIP Franklin Mutual Global Discovery Securities Fund, the Luxemberg-registered FTIF Franklin Mutual Global Discovery Fund and the Canadian Mutual Discovery Fund.  He also manages the Luxemburg-registered FTIF Franklin Mutual European Fund.  Brugere-Trelat brings over 25 years of experience in the European equity markets.  He is intimately familiar with Mutual Series’ approach to investing, having begun his career with the team in 1984 under Max Heine and Michael Price.  He spent over 10 years (1984-1994) following European investments for the funds.  Prior to rejoining Mutual Series in 2004, Brugere-Trelat was president and portfolio manager of Eurovest, a French-registered fund exclusively invested in European equity markets (1996-2004).  Before that, he was a principal of Omega Advisors, Inc., a large New York based hedge fund, where he was responsible for European equity markets (1994-1996).  Franklin Mutual has been a sub-advisor to the Focused Opportunities Fund since 2006.

 

Langerman and Brugere-Trelat manage approximately one-third of the Focused Opportunities Fund’s assets.  They work closely with the Franklin Mutual team of research analysts who employ a value approach to investing that seeks to invest in securities selling at a substantial discount to their intrinsic value, taking into consideration, among other factors, the ratios of price-to-cash flow, price-to-free cash flow, price-to-earnings, and price-to-book value.  Franklin Mutual considers companies of all sizes, although most of its investments are in mid- and large- sized companies.  Franklin Mutual determines what a company would be worth if it were put up for auction and sold and seeks to invest in companies at significant discounts based on such a determination.  Consistent with this value approach, Franklin Mutual generally invests in three areas: (1) cheap stocks based on asset values, (2) arbitrage, and (3) bankruptcy situations. Investments in the latter two categories do not necessarily track broader market moves and, therefore, may tend to mitigate volatility in overall performance.

 

Franklin Mutual’s research process is bottom-up, with new ideas often coming from news about a company such as corporate restructurings, spin-offs, tender offers, 13D filings and proxy fights. Franklin Mutual also analyzes companies whose share prices have suffered significant declines for reasons such as earnings disappointments and adverse legal judgments.  After identifying a new investment possibility, Langerman, Brugere-Trelat and the analysts engage in intensive fundamental research of the company, which often includes meetings with company management, visits to facilities, and discussions with competitors and others knowledgeable about the business.  In addition, Franklin Mutual sometimes takes an activist approach in its investments to try to influence management to create value for all shareholders.

 

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Litman Gregory Masters Focused Opportunities Fund

 

Frank Sands, Jr., CFA

A. Michael Sramek, CFA

Sands Capital Management, LLC

1101 Wilson Boulevard

Suite 2300

Arlington, VA 22209

 

Frank M. Sands, Jr., CFA is the lead portfolio manager for the segment of the Focused Opportunities Fund managed by Sands Capital Management, LLC (“Sands Capital”).  Mr. Sands, Jr. is the Chief Investment Officer and Chief Executive Officer at Sands Capital. Prior to joining Sands Capital, he was a portfolio manager and research analyst for Fayez, Sarofim and Company.  A. Michael Sramek, CFA began his investment career as a research analyst at Mastrapasqua & Associates in 2000 prior to joining Sands Capital in 2001. He is a Senior Research Analyst, Senior Portfolio Manager and Managing Director at Sands Capital.  Sands Capital was founded in February 1992 by Frank Sands, Sr., CFA with the belief that a team of investment professionals dedicated to the execution of a single growth-oriented investment philosophy could create wealth for its clients over time. Including Sands, Jr. and Sramek, the investment team is comprised of eight senior members, who are supported by research analysts and associates.  Sands Capital is independent, 100% staff owned, and has been a sub-advisor to the Focused Opportunities Fund since 2008.

 

The Sands Capital team manages approximately 10% of the assets of the Focused Opportunities Fund.  The team believes that over time stock price appreciation follows earnings growth.  The investment objective is to identify companies that can sustain above-average earnings growth relative to the broader market, typically over the next three to five years.  The team believes great investment ideas are rare and runs a concentrated portfolio of high-quality, seasoned, growing businesses across an array of attractive and growing business spaces.  Independent research—bottom-up and company focused—is the cornerstone of the team’s investment process.  All research analyses and conclusions are internally generated using a variety of fundamental techniques and external data sources.

 

The team seeks to identify leading growth businesses that can withstand the continual scrutiny of following six investment criteria:

 

(1)	Sustainable above-average earnings growth.

(2)	Leadership position in a promising business space.

(3)	Significant competitive advantage/unique business franchise.

(4)	Clear mission and value-added focus.

(5)	Financial strength.

(6)	Rational valuation relative to market and business prospects.

 

 

 

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In collaboration with the whole Sands Capital investment team, Sands Jr. and Sramek seek to identify and own the companies that appear to be the strongest fits with the above criteria by doing the following: monitoring status/activity in other portfolios (e.g., absolute weights and weight trends); meeting regularly with the various Sands Capital PM teams, sector teams, and individual analysts/ associates; reading internal and external research and participating in research activities (management meetings, field trips, etc.); holding regular team meetings and soliciting/encouraging recommendations from all Sands Capital team members.

 

The strongest fits are determined by de-composing each of the six criteria into its sub-components and then evaluating the universe of Sands Capital holdings versus those characteristics. For instance, "leadership in an attractive business space" can be broken into characteristics such as: large/growing market share; innovation; pricing power; strategic position in value chain; and attractive business model (high margins, high/rising ROIC, etc.). Companies are evaluated against these characteristics in a consensus-building process between the PM Team and the rest of the Investment Team. The companies whose investment cases exhibit in great depth the qualities that Sands Capital values are regarded as the strongest fits and thus included in the Focused Opportunities Fund.

 

The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

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Fund Management and Investment Styles

Litman Gregory Masters Alternative Strategies Fund

 

Litman Gregory Masters Alternative Strategies Fund – Sub-Advisors

Litman Gregory’s strategy is to allocate the portfolio’s assets among the Alternative Strategies Fund’s four sub-advisors to provide investors a mix of strategies that Litman Gregory believes offer risk-return characteristics that are attractive individually and even more compelling collectively.   Allocations among sub-advisors are based on a number of factors, including Litman Gregory’s expectation for the risk-adjusted return potential of each sub-advisor’s strategy and the impact on overall portfolio risk, with the objective of maximizing return subject to the goals of low volatility and relatively low correlation with broad financial markets, especially the stock market.  Litman Gregory may at times adjust the allocations of capital to sub-advisors if it believes there is a highly compelling tactical opportunity in a particular sub-advisor’s strategy. No strategy will be allocated less than 15% of portfolio assets or more than 35% of portfolio assets as measured at the time of allocation.

 

Sub-advisor strategies may seek to benefit from: opportunities to combine securities with differing risk characteristics; market inefficiencies; arbitrage opportunities; opportunities to provide liquidity; tactical opportunities in asset classes or securities; special situations such as spin offs; as well as other opportunities in areas such as real estate or managed futures.  In the aggregate, the managers can invest globally in stocks of companies of any size, domicile or market capitalization, government and corporate bonds and other fixed income securities and currencies, including short positions of any of the foregoing, within their respective segments of the Alternative Strategies Fund.  They may also invest in derivatives to manage risk or enhance return and can also utilize leverage to a limited degree.  Each of the managers may invest in illiquid securities; however, the Alternative Strategies Fund as a whole may not hold more than 15% of its net assets in illiquid securities.  In some cases, the sub-advisors may seek to replicate strategies they employ in their private (hedge) funds.  In other cases, the sub-advisors may seek to enhance strategies they run in other public funds by focusing on their highest conviction ideas to a greater extent or by pursuing certain aspects of their strategies with greater flexibility.  However, the Alternative Strategies Fund will only invest directly in portfolio securities selected by the sub-advisors and will not invest in any pooled investment vehicles or accounts managed by the sub-advisors.

