As filed with the Securities and Exchange Commission on December 23, 2020
Securities Act Registration No. 333-174926
Investment Company Act Registration No. 811-22549
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No. □
Post-Effective Amendment No. 482 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 484
(Check Appropriate Box or Boxes)
Northern Lights Fund Trust II
(Exact Name of Registrant as Specified in Charter)
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246
(Address of Principal Executive Offices) (Zip Code)
(402) 895-1600
(Registrant's Telephone Number, Including Area Code)
The Corporation Trust Company
Corporate Trust Center
251 Little Falls Drive
Wilmington, DE 19808
(Name and Address of Agent for Service)
With a copy to:
David J. Baum, Esq. Alston & Bird, LLP 950 F Street NW Washington, DC 20004 (202) 239-3346 |
Richard Malinowski, Esq. Gemini Fund Services, LLC 80 Arkay Drive, Suite 110 Hauppauge, New York 11788 (631) 470-2734 |
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
( ) immediately upon filing pursuant to paragraph (b).
(X) On December 28, 2020 pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) On ____________ (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
(X) this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, Registrant hereby elects to register an indefinite number of shares of Registrant and any series thereof hereinafter created.
EXPLANATORY NOTE
This Post-Effective Amendment No. 482 to the Registration Statement contains the Prospectus and Statement of Additional Information describing the Certeza Convex Core Fund (the “Fund”), a series of the Registrant. This Post-Effective Amendment to the Registration Statement is organized as follows: (a) Prospectus relating to the Fund; (b) Statement of Additional Information relating to the Fund; and (c) Part C Information relating to all series of the Registrant. The Prospectuses and Statements of Additional Information for the other series of the Registrant are not affected hereby.
Certeza Convex Core Fund
Class A Shares (Symbol: CNVEX)
Class I Shares (Symbol: CONVX)
Prospectus
December 28, 2020
The U.S. Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) have not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website at www.certezafa.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by following the instructions included with paper Fund documents that have been mailed to you. You may also elect to receive all future reports in paper free of charge.
Certeza Convex Core Fund
a series of the Northern Lights Fund Trust II (the “Trust”)
TABLE OF CONTENTS
Summary Section | 1 | |||
Investment Strategies, Related Risks and Disclosure of Portfolio Holdings | 5 | |||
Investment Objective | 5 | |||
Principal Investment Strategies | 5 | |||
Principal Risks of Investing in the Fund | 6 | |||
Portfolio Holdings Information | 10 | |||
Management of the Fund | 10 | |||
The Adviser | 10 | |||
Portfolio Managers | 11 | |||
Shareholder Information | 11 | |||
Share Price | 11 | |||
Choosing a Share Class | 12 | |||
More About Class A Shares | 12 | |||
More About Class I Shares | 14 | |||
How to Purchase Shares | 14 | |||
How to Redeem Shares | 15 | |||
Tools to Combat Frequent Transactions | 17 | |||
Distribution of Fund Shares | 18 | |||
Distributions and Taxes | 18 | |||
Tax Status, Dividends and Distributions | 18 | |||
Financial Highlights | 19 |
Summary Section
Investment Objective. The investment objective of the Certeza Convex Core Fund (the “Fund”) is to seek total return.
Fees and Expenses of the Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts on Class A shares if you invest, or agree to invest in the future, at least $100,000 in the Opportunity Fund. More information about these and other discounts is available from your financial professional and under “Shareholder Information – More About Class A Shares” beginning on page 12 of this Prospectus.