 

Each sub-advisor will have an investment approach that generally focuses on a particular asset class or specific strategies. Currently, the strategies the sub-advisors focus on are as follows: (1) an arbitrage oriented strategy, (2) an opportunistic income strategy which will often focus on mortgage related securities, (3) a contrarian opportunity strategy that allows tactical investments throughout the capital structure (stocks and bonds), asset classes, market capitalization, industries and geographies, and (4) an absolute return fixed income strategy that focuses on the tactical allocation of long and short global fixed income opportunities and currencies.

 

The following table provides a description of the Alternative Strategies Fund’s four sub-advisors and their target levels of assets. Asset levels will fluctuate, and it is at the discretion of Litman Gregory to re-balance the manager allocations.  A detailed discussion of the management structure of the Alternative Strategies Fund follows the table.

PORTFOLIO MANAGER(S)/SUB-ADVISOR		TARGET ALLOCATION RANGE		STRATEGY
Jeffrey Gundlach   DoubleLine Capital LP		15%-35%		Opportunistic Income
Steven Romick Brian Selmo Mark Landecker   First Pacific Advisors, LLC		15%-35%		Contrarian Opportunity

 

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PORTFOLIO MANAGER(S)/SUB-ADVISOR		TARGET ALLOCATION RANGE		STRATEGY
Matt Eagan Kevin Kearns Todd Vandam   Loomis Sayles &Company, LP		15%-35%		Absolute Return Fixed Income
John Orrico Todd Munn Roger Foltynowicz Gregg Loprete   Water Island Capital, LLP		15%-35%		Arbitrage

 

Litman Gregory Masters Alternative Strategies Fund Portfolio Managers

 

Opportunistic Income Strategy

Jeffrey Gundlach

DoubleLine Capital LP

333 South Grand Avenue, Suite 1800

Los Angeles, CA  90071

 

Jeffrey Gundlach is the portfolio manager responsible for the opportunistic income strategy, which is the segment of the Alternative Strategies Fund’s assets managed by DoubleLine Capital LP (“DoubleLine”) (the “Opportunistic Income Strategy”).  Gundlach is Chief Executive Officer and Chief Investment Officer of DoubleLine, which he co-founded in 2009.  Prior to founding DoubleLine, Gundlach was associated with TCW Group Inc., where he was Chief Investment Officer, Group Managing Director and President of TCW Asset Management Company, a division of the TCW Group.

 

Gundlach and his team at DoubleLine operate under the cardinal mandate of delivering superior risk-adjusted fixed income returns.  They seek to deliver positive absolute returns in excess of an appropriate aggregate fixed income index with portfolio volatility that is similar to U.S. long-term treasury securities.  Investment ideas employed by Gundlach and his team must offer an asymmetric, positively skewed risk-reward profile.  As a result, a great deal of their analysis seeks to identify fixed income securities that they believe offer greater potential payoff than potential loss under multiple scenarios.  Ultimately, a combination of risk management, asset allocation and security selection forms Gundlach’s investment process.  There can be no assurance that the Fund will achieve its investment objective.

 

Portfolios are constructed with the intent to outperform under a range of future outcomes.  DoubleLine’s risk integration process seeks to combine assets that will perform differently in different scenarios so that the overall portfolio generates acceptable performance.  This process includes balancing the strength of cash flows from certain asset classes against various potential economic or market risks.

 

When considering a specific investment in any sector, Gundlach’s primary focus is on the predictability of the cash flow generated during an entire interest rate or credit cycle.  When volatility is low, he emphasizes securities he expects to generate the best overall return over a cycle rather than simply buying the highest yield at a given point in time.

 

In implementing the Opportunistic Income Strategy, Gundlach allocates investments to fixed income instruments and other investments with no limit on the duration of the portfolio.  He may invest in, without limitation, asset-backed securities; domestic and foreign corporate bonds, including high-yield bonds; municipal bonds; bonds or other obligations issued by  domestic or foreign  governments, including emerging markets countries; real estate investment trust (“REIT”) debt securities; and mortgage related securities.  Gundlach’s investments in mortgage related securities may at times represent a substantial portion (up to 100%) of the segment allocated to him when certain market conditions exist that Gundlach believes offer potentially attractive risk adjusted returns.  He may, to a limited extent, employ leverage within the Opportunistic Income Strategy, which is also being used for other accounts managed by DoubleLine.

 

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When investing in mortgage related securities, Gundlach may invest in obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government such as the Government National Mortgage Association, the Federal National  Mortgage Association and the Federal Home Loan Mortgage Corporation; collateralized mortgage obligations (“CMOs”) including real estate mortgage investment conduits (REMICS) issued by domestic or foreign private issuers that represent an interest in or are collateralized by mortgage related securities issued by agencies or instrumentalities of the U.S. Government; commercial mortgage backed securities (“CMBS”); obligations issued by private issuers that represent an interest in or are collateralized by whole mortgage loans or mortgage related securities without a government guarantee but typically with some form of private credit enhancement; “interest only” and “principal only” stripped mortgage securities; inverse floating rate securities; and debt or equity tranches of collateralized debt obligations collateralized by mortgage related securities. Gundlach compares opportunities in other sectors of the global fixed income market to opportunities available in the mortgage sector with the aim of attempting to construct a portfolio with the most attractive return potential given his risk management objectives.

 

Contrarian Opportunity Strategy

Steven Romick, CFA

Brian Selmo, CFA

Mark Landecker, CFA

First Pacific Advisors, LLC

11400 West Olympic Blvd, Suite 1200

Los Angeles, CA  90064

 

Steven Romick, Brian Selmo and Mark Landecker are the portfolio managers responsible for the contrarian opportunity strategy, which is the segment of the Alternative Strategies Fund’s assets managed by FPA (the “Contrarian Opportunity Strategy”).   Romick joined FPA in 1996 and is currently a Managing Partner of the firm.  He has been the portfolio manager of the FPA Crescent Fund since its inception in 1993 and manages separate accounts in FPA’s Contrarian Value style, including unregistered funds managed by FPA (commonly known as hedge funds).   Selmo joined FPA in 2008 and is the director of research for the FPA Crescent Fund in the Contrarian Value style . He is also responsible for the management of one of FPA’s unregistered funds . He was previously a founder and managing member of Eagle Lake Capital, LLC from 2006 to 2008. He was a portfolio manager at Coast Asset Management from 2003 to 2006, a senior analyst at Third Avenue Management from 2001 to 2003, and an analyst at Rothschild, Inc. from 2000 to 2001.    Landecker joined FPA in 2009 as a portfolio manager for the FPA Global Opportunity Fund and is also a research analyst for the Contrarian Value style . Prior to joining FPA, Landecker served as a portfolio manager at both Kinney Asset Management and Arrow Investments, Inc. He also has experience in corporate finance, consulting, and private funds .

 

It is anticipated that this segment will be managed, to the degree practical, with the intent to replicate elements of private funds and separate accounts also run by FPA.  The elements replicated could include investment strategies such as hedging, highly concentrated positions, illiquid and restricted securities, international investments, coupled with the potential for maintaining high levels of liquidity.  The manager expects to implement these strategies through investing opportunistically in a wide variety of securities as discussed below.

 

The Contrarian Opportunity Strategy leads to investments that offer absolute rather than relative value with an objective of strong risk-adjusted returns.  As absolute return investors, the FPA team seeks genuine bargains rather than relatively attractive securities.  The goal is to provide equity-like returns over longer periods ( i.e. , five to seven years) while protecting against the permanent loss of capital. Attention is directed toward those companies offering the best combination of such quality criteria as strong market share, good management, and high normalized return on capital.  A company purchased might not look inexpensive, considering current earnings and return on capital; however, its valuation may reflect such conditions as a weak economy, an increase in raw material costs, a management misstep, or any number of other temporary conditions. The FPA team believes that price drops caused by such developments can, and often do, provide buying opportunities.  There can be no assurance that the Fund will achieve its investment objective.

 

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The FPA team employs the broad mandate of the FPA contrarian strategy to invest across the capital structure, asset classes, market capitalization, industries and geographies using a wide variety of instruments. The FPA team invests in an opportunistic manner, based on its view of the world and the businesses/situations that it understands.  It looks for what is out of favor, taking into account the current landscape and how it might change over time, both organically and through exogenous events.  The FPA team emphasizes independent research and spends little time with Wall Street analysts because it prefers to focus its research on interactions with business operators and industry leaders.

 

The FPA team narrows the universe of potential investments by establishing five categories: Long Equity, Short Equity, Credit, Cash and Equivalents and a smaller “Other” category.

 

Long Equity:   The FPA team may invest in companies with solid balance sheets and unquestionable competitive strength and shareholder-centric management; companies of lesser quality but with strong long-term upside potential; companies with shorter term upside potential driven by identified catalysts that are expected to have a positive impact on the value of the underlying business such as balance sheet optimization, operational turnarounds or corporate actions; and companies whose disparate parts have greater aggregate value than the current stock price and may engage in intra-company arbitrage of such companies by either holding long positions in one share class of such a company and shorting another share class of the same company or longing a parent or holding company and shorting one or several of its underlying companies to create a stub equity position that is valued at a deep discount to intrinsic value.

 

Short Equity :   The FPA team will seek opportunities in deteriorating companies with declining business metrics that are not reflected in the stock price; companies with balance sheet issues such as overstated asset accounts that may result in operational cash flows that fall significantly short of net income; paired trades that involve shorting a company in the same industry as one of the long position the FPA team holds to serve as a partial hedge against industry specific risk; and intra-company arbitrage as discussed above.

 

Credit:    The FPA team will consider performing credits that have a yield to maturity reasonably in excess of U.S. Treasuries of comparable maturity and that the holder has a high likelihood of receiving principal and interest payments.  The FPA team will also consider the bonds of corporations that it believes have some chance but a low likelihood of needing to restructure their debt.  These bonds may have higher yields than those of performing credits.  The FPA team may also purchase distressed debt, which it defines as corporate debt that has either defaulted or which has a high likelihood of being restructured, either voluntarily or by default.

 

Other: Investments will typically include illiquid securities that the FPA team believes allow it to take advantage of situations that are not available in the public markets.  These could include private equity, debt and real estate investments. Investment in illiquid securities is typically limited to no more than 15% of the FPA team’s portfolio.

 

Cash and Equivalents: Investments in cash and cash equivalents are a residual of the FPA team’s investment process rather than a macro-driven rationale.  The FPA team believes that liquidity is an important risk management tool and also believes that it provides the ability to take advantage of future opportunities.

 

Once the FPA team decides which categories provide the best opportunities to achieve its long-range goal of equity-like returns with less than market risk, it then identifies specific investment opportunities within those categories.  The goal of gaining comfort with a given investment is based on determining what it needs to know in order to prove the correctness of the original thesis that drew its interest and triggered further research.  This research process is supported by reading current and historic SEC filings and conference call transcripts, reviewing pertinent periodicals, studying the competition, and establishing a valuation model. The FPA team works to gain a knowledge edge and an understanding of the business or industry that may not be universal. Such due diligence may take the form of conversations with ex-employees, vendors, suppliers, competitors and industry consultants.   As a result of the process, the FPA team invests only in positions that it believes offer a compelling economic risk/reward proposition on an absolute basis. If prospective investments do not meet that requirement, then the FPA team waits until it can purchase a security at a substantial discount to that company’s worth or intrinsic value.  The FPA team also factors a macro-economic view into its security analysis and portfolio construction, which may cause it to be over-weighted in certain asset classes or sectors at times while completely avoiding others.  There can be no assurance that the Fund will achieve its investment objective.

 

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The FPA team distinguishes between the risk of permanent loss of capital and volatility, and seeks to distinguish their strategy by using volatility to its advantage rather than its detriment. Instead of composing a portfolio designed to mimic the performance of a benchmark or index, the FPA team utilizes the deeply-held contrarian philosophy oriented toward pushing back on a rising market by reducing exposure (thus allowing cash to increase), and conversely, leaning into a falling market and spending that cash to opportunistically buy inexpensive securities.  The goal is to invest in securities that have what they believe to be advantageous upside/downside characteristics; that is, the FPA team seeks to make sure that it could potentially make a multiple of what it could potentially lose.

 

Absolute Return Fixed Income Strategy

Matt Eagan, CFA

Kevin Kearns

Todd Vandam, CFA

Loomis Sayles & Company, LP

One Financial Center

Boston, MA  02111

 

Matthew Eagan, Kevin Kearns and Todd Vandam are the portfolio managers responsible for the absolute return fixed income strategy, which is the segment of the Alternative Strategies Fund’s assets managed by Loomis Sayles & Company, LP (“Loomis”) (the “Absolute Return Fixed Income Strategy”).  Eagan joined Loomis in 1997 as a fixed income analyst and is currently Vice President and the lead portfolio manager of the Loomis Sayles Strategic Alpha Fund, as well as co-portfolio manager for the Loomis Sayles Bond Fund, the Loomis Sayles Strategic Income Fund and other fixed income funds managed by Loomis.   Prior to joining Loomis, he was a senior fixed income analyst at the Liberty Mutual Life Insurance Company and a senior credit analyst for BancBoston Financial Company.  Kearns joined Loomis in 2007 and is a vice president, portfolio manager and senior derivatives strategist in the absolute return and credit opportunity areas within the fixed income group. He co-manages credit and absolute return institutional portfolios, including the Loomis Sayles Credit Long Short Fund, the Loomis Sayles Strategic Alpha Fund and the Loomis Sayles Multi-Asset Real Return Fund. Vandam joined Loomis in 1994 and is a vice president of Loomis and co-portfolio manager of the Loomis Sayles Strategic Alpha Fund and US High Yield portfolios. He is also senior credit strategist for Loomis, where he works with the fixed income high yield and investment grade teams.

 

The Absolute Return Fixed Income Strategy has an absolute return investment objective, which means that it is not managed relative to an index and that it attempts to achieve positive total returns over a full market cycle with relatively low volatility. The Loomis team intends to pursue its objective by utilizing a flexible investment approach that allocates investments across a global range of investment opportunities related to credit, currencies and interest rates, while employing risk management strategies designed to mitigate downside risk.  There can be no assurance that the Fund will achieve its investment objective.

 

The Loomis team may invest up to 75% of the total assets of the segment allocated to it in below investment-grade fixed income securities (also known as “junk bonds”) and derivatives that have returns related to the returns on below investment-grade fixed income securities. Under normal market conditions, the Loomis team also may invest up to 75% of the total assets of the segment allocated to it in investments denominated in non-U.S. currencies and related derivatives, including up to 50% in investments denominated in emerging market currencies and related derivatives. Under normal conditions, the Loomis team may invest up to 20% of the total assets of the segment allocated to it in equity-related securities and derivatives. There is no limit on the amount of preferred securities. The Loomis team expects that exposure to these asset classes will often be obtained substantially through the use of derivative instruments. Currency positions that are intended to hedge the Loomis team’s non-U.S. currency exposure ( i.e. , currency positions that are not made for investment purposes) will offset positions in the same currency that are made for investment purposes when calculating the limitation on investments in non-U.S. and emerging market currency investments because the Loomis team believes that hedging a currency position is likely to negate some or all of the currency risk associated with the original currency position. Restrictions will apply at the time of purchase.

 

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The Loomis team’s investment process employs both top-down (macro themes) and bottom-up (security selection) components and uses the resources of the entire Loomis Sayles infrastructure.  The Loomis team identifies key macro themes over a 3- and 12-month horizon and assesses top-down risk/return opportunities across the interest rate curve, credit markets and currencies.  The Loomis team draws on the strength and depth of the entire Loomis research team as it evaluates these themes.  Fourteen Macro and Market Sector teams support the Loomis team by sharing their sector’s risk/return characteristics and uncovering specific credits that they believe may offer the best return potential.