Shareholder Fees
(fees paid directly from your investment) |
Class A | Class I |
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
5.75%(1) | None |
Maximum Deferred Sales Charge (Load) | None | None |
Redemption Fee | None | None |
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) |
||
Management Fees | 1.39% | 1.39% |
Distribution and Service (Rule 12b-1) Fees | 0.25% | 0.00% |
Other Expenses(2) | 1.06% | 1.06% |
Acquired Fund Fees and Expenses(3) | 0.04% | 0.04% |
Total Annual Fund Operating Expenses | 2.74% | 2.49% |
Fee Waiver/Expense Reimbursement | 0.71% | 0.71% |
Total Annual Fund Operating Expenses After Fee Waiver/Expense Reimbursement(4) | 2.03% | 1.78% |
(1) | A maximum contingent deferred sales charge (“CDSC”) of 1.00% may apply to certain redemptions of Class A shares made within the first 12 months of their purchase when an initial sales charge was not paid on the purchase. |
(2) | These expenses are based on estimated amounts for the Fund’s current fiscal year. |
(3) | This number represents the combined total fees and operating expenses of the underlying funds owned by the Fund and is not a direct expense incurred by the Fund or deducted from the Fund assets. Since this number does not represent a direct operating expense of the Fund, the operating expenses set forth in the Fund’s financial highlights do not include this figure. |
(4) | Pursuant to an operating expense limitation agreement between Certeza Fund Advisors LLC (the “Adviser”) and the Fund, the Adviser has agreed to waive its fees and/or absorb expenses of the Fund to ensure that Total Annual Fund Operating Expenses (excluding any front-end or contingent deferred loads, brokerage fees and commissions, acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary expenses such as litigation) for the Fund do not exceed 1.99%, and 1.74%, of the Fund’s average net assets, for Class A and Class I shares, respectively, through March 31, 2022. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Trustees. The Adviser is permitted to receive reimbursement from the Fund for fees it waived and Fund expenses it paid, subject to the limitation that: (1) the reimbursement for fees and expenses will be made only if payable within three years from the date the fees and expenses were initially waived or reimbursed; and (2) the reimbursement may not be made if it would cause the expense limitation in effect at the time of the waiver or currently in effect, whichever is lower, to be exceeded. |
Example. This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The fee waiver/expense reimbursement arrangement discussed in the table above is reflected only through March 31, 2022. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
One Year | Three Years | |
Class A | $769 | $1,313 |
Class I | $181 | $703 |
Portfolio Turnover. The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund
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shares are held in a taxable account. These costs, which are not reflected in Total Annual Fund Operating Expenses or in the Example, affect the Fund’s performance. Because the Fund is newly organized, portfolio turnover information is not yet available.
Principal Investment Strategies. Under normal circumstances, the Fund invests primarily in (i) long and short call and put options on Standard & Poor’s 500 Index (S&P 500) instruments, (ii) long and short positions on Standard & Poor’s 500 Index (S&P 500) instruments, (iii) long and short positions in Chicago Board Options Exchange, Incorporated (“CBOE”) Volatility Index (“VIX”) futures, and (iii) cash, cash equivalents (including short term treasury securities) and short term, investment grade debt securities (or exchange traded funds (ETFs) investing in such securities).
The Fund seeks to achieve its investment objective by investing in long and short call and put options on S&P 500 instruments as well as long and short positions on such instruments to provide exposure to the US large cap equity market. S&P 500 Instruments include index futures and ETFs. A put is an option contract giving the owner the right (but not the obligation) to sell a specified amount of an underlying asset at a set price within a specified time. A call is an option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.
The Fund’s Adviser manages the Fund’s equity exposure using a quantitative process that relies on mathematics to determine investment decisions and seeks to remove as much emotion and discretion as possible by automating the investment process in a systematic manner. The strategy seeks to create a convex return and risk profile that provides upside exposure to the US large cap equity market while actively working to reduce downside risk. The investment process, however, may not be successful in doing so. The Adviser’s systematic process, based on historic and real-time S&P 500 index and index option price data to mathematically determine target equity exposure expressed through option trades. Factors related to positioning – calls/puts, size, strike price, and time to expiration – will be determined in a systematic manner to seek targeted upside and downside beta capture of the S&P 500 Index. Upside and downside beta capture of the S&P 500 Index is a measure of how the strategy has outperformed the benchmark during periods of market strength and weakness.
The Fund also invests in VIX futures contracts using a quantitative process that relies on mathematics to determine investment decisions and seeks to remove as much emotion and discretion as possible by automating the investment process in a systematic manner. The process provides the portfolio with direct volatility exposure which seeks to exploit the expected relationship between the S&P 500 Index and the VIX Index in order to enhance portfolio returns. VIX futures exposure will vary, but could represent as much as 20% of the portfolio at any one time. The VIX Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 option prices. The VIX Index estimates expected volatility by aggregating the weighted prices of S&P 500 Index puts and calls over a wide range of strike prices.
All futures and options positions held by the Fund are exchange-traded and collateralized with cash, cash equivalents (for example, Treasury Bills, commercial paper and money market fund shares), other listed options, debt rated investment grade by at least one nationally recognized statistical rating organization (“NRSRO”) or ETFs investing in such instruments.
The Fund actively trades its portfolio investments, which may lead to higher transaction costs that may affect the Fund’s performance.