 

In selecting investments for the Absolute Return Fixed Income Strategy, the Loomis team develops long-term portfolio themes driven by macro-economic indicators. These include secular global economic trends, demographic trends and labor supply, analysis of global capital flows and assessments of geopolitical factors. The Loomis team then develops shorter-term portfolio strategies based on factors including, but not limited to, economic, credit and Federal Reserve cycles, top-down sector valuations and bottom-up security valuations. The Loomis team employs active risk management, with a focus on credit, interest rate and currency risks. Additionally, the Loomis team will use risk management tools in constructing and optimizing the portfolio and seek to manage risk on an ongoing basis.  The Loomis team expects to actively evaluate each investment idea based upon its return potential, its level of risk and its fit within the team’s overall macro strategy when deciding whether to buy or sell investments, with the goal of continually optimizing the portfolio.

 

The Loomis team seeks to gain a performance edge by integrating the global macro themes with Loomis’ best bottom-up security selection, risk analysis and trading capabilities to create the best expected risk/return portfolio.   The Loomis team will pursue its investment goal by obtaining long investment exposures through direct cash investments and derivatives and short investment exposures substantially through derivatives. A “long” investment exposure is an investment that rises in value with a rise in the value of an asset, asset class or index and declines in value with a decline in the value of that asset, asset class or index. A “short” investment exposure is an investment that rises in value with a decline in the value of an asset, asset class or index and declines in value with a rise in the value of that asset, asset class or index. The Loomis team’s long and short investment exposures may, at times, each reach 150% of the assets invested in this segment of the Alternative Strategies Fund (excluding instruments primarily used for duration management and short-term investments (such as cash and money market instruments)), although these exposures may be higher or lower at any given time.

 

Investments:   In connection with its principal investment strategies, the Loomis team may invest in a broad range of U.S. and non-U.S. fixed income securities, including, but not limited to, corporate bonds, municipal securities, U.S. and non-U.S. government securities (including their agencies, instrumentalities and sponsored entities), securities of supranational entities, emerging market securities, commercial and residential mortgage-backed securities, CMOs, other mortgage-related securities (such as adjustable rate mortgage securities), asset backed securities, bank loans, convertible bonds, Rule 144A securities, REITs, zero-coupon securities, step coupon securities, pay-in-kind securities, inflation-linked bonds, variable and floating rate securities, private placements and commercial paper and preferred securities. Additionally, the Absolute Return Fixed Income Strategy involves limited investments in equities and exchange–traded funds (“ETFs”).

 

Non-U.S. Currency Investments: Under normal market conditions, the Loomis team may engage in a broad range of transactions involving non-U.S. and emerging market currencies, including, but not limited to, purchasing and selling forward currency exchange contracts in non-U.S. or emerging market currencies, investing in non-U.S. currency futures contracts, investing in options on non-U.S. currencies and non-U.S. currency futures, investing in cross currency instruments (such as swaps), investing directly in non-U.S. currencies and investing in securities denominated in non-U.S. currencies. The Loomis team may also engage in non-U.S. currency transactions for investment or for hedging purposes.

 

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Derivative Investments: For investment and hedging purposes, the Loomis team may invest substantially in a broad range of derivatives instruments, and sometimes the majority of its investment returns will derive from its derivative investments.  These derivative instruments include, but are not limited to, futures contracts (such as treasury futures and index futures), forward contracts, options (such as options on futures contracts, options on securities, interest rate/bond options, currency options, options on swaps and over-the-counter (“OTC”) options), warrants (such as non-U.S. currency warrants) and swap transactions (such as interest rate swaps, total return swaps and index swaps).  In addition, the Loomis team may invest in credit derivative products that may be used to manage default risk and credit exposure.  Examples of such products include, but are not limited to, credit default swap index products (such as LCDX, CMBX and ABX index products), single name credit default swaps, loan credit default swaps and asset-backed credit default swaps.  Derivative instruments (such as those listed above) can be used to acquire or to transfer the risk and returns of a security without buying or selling the security. The Loomis team’s strategy may be highly dependent on the use of derivatives, and to the extent that they become unavailable or unattractive the Loomis team may be unable to fully implement its investment strategy.

 

The Loomis team is not limited as to the duration of its portfolio, which will change over time but is likely to be within a range of -5 years to +10 years.

 

Arbitrage Strategy

John Orrico, CFA

Todd Munn

Roger Foltynowicz

Gregg Loprete

Water Island Capital LLC

41 Madison Avenue, 42 nd Floor

New York, NY  10010

 

John Orrico, Todd Munn, Roger Foltynowicz and Gregg Loprete are the portfolio managers responsible for the arbitrage strategy, which is the segment of the Alternative Strategies Fund’s assets managed by Water Island Capital, LLC (“Water Island”) (the “Arbitrage Strategy”).  Orrico founded Water Island in 2000 and serves as its President.   He is the co-portfolio manager of The Arbitrage Fund and The Arbitrage Event-Driven Fund.  Munn joined Water Island in 2003 and is currently a portfolio manager at the firm.  He has worked as a senior analyst and trader on both U.S. and foreign arbitrage portfolios as well as special situations since joining the firm.  Foltynowicz joined Water Island in 2003 and is a portfolio manager at the firm. He is responsible for analyzing arbitrage situations and special situations for both the Arbitrage and Arbitrage Event Drive Funds.  Loprete joined Water Island in 2009 and serves as a portfolio manager on The Arbitrage Event-Driven Fund. He is responsible for management of the firm’s convertible and fixed income investments, while also providing insight into and support for ongoing Arbitrage Fund research from the perspective of the credit markets.

 

Investment Strategy:   The Water Island team seeks to generate long-term returns of at least mid-single-digits with low correlation to the equity and bond markets. This objective is pursued by investing in equity and debt securities of companies that are impacted by corporate events such as mergers, acquisitions, restructurings, refinancings, recapitalizations, reorganizations or other special situations.  More specifically, the Water Island team follows any one of three arbitrage strategies: merger arbitrage, convertible arbitrage or capital structure arbitrage and may invest in both U.S. and non-U.S. securities.  The Water Island team intends to focus the portfolio in only their highest conviction risk-adjusted ideas across these strategies, and will, to a limited extent, employ leverage within the Arbitrage Strategy.  There can be no assurance that the Fund will achieve its investment objective.

 

Merger Arbitrage: Merger arbitrage is a highly specialized investment approach designed to profit from the successful completion of mergers, takeovers, tender offers, leveraged buyouts, spin offs, liquidations and other corporate reorganizations. When a merger or acquisition deal is announced, the target’s stock price typically appreciates because the acquirer typically pays a premium relative to the current market price. Until the deal closes, however, the target’s stock price generally trades at a discount to the deal price.  This discount is called “the spread.” The spread typically exists because investors demand compensation for the risk that the deal may fail to close and for the time value of money for the time it takes the deal to close.  The most common arbitrage activity, and the approach the Water Island team generally will use, involves purchasing the shares of an announced acquisition target company at a discount to their expected value upon completion of the acquisition.  The Water Island team may engage in selling securities short when the terms of a proposed acquisition call for the exchange of common stock and/or other securities. In such a case, the common stock of the company to be acquired may be purchased and, at approximately the same time, an equivalent amount of the acquiring company’s common stock and/or other securities may be sold short. The Water Island team may also execute the merger arbitrage strategy by using a company’s debt.

 

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Fund Management and Investment Styles

Litman Gregory Masters Alternative Strategies Fund

 

Convertible Arbitrage: Convertible arbitrage is a specialized strategy that seeks to profit from mispricing between a firm ’ s convertible securities and its underlying equity. The most common convertible arbitrage approach, and the strategy the Water Island team generally will use, matches a long position in the convertible security with a short position in the underlying common stock. The Water Island team seeks to purchase convertible securities at discounts to their expected future values and sell short shares of the underlying common stock in order to mitigate equity market movements. As stock prices rise and the convertible security becomes more equity sensitive, the Water Island team will sell short additional common shares in order to maintain the relationship between the convertible and the underlying common stock. As stock prices fall, the Water Island team will typically buy back a portion of shares it had sold short. Positions are typically designed to earn income from coupon or dividend payments and from the short sale of common stock.

 

Capital Structure Arbitrage: Capital structure arbitrage seeks to profit from relative pricing discrepancies between related debt and/or equity securities. For example, the Water Island team may purchase a senior secured security of an issuer and sell short an unsecured security of the same issuer. In this example the trade would be profitable if credit quality spreads widened or if the issuer went bankrupt and the recovery rate for the senior debt was higher. Another example might involve the manager purchasing one class of common stock while selling short a different class of common stock of the same issuer. It is expected that, overtime, the relative mispricing of the securities will disappear, at which point the position will be liquidated.

 

Among these three arbitrage strategies, the primary focus of the Arbitrage Strategy is expected to be merger arbitrage.  The Water Island team will typically be long the target’s shares and short the acquirer’s stock (to hedge the market risk where the acquirer is using stock and not cash to fund the acquisition).  The Water Island team will also use options in an attempt to hedge deal-specific and market risks, especially in the case of cash-only deals where the team will only long the target’s stock.

 

To answer the fundamental questions,  the Water Island team reviews SEC filings, talk to sell-side and buy-side analysts, listen to company conference calls where management explains the rationale behind the merger, talk to key shareholders to assess how they will vote on the deal, talk to competitors, suppliers, and customers to assess, for example, overlaps in products and services that might not pass regulatory scrutiny, and, in some situations, talk to lawyers to get a legal opinion, especially if the deal involves regulators in multiple jurisdictions. The Water Island team builds pro-forma balance-sheet, income, and cash-slow statements, typically looking out 12 months, to see where the synergies of the combined entity may lie.

 

A key area of emphasis for the Water Island team is assessing the downside risk associated with deal failure.  Either a decrease in the share price of the target or an increase in the share price of the acquirer would have negative implications, so the Water Island team performs valuation analysis to assess downside from a deal break. This analysis involves looking at how the companies have traded relative to their own history and peers. There are other considerations as well, including whether or not the target’s share price prior to the deal announcement had an embedded “acquisition premium,” which may lead the team to adjust their downside risk assessment.

 

The Water Island team will have exposure to foreign deals on a limited basis because deals outside of the U.S. often involve additional complexities and risks, including different laws and regulations than the U.S., along with currency risks.  Given a similar risk/reward in a foreign deal and a U.S. deal, the Water Island team will generally lean toward the latter.

 

The SAI provides additional information about each sub-advisor’s method of compensation for its portfolio managers, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds.

 

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Shareholder Services

How to Buy Shares & Choose a Share Class

 

Shareholder Services

 

Each Fund is a no-load fund, which means that you pay no sales commissions of any kind.  Each business day that the New York Stock Exchange (“NYSE”) is open, each Fund calculates its share price, which is also called the Fund’s NAV per share.  Shares are purchased at the next share price calculated after your investment is received and accepted.  Share price is calculated as of the close of the NYSE, normally 4:00 p.m. Eastern Time.

 

Eligibility

The Funds are not registered for sale outside of the United States and are available for purchase only by residents of the United States of America, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands.

 

Description of Classes

The Trust has adopted a multiple class plan.  Prior to April 30, 2009, the shares of the Funds had no specific class designation.  As of that date, all of the then-outstanding shares were redesignated as Institutional Class shares.  The Value Fund, Smaller Companies Fund and Focused Opportunities Fund each offer a single class of shares – Institutional Class shares – in this Prospectus.  The Equity Fund and International Fund each offer two classes of shares – Institutional Class shares and Investor Class shares – in this Prospectus.  The two different classes of shares represent investments in the same portfolio of securities, but the classes are subject to different expenses and may have different share prices as outlined below:

 

●

Institutional Class shares are not charged a Rule 12b-1 distribution and servicing fee, and are sold with no sales load.

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Investor Class shares are charged a 0.25% Rule 12b-1 distribution and servicing fee, and are sold with no sales load.

 

How to Buy Shares  

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Step 1

 

The first step is to determine the type of account you wish to open.  The following types of accounts are available to investors:

 

Individual or Joint Accounts

For your general investment needs:

Individual accounts are owned by one person.  Joint accounts can have two or more owners (tenants).

 

Retirement Accounts

Retirement accounts allow individuals to shelter investment income and capital gains from current taxes.  In addition, contributions to these accounts may be tax deductible.  Retirement accounts (such as individual retirement accounts (“IRAs”), Rollover IRAs, Simplified Employee Pension Plans (“SEP IRAs”) and Roth IRAs) require specific applications and typically have lower minimums.

 

Other retirement plans, such as Keogh or corporate profit-sharing plans, 403(b) plans and 401(k) plans, may invest in the Funds.  All of these accounts need to be established by the plan’s trustee.  The Funds do not offer versions of these plans.

 

If you are investing through a tax-sheltered retirement plan, such as an IRA, for the first time, you will need an IRA Application and Adoption Agreement.  Retirement investing also involves separate investment procedures.

 

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Shareholder Services

How to Buy Shares & Choose a Share Class

 

Gifts or Transfers to Minors (UGMA, UTMA)

To invest for a child’s education or other future needs:

These custodial accounts provide a way to give money to a child and obtain tax benefits. An individual can give up to $12,000 per year per child without paying a federal gift tax. Depending on state laws, you can set up a custodial account under the Uniform Gifts to Minors Act (“UGMA”) or the Uniform Transfers to Minors Act (“UTMA”).

 

Trust

For money being invested by a trust:

The trust must be established before an account can be opened.  The Funds may require additional documentation regarding the formation of the trust prior to establishing an account.

 

Business or Organization

For investment needs of corporations, associations, partnerships or other groups:

The Funds do not require a special application.  However, the Funds may require additional information prior to establishing an account.

 

Step 2

 

How to Choose a Share Class

 

Before you buy shares in any Fund, you need to decide which class of shares best suits your needs.   The Value Fund, Smaller Companies Fund and Focused Opportunities Fund each offer a single class of shares – Institutional Class shares – in this Prospectus.  The Equity Fund and International Fund each offer two classes of shares – Institutional Class shares and Investor Class shares – in this Prospectus.   Each class is essentially identical in legal rights and invests in the same portfolio of securities.  The difference in the fee structures between the classes for a Fund is primarily the result of their separate arrangements for shareholder and distribution services and is not the result of any difference in the amounts charged by Litman Gregory for investment advisory services.  Accordingly, the investment advisory expenses do not vary by class for a Fund.

 

Investor Class Shares

Investor Class shares may be appropriate if you intend to retain the services of a financial adviser, mutual fund supermarket, retirement plan or other financial intermediary.  Investor Class shares cannot be purchased directly from the Funds that offer such class.  Investor Class shares have adopted plans of distribution, or “12b-1 Plans,” which provide revenue that may be used to pay for the services of financial planners, mutual fund supermarkets, and other distribution activities, although Investor Class shares may not be available for purchase through some financial intermediaries.  Investor Class shares pay up to 0.25% of their average annual net assets for these services and activities.  You must invest a minimum of $1,000 in a single Fund to open an account with Investor Class shares.  You must invest at least $1,000 in each Fund that offers Investor Class shares to open Investor Class shares accounts in more than one Fund.

 

Institutional Class Shares

Institutional Class shares may be appropriate if you intend to make your own investment decisions and will invest directly with the Funds.  Institutional Class shares do not have 12b-1 Plans, and thus have a lower expense ratio, which will result in higher investment returns over time.  You must invest a minimum of $10,000 in a single Fund to open an account in Institutional Class shares.  You must invest at least $10,000 in each Fund to open Institutional Class shares accounts in more than one Litman Gregory Masters Fund.  Institutional Class shares may not be available for purchase through some financial intermediaries.