Principal Risks. Remember that in addition to possibly not achieving your investment goals, you could lose money by investing in the Fund. The principal risks of investing in the Fund are summarized below. The principal risks are presented in alphabetical order to facilitate finding particular risks and comparing them with other funds. Each risk summarized below is considered a “principal risk” of investing in the Fund, regardless of the order in which it appears.
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o | Call Option Risk. When the Fund purchases a call option on a security or index it may lose the entire premium paid if the underlying security or index does not increase in value. As the seller (writer) of a covered call option, the Fund assumes the risk of a decline in the value of the underlying security or index below the purchase price of the underlying security or index less the premium received, and gives up the opportunity for gain on the underlying security or index above the exercise option price. The Fund may also be exposed to default by the option writer who may be unwilling or unable to perform its contractual obligations to the Fund. |
o | Futures Risk. The Fund’s use of futures involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) leverage risk and (ii) risk of mispricing or improper valuation. Investments in futures involve leverage, which means a small percentage of assets invested in futures can have a disproportionately large impact on the Fund. This risk could cause the Fund to lose more than the principal amount invested. Futures contracts may become mispriced or improperly valued when compared to the adviser’s expectation and may not produce the desired investment results. Because the futures utilized by the Fund are standardized and exchange traded, where the exchange serves as the ultimate counterparty for all contracts, the primary credit risk on futures contracts is the creditworthiness of the exchange itself. |
o | Hedging Risk. Hedging is a strategy in which the Fund uses options or futures to offset the risks associated with other Fund holdings. There can be no assurance that the Fund’s hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so. |
o | Options Market Risk. Markets for options and options on futures may not always operate on a fair and orderly basis. At times, prices for options and options on futures may not represent fair market value and prices may be subject to manipulation, which may be extreme under some circumstances. The dysfunction and manipulation of volatility and options markets may make it difficult for the Fund to effectively implement its investment strategy and achieve its objectives and could potentially lead to significant losses. |
o | Options Risk. When the Fund purchases an option on a security or index it may lose the entire premium paid if the underlying security or index does not increase in value. The Fund is also exposed to default by the option writer who may be unwilling or unable to perform its contractual obligations to the Fund. Additionally, the underlying security or index on which the option is based may have imperfect correlation to the value of the Fund's portfolio investments. A Fund's losses are potentially large in a written put transaction and potentially unlimited in a written call transaction. |
o | Put Option Risk. As the buyer of a put option, the Fund risks losing the entire premium invested in the option if the underlying security or index does not fall below the strike price, which means the option will expire worthless Additionally, purchased options may decline in value due to changes in price of the underlying security or index, passage of time and changes in volatility. As a seller (writer) of a put option, the Fund will lose money if the value of the underlying reference instrument falls below the strike price. |
· | ETF Risk. Like a mutual fund, the value of an ETF can fluctuate based on the prices of the securities owned by the ETF, and ETFs are also subject to the following additional risks: (i) the ETF’s market price may be less than its net asset value; (ii) an active market for the ETF may not develop or be maintained; and (iii) market trading in the ETF may be halted under certain circumstances. Because the Fund may invest its assets in ETFs that have their own fees and expenses in addition to those charged directly by the Fund, the Fund may bear higher expenses than a Fund that invests directly in individual securities. |
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very volatile and can be expected to be very volatile in the future. High volatility may have an adverse impact on the Fund beyond the impact of any performance-based losses of the underlying benchmark.
Performance. Because the Fund is new, no performance information is presented for the Fund at this time. In the future, performance information will be presented in this section of this Prospectus. Also, shareholder reports containing financial and performance information will be mailed to shareholders semi-annually. Remember, the Fund’s past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. Updated performance information will be available at no cost by calling the Fund toll-free at 1-833-735-1055 or on the Fund’s website www.certezafa.com.
Investment Adviser. Certeza Fund Advisors LLC serves as the Fund’s investment adviser.