 

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Step 3

 

The third step involves determining the amount of your investment.  The Funds have established the following minimum investment levels for your initial investment, additional investments and ongoing account balances for Institutional Class shares (all Funds) and Investor Class shares (Equity Fund, International Fund and Alternative Strategies Fund only):

 

Equity Fund, International Fund, Value Fund, Smaller Companies Fund and Focused Opportunities Fund
Type of Account		Minimum Initial Investment		Minimum Additional Investment		Minimum Account Balance
Regular
- Institutional Class		$10,000		$250		$2,500
- Investor Class		$1,000		$100		$250
Retirement Account
- Institutional Class		$1,000		$100		$250
- Investor Class		$500		$100		$250
Automatic Investment Account
- Institutional Class		$2,500		$250		$2,500
- Investor Class		n/a		n/a		n/a
Alternative Strategies Fund
Regular
- Institutional Class		$100,000		$250		$2,500
- Investor Class		$1,000		$100		$250
Retirement Account
- Institutional Class		$5,000		$100		$250
- Investor Class		$500		$100		$250
Automatic Investment Account
- Institutional Class		$2,500		$250		$2,500
- Investor Class		$2,500		$250		$2,500

 

Litman Gregory may waive the minimum investment from time to time.

 

Step 4

 

The fourth step involves completing your application to open your account.  All shareholders must complete and sign an application in order to establish their account. The type of application depends on the type of account you chose to open.  Regular investment accounts, including individual, joint tenant, UGMA, UTMA, business, or trust accounts, must complete the Funds’ standard account application. Shareholders who wish to establish retirement accounts must complete the IRA application and adoption agreement.  Shareholders who wish to transfer retirement holdings from another custodian must also complete the IRA Transfer of Assets Form.  Be sure to complete the section of the account application indicating the amount you are investing in each Fund.

 

Step 5

 

The final step in opening your account is to mail the completed account application, along with your check payable to the Litman Gregory Masters Funds.   The Funds do not accept third-party checks, money orders, cashiers checks, starter checks, official bank checks, credit cards, cash or checks or wires from foreign financial institutions. If you send any of these instruments, your purchase order will be rejected, and your investment in the Funds will be delayed.

 

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The mailing addresses for the Funds are:

 

For Regular Delivery:	For Overnight Delivery:
Litman Gregory Funds Trust c/o Boston Financial Data Services P.O. Box 219922 Kansas City, MO 64121-9922	Litman Gregory Funds Trust c/o Boston Financial Data Services 330 West Ninth Street Kansas City, MO 64105

 

In compliance with the USA PATRIOT Act of 2001, please note that the Funds’ transfer agent will verify certain information on your account application as part of the Funds’ Anti-Money Laundering Compliance Program.  Until such verification is made, the Funds may temporarily limit share purchases.  As requested on the application, you should supply your full name, date of birth, social security number and permanent street address.  Mailing addresses containing only a P.O. Box will not be accepted.  Your information will be handled by us as discussed in our privacy notice.  Please contact the Funds’ transfer agent at 1-800-960-0188 if you need additional assistance when completing your application.

 

If you wish to open or add to your account by wire, please call 1-800-960-0188 for instructions.

 

After your account is open, you may increase the amount of your investment by:

●

Mailing a check to the above addresses along with a letter or the form at the bottom of your account statement.  Be sure to put your account number on your check and in your letter, and please refer to Step 4 above for a list of instruments that will not be accepted for investment.

 

●

Wiring money from your bank. Call 1-800-960-0188 for instructions.

 

●

Making automatic investments if you signed up for the Automatic Investment Plan when you opened your account.

 

How to Sell Shares  

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You can arrange to take money out of your account at any time by selling (redeeming) some or all of your shares.  Your shares will be sold at the next NAV per share (share price) calculated after your order is received.

 

To sell shares in a non-retirement account, you may use any of the methods described in this section.  To sell shares in a retirement account, your request must be made in writing.

 

Certain requests must include a medallion guarantee.   This is designed to protect you and each Fund from fraud.  Your request must be made in writing and include a medallion guarantee if any of the following situations apply:

 

●	You wish to redeem more than $25,000 worth of shares.

 

●	Your account registration information has changed within the past 30 days.

 

●	The redemption check is being mailed to a different address from the one on your account (address of record).

 

●	The check is being made payable to someone other than the account owner.

 

Please note that there may be other special cases in which a Medallion Guarantee may be required.  Each signature must be guaranteed by an eligible signature guarantor, which must participate in the Securities Transfer Agents Medallion Program (STAMP), the leading signature guarantee program recognized by all major financial service associations throughout the United States and Canada.   You should be able to obtain a medallion guarantee from a bank, broker-dealer, credit union (if authorized under state law), securities exchange or association, clearing agency or savings association.  A notary public cannot provide a medallion guarantee.

 

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Shareholder Services

Shareholder and Account Policies

 

Selling Shares by Letter

Write and sign a “letter of instruction” with:

 

Your Name

Your Fund’s account number

The dollar amount or number of shares to be redeemed

 

Please note the following special requirements for redeeming shares for different types of accounts:

 

●

Individual, Joint Tenant, Sole Proprietorship, UGMA or UTMA Accounts: The letter of instruction must be signed by all persons required to sign for transactions, exactly as their names appear on the account.

 

●

Retirement Account: The account owner should complete a Retirement Distribution Form. Call 1-800-960-0188 to request one.

 

●

Trust Account: The trustee must sign the letter indicating capacity as trustee.  If a trustee’s name is not in the account registration, provide a copy of the trust document certified within the past 60 days.

 

●

Business or Organization: At least one person authorized by corporate resolutions to act on the account must sign the letter.  Include a corporate resolution (certified within the past 6 months) with corporate seal or medallion guarantee.

 

●

Executor, Administrator, Conservator or Guardian: Call 1-800-960-0188 for instructions.

 

Unless otherwise instructed, the Funds will send a check to the address of record.

 

Mail your letter to:

 

	For Regular Delivery:	For Overnight Delivery:
	Litman Gregory Funds Trust c/o Boston Financial Data Services P.O. Box 219922 Kansas City, MO 64121-9922	Litman Gregory Funds Trust c/o Boston Financial Data Services 330 West Ninth Street Kansas City, MO 64105

 

Selling Shares by Telephone

You must select this option on your account application if you wish to use telephone redemption; it is not automatically available.   If you selected the telephone redemption option on your account application, you can sell shares simply by calling 1-800-960-0188.  The amount you wish to redeem (up to $25,000) will be wired to your bank account (address of record).   This option is not available for retirement accounts.

 

Selling Shares by Wire

You must sign up for the wire feature before using it.  To verify that it is in place, please call 1-800-960-0188.  The minimum wire amount is $5,000.  Your wire redemption request must be received by the Funds before 4:00 p.m., Eastern time for money to be wired the next business day.   This option is not available for retirement accounts.

 

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Shareholder and Account Policies

 

Shareholder and Account Policies  

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Statements, Reports, and Inquiries

Statements and reports that each Fund sends you include the following:

 

●

Confirmation statements (after every transaction that affects your account balance or your account registration)

 

●

Financial reports (every six months)

 

●

Account statements (every six months)

 

Boston Financial Data Services, the Funds’ transfer agent (the “Transfer Agent”), is located at 330 West Ninth Street, Kansas City, Missouri, 64105.  You may call the Transfer Agent at 1-800-960-0188 if you have questions about your account.

 

Quasar Distributors, LLC, the Funds’ principal underwriter, is located at 615 East Michigan Street, Milwaukee, Wisconsin 53202.