Portfolio Managers. The following individuals serve as the Fund’s portfolio managers:
Portfolio Manager | Primary Title | With the Fund since |
Brett Nelson | Chief Investment Officer and Managing Member | December 2020 |
Jim Macfarlane | Chief Executive Officer and Portfolio Manager | December 2020 |
Patrick Sharp | Portfolio Manager | December 2020 |
Purchase and Sale of Fund Shares. You may conduct transactions by mail (Certeza Convex Core Fund, c/o Gemini Fund Services, LLC, 4221 North 203rd Street, Suite 100, Elkhorn NE 68022), or by telephone at 1-833-735-1055. Investors who wish to purchase or redeem Fund shares through a financial intermediary should contact the financial intermediary directly. The minimum initial investment for Class A shares is $2,500 and for Class I shares is $1,000,000. The minimum subsequent investment amount for Class A shares is $50 and for Class I shares is $10,000. The Fund may waive or reduce its minimum investment amount from time to time in the sole discretion of the Adviser.
Tax Information. The Fund’s distributions are taxable, and will be taxed as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account.
Payments to Broker-Dealers and Other Financial Intermediaries. If you purchase Fund shares through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create conflicts 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.
Investment Strategies, Related Risks and Disclosure of Portfolio Holdings
Investment Objective
The investment objective of the Fund is to seek total return.
The Fund’s investment objective may be changed without the approval of the Fund’s shareholders upon 60 days’ written notice to shareholders.
Principal Investment Strategies
Under normal circumstances, the Fund invests primarily in (i) long and short call and put options on Standard & Poor’s 500 Index (S&P 500) instruments, (ii) long and short positions on Standard & Poor’s 500 Index (S&P 500) instruments, (iii) long and short positions in Chicago Board Options Exchange, Incorporated (“CBOE”) Volatility Index (“VIX”) futures, and (iii) cash, cash equivalents (including short term treasury securities) and short term, investment grade debt securities (or exchange traded funds (ETFs) investing in such securities).
The Fund seeks to achieve its investment objective by investing in long and short call and put options on S&P 500 instruments as well as long and short positions on such instruments to provide exposure to the US large cap equity market. S&P 500 Instruments include index futures and ETFs. A put is an option contract giving the owner the right (but not the obligation) to sell a specified amount of an underlying asset at a set price within a specified time. A call is an option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.
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The Fund’s Adviser manages the Fund’s equity exposure using a quantitative process that relies on mathematics to determine investment decisions and seeks to remove as much emotion and discretion as possible by automating the investment process in a systematic manner. The strategy seeks to create a convex return and risk profile that provides upside exposure to the US large cap equity market while actively working to reduce downside risk. The investment process, however, may not be successful in doing so. The Adviser’s systematic process, based on historic and real-time S&P 500 index and index option price data to mathematically determine target equity exposure expressed through option trades. Factors related to positioning – calls/puts, size, strike prices, and time to expiration – will be determined in a systematic manner to seek targeted upside and downside beta capture of the S&P 500 Index. Upside and downside beta capture of the S&P 500 Index is a measure of how the strategy has outperformed the benchmark during periods of market strength and weakness.
The Fund also invests in VIX futures contracts using a quantitative process that relies on mathematics to determine investment decisions and seeks to remove as much emotion and discretion as possible by automating the investment process in a systematic manner. The process provides the portfolio with direct volatility exposure which seeks to exploit the expected relationship between the S&P 500 Index and the VIX Index in order to enhance portfolio returns. VIX futures exposure will vary, but could represent as much as 20% of the portfolio at any one time. The VIX Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 option prices. The VIX Index estimates expected volatility by aggregating the weighted prices of S&P 500 Index puts and calls over a wide range of strike prices. The Adviser will manage volatility using a quantitative process based on statistical analysis of the VIX Index futures term structure. Futures contracts of different expiration months trade at a different price reflecting differing future price expectation of the underlying asset. These different prices come together to form what is known as a "term structure." All factors related to positioning, sizing, and time to expiration will be determined in a systematic manner using a proprietary model.
The Adviser’s research process is conducted in a quantitative manner. The Adviser collects real-time S&P 500 index and index option price data, verifies the price data, and then analyzes the data using proprietary statistical methods to determine trades. The Adviser’s systematic process evaluates historical data sets, removes trades that do not meet risk management criteria, and seeks to filter remaining trades for statistical superiority. Risk management is a key part of the Adviser’s research and investment processes.
Selling decisions will be made with the support of statistics to determine if a position has achieved its intended purpose or needs to be exited because the statistics no longer support holding the position.
All futures and options positions held by the Fund are exchange-traded and collateralized with cash, cash equivalents (for example, Treasury Bills, commercial paper and money market fund shares), other listed options, debt rated investment grade by at least one NRSRO or ETF investing in such instruments. The Fund segregates cash or such other liquid assets in an amount equal to the Fund’s net obligations under each option sold by the Fund so that each option sold is secured, or “covered.”