 

Exchange Privilege

Shareholders may exchange shares among the Equity Fund, the International Fund, the Value Fund, the Smaller Companies Fund, the Focused Opportunities Fund and the Alternative Strategies Fund by mailing or delivering written instructions to the Transfer Agent.  Shares may only be exchanged for shares of the same share class.  Please specify the names and class of the applicable Funds, the number of shares or dollar amount to be exchanged, and your name and account number.  You may not utilize an exchange to establish an account into a closed fund.

 

Exchanging Shares by Telephone

You must select this option on your account application if you wish to use telephone exchange; it is not automatically available.   If you selected the telephone exchange option on your account application, you may also exchange shares (maximum $25,000 worth) by calling the Transfer Agent at 1-800-960-0188 between 9:00 a.m. and 4:00 p.m. Eastern time on a day that the NYSE is open for normal trading.  A Fund will suspend, without notice, the exchange privilege on any accounts it reasonably believes are being used by “market timers.”

 

Automatic Investment/Withdrawal Plans

One easy way to pursue your financial goals is to invest money regularly.  The Funds offer a convenient service that lets you transfer money into your Fund account automatically.  Although Automatic Investment Plans do not guarantee a profit and will not protect you against loss in a declining market, they can be an excellent way to invest for retirement, a home, educational expenses and other long-term financial goals.   The investment will automatically be processed through the Automated Clearing House (ACH) system.  Shares will be issued at the net asset value per share after the Fund accepts your order, which will typically be the day after you provide proper instructions to the Transfer Agent (assuming you do so prior to the close of the NYSE).

 

A systematic withdrawal plan permits you to receive a fixed sum on a monthly, quarterly or annual basis from accounts with a value of $5,000 or more.  Payments may be sent electronically to your bank of record or to you in check form.  Certain restrictions apply for retirement accounts.  Call 1-800-960-0188 for more information.

 

Share Price

Each Fund is open for business each day the NYSE is open.  Each Fund calculates its NAV per share as of the close of business of the NYSE, normally 4:00 p.m., Eastern time.

 

Each Fund’s NAV per share is the value of a single share.  The NAV per share is computed by adding the value of each Fund’s investments, cash and other assets, subtracting its liabilities and then dividing the result by the number of shares outstanding.  The NAV per share is also the redemption price (price to sell one share).

 

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Shareholder Services

Shareholder and Account Policies

 

Each Fund’s assets are valued primarily on the basis of market quotations.  Securities and other assets for which reliable market quotations are not readily available will be valued at their fair value as determined under the guidelines established by, and under the general supervision and responsibility of, the Board.  Fair value pricing is intended to be used as necessary in order to accurately value the Funds’ portfolio securities and their respective net asset values.  The Funds’ SAI further describes the Funds’ valuation procedures.  Since securities that are primarily listed on foreign exchanges may trade on weekends or other days when a Fund does not price its shares, the value of a Fund’s securities (and thereby its NAV) may change on days when shareholders will not be able to purchase or redeem the Fund’s shares.

 

General Purchase Information

●

All of your purchases must be made in U.S. dollars, and checks must be drawn on U.S. banks.

 

●

The Funds do not accept cash, money orders, cashiers checks, starter checks, official bank checks, credit cards or third-party checks.  If you send any of these instruments, your purchase order will be rejected, and your investment in the Funds will be delayed.

 

●

If your check does not clear, your purchase will be canceled and you will be liable for any losses or fees the Funds or the Transfer Agent incur.

 

●

Your ability to make automatic investments may be immediately terminated if any item is unpaid by your financial institution.

 

●

Each Fund reserves the right to reject any purchase order.  For example, a purchase order may be refused if, in Litman Gregory’s opinion, it is so large that it would disrupt management of the Funds.  Orders will also be rejected from persons believed by the Fund to be “market timers.”

 

12b-1 Plan

The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 (the “Distribution Plan”) under the Investment Company Act of 1940, as amended, on behalf of the Equity Fund, International Fund and Alternative Strategies Fund.  Under the Distribution Plan, the Equity Fund, International Fund and Alternative Strategies Fund are authorized to pay the Funds’ distributor a fee for the sale and distribution of the Investor Class shares of the Equity Fund, International Fund and Alternative Strategies Fund shares and services the Funds’ distributor provides to shareholders.  The maximum amount of the fee authorized under the Distribution Plan is 0.25% of average daily net assets attributable to Investor Class shares for the Equity Fund, International Fund and Alternative Strategies Fund.   Because this fee is paid out of each of the Equity Fund’s International Fund’s assets on an on-going basis, over time these fees will increase the cost of your investment in the Equity Fund, International Fund and Alternative Strategies Fund shares and may cost you more than paying other types of sales charges.  Institutional Class shares are not subject to the Distribution Plan.

 

Buying and Selling Shares through Financial Intermediaries

You may buy and sell shares of the Funds through certain financial intermediaries (and their agents) that have made arrangements with the Funds to sell their shares.  When you place your order with such a financial intermediary or its authorized agent, your order is treated as if you had placed it directly with the Funds’ Transfer Agent, and you will pay or receive the next price calculated by the Funds.  The financial intermediary (or agent) may hold your shares in an omnibus account in the financial intermediary’s (or agent’s) name, and the financial intermediary (or agent) maintains your individual ownership records. The Funds may pay the financial intermediary (or agent) a fee for performing this account maintenance service.  The financial intermediary (or agent) may charge you a fee for handling your order.  The financial intermediary (or agent) is responsible for processing your order correctly and promptly, keeping you advised regarding the status of your individual account, confirming your transactions and ensuring that you receive copies of the Funds’ Prospectus.

 

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Shareholder Services

Shareholder and Account Policies

 

Redemptions

●

Normally, redemption proceeds will be mailed to you on the next business day, but if making immediate payment could adversely affect the Funds, it may take up to seven days to pay you.  The Funds may also delay payment if there have been changes in your mailing address or account registration within 30 days of the date of the redemption.

 

●

Redemptions may be suspended or payment dates postponed when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted or as permitted by the SEC.

 

●

If the amount you are redeeming from a Fund exceeds 1% of the Fund’s net assets or $250,000 during any 90-day period, each Fund reserves the right to honor your redemption request by distributing to you readily marketable securities instead of cash.  You may incur brokerage and other costs in converting to cash any securities distributed.

 

Fee Imposed on Certain Redemptions of Shares .

Each Fund imposes a short-term redemption fee on redemptions or exchange of shares held for less than 180 days.  The fee is 2% of the redemption value and is deducted from the redemption proceeds.

 

The fee is retained by a Fund for the benefit of its long-term shareholders.  It is applied to discourage short-term trading of the Fund by market timers or other investors who do not share the long-term strategy of the Fund, and to reduce the expenses of long-term shareholders for the trading costs and other costs associated with short-term investment in the Fund.

 

The “first in, first out” (FIFO) method is used to determine the holding period; this means that if you bought shares on different days, the shares purchased first will be redeemed first for the purpose of determining whether the fee applies.

 

Redemption fees will not be charged on shares acquired by reinvestment of dividends or distributions from a Fund, on shares held in an account of a qualified retirement plan, such as a 401(k) plan or IRA account, or on shares held in an asset allocation plan administered by a financial intermediary, provided that such asset allocation plan has been pre-approved by the Funds for such waiver.

 

Policy Regarding Excessive Trading and Market Timing

The Board has adopted policies and procedures with respect to frequent purchases and redemptions of Fund shares by Fund shareholders.  These policies are summarized below and are implemented in part, through the Funds’ redemption fee described above.

 

Purchases and exchanges of shares of the Funds should be made for long-term investment purposes only.  The Funds, as a matter of policy, actively discourage market timing and excessive short term trading and may block accounts or take other action to prevent this type of activity.