Exchange-traded options on broad-based equity indices that trade on a national securities exchange registered with the SEC, or a domestic board of trade designated as a contract market by the CFTC, generally qualify for treatment as “section 1256 contracts,” as defined in the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, capital gains and losses on “section 1256 contracts” are generally recognized annually based on a marking-to-market of open positions at tax year-end, with gains or losses treated as 60% long-term and 40% short-term, regardless of holding period. The Fund intends to utilize primarily options that are “section 1256 contracts” but may at times utilize S&P 500 Index ETF options which may not qualify for treatment as “section 1256 contracts”.
The Fund actively trades its portfolio investments, which may lead to higher transaction costs that may affect the Fund’s performance.
The Fund is classified as “ diversified” for purposes of the Investment Company Act of 1940 (the “1940 Act”), which means that it is limited by the 1940 Act with regard to the portion of its assets that may be invested in the securities of a single issuer.
Temporary Defensive Positions
The Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund’s principal investment strategies in attempting to respond to adverse market, economic, political or other conditions. The Adviser will determine when market conditions warrant temporary defensive measures. For example, during such periods, 100% of the Fund’s assets may be invested in short-term, high-quality fixed income investments, eligible U.S. dollar-denominated money market instruments, cash or cash equivalents. Temporary defensive positions may be initiated by the Adviser when market conditions make pursuing its
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investment strategy used for the Fund inconsistent with the best interests of the Fund. When the Fund takes temporary defensive positions, it may not achieve its investment objective.
Principal Risks of Investing in the Fund
Before investing in the Fund, you should carefully consider your own investment goals, the amount of time you are willing to leave your money invested and the amount of risk you are willing to take. Remember that in addition to possibly not achieving your investment goals, you could lose money by investing in the Fund. The value of your investment in the Fund will go up and down with the prices of the securities in which the Fund invests. The principal risks are presented in alphabetical order to facilitate finding particular risks and comparing them with other funds. Each risk summarized below is considered a “principal risk” of investing in the Fund, regardless of the order in which it appears.
Active Trading Risk. A higher portfolio turnover due to active and frequent trading will result in higher transactional and brokerage costs. Active trading of securities may also increase the Fund’s realized capital gains or losses, which may affect the taxes you pay as a Fund shareholder.
Cash or Cash Equivalents Risk. At times, the Fund may have significant investments in cash or cash equivalents. When a substantial portion of a portfolio is held in cash or cash equivalents, there is the risk that the value of the cash account, including interest, will not keep pace with inflation, thus reducing purchasing power over time. Additionally, in rising markets, holding cash or cash equivalents may adversely affect the Fund’s performance and the Fund may not achieve its investment objective.
Cyber Security Risk. As the use of technology has become more prevalent in the course of business, the Fund has become more susceptible to operational, financial and information security risks resulting from cyber-attacks and/or technological malfunctions. Cyber-attacks include, among other things, the attempted theft, loss, misuse, improper release, corruption or destruction of, or unauthorized access to, confidential or highly restricted data relating to the Fund and its shareholders; and attempted compromises or failures to systems, networks, devices and applications relating to the operations of the Fund and its service providers. Cyber security breaches may result from unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) or from outside attacks, such as denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users).
Derivatives Risk The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying reference asset. Derivatives can also create leverage risk because they do not require payment up front equal to the economic exposure created by holding a position in the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative or the anticipated value of the underlying asset, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. When a derivative is used for hedging, the change in value of the derivative may also not correlate specifically with the risk of the underlying asset being hedged. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. Such prices are influenced by numerous factors that affect the markets, including, but not limited to: changing supply and demand relationships; government programs and policies; national and international political and economic 15 events, changes in interest rates, inflation and deflation and changes in supply and demand relationships. Derivatives strategies may not always be successful, and their successful use will depend on the portfolio managers’ ability to accurately forecast movements in the market relating to the underlying asset. Trading derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities including:
Call Option Risk. There are risks associated with the sale and purchase of call options. As the seller (writer) of a covered call option, the Fund assumes the risk of a decline in the market price of the underlying security below the purchase price of the underlying security less the premium received, and gives up the opportunity for gain on the underlying security above the exercise option price. The Fund continues to bear the risk that it will lose money if the value of the security falls below the strike price. Option premiums are treated as short-term capital gains and when distributed to shareholders, are usually taxable as ordinary income, which may have a higher tax rate than long-term capital gains for shareholders holding Fund shares in a taxable account. As the buyer of a call option, the Fund assumes the risk that the
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market price of the underlying security will not increase above the strike price plus the premiums paid, so the Fund bears the risk that it will lose the premium paid for the option.
Futures Risk. The Fund’s use of futures contracts involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) leverage risk and (ii) liquidity risk. Because futures require only a small initial investment in the form of a deposit or margin, they involve a high degree of leverage. Accordingly, the fluctuation of the value of futures in relation to the underlying assets upon which they are based is magnified. Lack of correlation (or tracking) may be due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Consequently, the effectiveness of futures as a security substitute or as a hedging vehicle will depend, in part, on the degree of correlation between price movements in the futures and price movements in underlying securities. While futures contracts are generally liquid instruments, under certain market conditions they may become illiquid. Futures exchanges may impose daily or intra-day price change limits and/or limit the volume of trading. Additionally, government regulation may further reduce liquidity through similar trading restrictions. As a result, the Fund may be unable to close out its futures contracts at a time which is advantageous. The successful use of futures depends upon a variety of factors, particularly the ability of the adviser to predict movements of the underlying securities markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular futures strategy adopted will succeed.
Hedging Risk. While hedging can reduce losses, it can also reduce or eliminate gains or cause losses if the market moves in a manner adverse to the portfolio construction employed by the Fund or if the cost of the derivative outweighs the benefit of the hedge. Hedging also involves the risk that changes in the value of the derivative will not match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced and may be increased. There can be no assurance that the Fund’s hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.
Options Risk. The Fund may invest in options. When the Fund purchases an option on a security or index it may lose the entire premium paid if the underlying security or index does not increase in value. The Fund is also exposed to default by the option writer who may be unwilling or unable to perform its contractual obligations to the Fund. Additionally, the underlying security or index on which the option is based may have imperfect correlation to the value of the Fund's portfolio investments. A Fund's losses are potentially large in a written put transaction and potentially unlimited in a written call transaction.
Options Market Risk. Markets for options and options on futures may not always operate on a fair and orderly basis. At times, prices for options and options on futures may not represent fair market value and prices may be subject to manipulation, which may be extreme under some circumstances. The dysfunction and manipulation of volatility and options markets may make it difficult for the Fund to effectively implement its investment strategy and achieve its objectives and could potentially lead to significant losses.
Put Option Risk. As the buyer of a put option, the Fund risks losing the entire premium invested in the option if the underlying security or index does not fall below the strike price, which means the option will expire worthless. Additionally, purchased options may decline in value due to changes in price of the underlying security or index, passage of time and changes in volatility. As a seller (writer) of a put option, the Fund will lose money if the value of the underlying reference instrument falls below the strike price.
ETF Risk. Like a mutual fund, the value of an ETF can fluctuate based on the prices of the securities owned by the ETF, and ETFs are also subject to the following additional risks: (i) the ETF’s market price may be less than its net asset value; (ii) an active market for the ETF may not develop or be maintained; and (iii) market trading in the ETF may be halted under certain circumstances. Because the Fund may invest its assets in ETFs that have their own fees and expenses in addition to those charged directly by the Fund, the Fund may bear higher expenses than a Fund that invests directly in individual securities. The market for an ETF’s shares may become less liquid in response to deteriorating liquidity in the markets for the ETF’s underlying portfolio holdings, which could lead to differences between the market price of the ETF’s shares and the underlying value of those shares. An ETF’s market price may deviate from the value of the ETF’s underlying portfolio holdings, particularly in times of market stress, with the result that investors may pay significantly more or receive significantly less than the underlying value of the ETF shares bought or sold. An active trading market for shares of the ETF may not develop or be maintained. In times of market stress, market makers or authorized participants may step away from their respective roles in making a market in
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shares of the ETF and in executing purchase or redemption orders, which could also lead to variances between the market price of the ETF’s shares and the underlying value of those shares.