 

Investors seeking to engage in excessive trading or market timing practices may deploy a variety of strategies to avoid detection and, despite the efforts of the Funds to prevent such trading, there is no guarantee that the Funds or their agents will be able to identify such investors or curtail their practices.  The ability of the Funds and their agents to detect and curtail excessive trading or short term trading practices may also be limited by operational systems and technological limitations.  In addition, the Funds receive purchase, exchange and redemption orders through financial intermediaries and cannot always know or reasonably detect excessive trading that may be facilitated by these intermediaries or by the use of omnibus account arrangements.  Omnibus accounts are common forms of holding Fund shares.  Entities utilizing such omnibus account arrangements may not identify customers’ trading activity in shares of a Fund on an individual basis.  Consequently, the Funds may not be able to detect frequent or excessive trading in Fund shares attributable to a particular investor who effects purchase and/or exchange activity in Fund shares through a broker, dealer or other financial intermediary acting in an omnibus capacity.  Also, there may be multiple tiers of these entities, each utilizing an omnibus account arrangement, which may further compound the difficulty to the Funds of detecting excessive or short duration trading activity in Fund shares.  In seeking to prevent disruptive trading practices in the Funds, the Funds and their agents consider the information actually available to them at the time.

 

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Shareholder and Account Policies

 

Each Fund reserves the right in its discretion to reject any purchase, in whole or in part (including, without limitation, purchases by persons whose trading activity in Fund shares Litman Gregory believes could be harmful to a Fund).  The Funds may decide to restrict purchase and sale activity in its shares based on various factors, including whether frequent purchase and sale activity will disrupt portfolio management strategies and adversely affect Fund performance.

 

Frequent purchases and redemptions of a Fund’s shares may present certain risks for the Fund and its shareholders. These risks may include, among other things, dilution in the value of Fund shares held by long-term shareholders, interference with the efficient management of the Fund’s portfolios and increased brokerage and administrative costs.  A Fund may have difficulty implementing long-term investment strategies if it is unable to anticipate what portion of its assets it should retain in cash to provide liquidity to its shareholders.  The Funds may, and the International Fund will, invest in non-U.S. securities; accordingly, there is an additional risk of undetected frequent trading in Fund shares by investors who attempt to engage in time zone arbitrage.  There can be no assurance that the Funds or Litman Gregory will identify all frequent purchase and sale activity affecting a Fund.

 

Each Fund May Close Small Accounts.   Due to the relatively high cost of maintaining smaller accounts, the shares in your account (unless it is a retirement plan or custodial account) may be redeemed by a Fund if, due to redemptions you have made, the total value of your account is reduced to less than $2,500 [unless you invest in Investor Class shares only, in which case less than $250].  If a Fund decides to make such an involuntary redemption, you will first be notified that the value of your account is less than $2,500 [or $250, as applicable], and you will be allowed 30 days to make an additional investment to bring the value of your account to at least $2,500 [or $250, as applicable,] before a Fund takes any action.

 

Unclaimed Property.   Your mutual fund account may be transferred to your state of residence if no activity occurs within your account during the “inactivity period” specified in your state’s abandoned property laws.

 

Dividends, Capital Gains and Taxes

 

The Funds generally distribute substantially all of their net income and capital gains, if any, to shareholders each year.  Normally, dividends and capital gains are distributed in November or December.

 

Distribution Options

When you open an account, specify on your application how you want to receive your distributions.  If the option you prefer is not listed on the application, call 1-800-960-0188 for instructions.  The Funds offer three options:

 

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Reinvestment Option . Your dividend and capital gains distributions will be reinvested automatically in additional shares of the Funds.  If you do not indicate a choice on your application, you will be assigned this option.

 

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Income-Earned Option . Your capital gains distributions will be reinvested automatically, but you will be sent a check for each dividend distribution.

 

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Cash Option . You will be sent a check for your dividend and capital gains distributions ($10 minimum check amount).  The Funds will automatically reinvest all distributions under $10 in additional shares of the Funds, even if you have elected the cash option.  If the U.S. Postal Service cannot deliver your check or if your check remains uncashed for six months, the Fund reserves the right to reinvest the distribution check in your account at the Fund’s then current net asset value and to reinvest all subsequent distributions.

 

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Shareholder Services

Dividends, Capital Gains and Taxes

 

For retirement accounts, all distributions are automatically reinvested.  When you are over 59½ years old, you can receive distributions in cash.

 

When a Fund deducts a distribution from its NAV, the reinvestment price is the Fund’s NAV per share at the close of business that day.  Cash distribution checks will be mailed within seven days.

 

Understanding Distributions

As a Fund shareholder, you are entitled to your share of the Fund’s net income and gains on its investments.  The Funds pass their earnings along to investors as distributions.  Each Fund earns dividends from stocks and interest from short-term investments.  These are passed along as dividend distributions.  Each Fund realizes capital gains whenever it sells securities for a higher price than it paid for them.  These are passed along as capital gains distributions.

 

Taxes

As with any investment, you should consider how your investment in each Fund will be taxed.  If your account is not a tax-deferred retirement account, you should be aware of these tax implications.

 

Taxes on Distributions . Distributions are subject to federal income tax and may also be subject to state and local taxes.  If you live outside of the United States, your distributions could also be taxed by the country in which you reside.  Your distributions are taxable when they are paid, whether you take them in cash or reinvest them.  Distributions declared in December and paid in January, however, are taxable as if they were paid on December 31.

 

For federal tax purposes, each Fund’s income and short-term capital gains distributions are taxed as regular or “qualified” dividends; long-term capital gains distributions are taxed as long-term capital gains.  Every January, each Fund will send you and the Internal Revenue Service (“IRS”) a statement showing the taxable distributions.

 

Taxes on Transactions . Your redemptions, including transfers between Funds, are subject to capital gains tax.  A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell them.  Whenever you sell shares of a Fund, the Fund will send you a confirmation statement showing how many shares you sold and at what price.  You will also receive a consolidated transaction statement every January.  It is up to you or your tax preparer, however, to determine whether the sales resulted in a capital gain and, if so, the amount of the tax to be paid.  Be sure to keep your regular account statements; the information they contain will be essential in calculating the amount of your capital gains.

 

“Buying a Dividend.” If you buy shares just before a Fund deducts a distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back in the form of a taxable distribution.

 

There are tax requirements that all funds must follow in order to avoid federal taxation.  In their efforts to adhere to these requirements, the Funds may have to limit their investment activity in some types of instruments.

 

When you sign your account application, you will be asked to certify that your Social Security or Taxpayer Identification number is correct and that you are not subject to 28% withholding for failing to report income to the Internal Revenue Service (“IRS”).  If you violate IRS regulations, the IRS can require a Fund to withhold 28% of your taxable distributions and redemptions.

 

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Index Descriptions

 

The Lipper International Large-Cap Core Funds Index measures the performance of the 30 largest international large cap core mutual funds as determined by Lipper, Inc.

 

The Lipper Multi-Cap Core Funds Index measures the performance of the 30 largest multi-cap core equity mutual funds as determined by Lipper, Inc.

 

The Lipper Large-Cap Value Funds Index measures the performance of the 30 largest multi-cap value equity mutual funds as determined by Lipper, Inc.

 

The Lipper Small-Cap Core Funds Index measures the performance of the 30 largest mutual funds in the small capitalization range, as determined by Lipper, Inc.

 

The Russell 2000 ® Index measures the performance of the 2,000 smallest U.S. companies of the Russell 3000 ® Index.

 

The Russell 2500 ® Index measures the performance of 2,500 small and mid-sized companies.

 

The Russell 3000 ® Index is a broad-based index that measures the performance of the 3,000 largest U.S. companies as measured by market capitalization, and represents about 98% of the U.S. stock market.

 

The Russell 3000 ® Value Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization with lower price-to-book ratios and lower forecasted growth values.

 

The S&P 500 ® Index is an unmanaged index generally representative of the market for the stocks of large-sized U.S. companies.

 

The S&P Global (ex U.S.) LargeMidCap Index is a broad-based index that represents the largest 80% of investable companies in 52 developed and emerging market countries.

 

Direct investment in an index is not possible.

 

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