Futures Commission Merchants Failure Risk: A futures commission merchant (“FCM”) is required to segregate assets pursuant to CFTC regulations. If the assets of the Fund were not so segregated, the Fund would be subject to the risk of the failure of such an FCM. Even given proper segregation, in the event of the insolvency of an FCM, the Fund may be subject to a risk of loss of its funds and would be able to recover only a pro rata share (together with all other commodity customers of such FCM) of assets, such as United States Treasury bills, specifically traceable to the account of the Fund and its investors. In commodity broker insolvencies, customers have, in fact, been unable to recover from the broker’s estate the full amount of their “customer” funds. In addition, under certain circumstances, such as the inability of another client of an FCM or the FCM itself to satisfy substantial deficiencies in such other client’s account, a client may be subject to a risk of loss of the funds on deposit with the FCM, even if such funds are properly segregated. In the case of any such bankruptcy or client loss, a client might recover only a pro rata share of all property available for distribution to all of the FCM’s clients or possibly, nothing at all.
General Market Risk. Domestic economic growth and market conditions, interest rate levels, political events, terrorism, war, natural disasters, disease/virus epidemics and other events are among the factors affecting the securities markets in which the Fund invests. There is risk that these and other factors may adversely affect the Fund’s performance. These events could reduce consumer demand or economic output, result in market closure, travel restrictions or quarantines, and generally have a significant impact on the economy. These events could also impair the information technology and other operational systems upon which the Fund’s service providers, including the Adviser, rely, and could otherwise disrupt the ability of employees of the Fund’s service providers to perform essential tasks on behalf of the Fund. Governmental and quasi-governmental authorities and regulators throughout the world have in the past responded to major economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or quick reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could adversely affect the Fund’s investments. Accordingly, you should consider your own investment goals, time horizon, and risk tolerance before investing in the Fund. An investment in the Fund may not be appropriate for all investors and is not intended to be a complete investment program. An investment in the Fund is not a deposit in the bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund.
Index Risk. If the derivative is linked to the performance of an index, it will be subject to the risks associated with changes in that index
Leverage Risk. Using derivatives like futures and options to increase the Fund’s combined long and short position exposure creates leverage, which can amplify the effects of market volatility on the Fund’s share price and make the Fund’s returns more volatile. The use of leverage may cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations. The use of leverage may also cause the Fund to have higher expenses than those of mutual funds that do not use such techniques.
Limited Operating History Risk. The Fund is new and has a limited history of operation. Accordingly, an investment in the Fund entails a high degree of risk. There can be no assurance that the Fund and the Adviser will achieve the Fund’s investment objective notwithstanding the performance of any or all of the foregoing or their respective affiliates or principals in other transactions including, without limitation, arrangements similar in nature to the Fund.
Liquidity Risk. Liquidity risk exists when particular investments of a Fund would be difficult to purchase or sell, possibly preventing a Fund from selling such illiquid securities at an advantageous time or price, or possibly requiring a Fund to dispose of other investments at unfavorable times or prices in order to timely meet its redemption obligations. Liquid securities can become illiquid due to political, economic or issuer specific events; supply/demand imbalances; changes in a specific market’s size or structure, including the number of participants; or overall market disruptions. Additionally, it is possible that particular derivative investments might be difficult to purchase or sell, possibly preventing a Fund from executing positions at an advantageous time or price, or possibly requiring it to dispose of other investments at unfavorable times or prices in order to satisfy its obligations, including to meet daily variation margin requirements until the position is closed.
Management Risk. Management risk is the risk that the investment process used by the Fund’s portfolio manager could fail to achieve the Fund’s investment goal and cause an investment in the Fund to lose value. The Adviser’s reliance on its strategy and its judgments about the potential appreciation of a particular option or security in which the Fund invests may prove to be
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incorrect. Given the Fund is going to attempt to tract the Index, the Fund does not follow traditional methods of active investment management, which may involve buying and selling securities based upon analysis of economic and market factors.
Market Disruption Risk. Most United States futures exchanges limit fluctuations in some futures contract prices during a single day by regulations referred to as “daily limits.” During a single trading day, no trades may be executed in such contracts at prices beyond the daily limit. Once the price of a futures contract has increased or decreased to the limit point, positions can be neither taken nor liquidated. Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Fund from executing trades and subject the Fund to substantial losses. Also, the Commodity Futures Trading Commission (“CFTC”) or exchanges may suspend or limit trading.
Regulatory Risk. Regulatory authorities in the United States or other countries may adopt rules that restrict the ability of the Fund to fully implement its strategy, either generally, or with respect to certain securities, industries or countries, which may impact the Fund’s ability to fully implement its investment strategies. Regulators may interpret rules differently than the Fund or the mutual fund industry generally, and disputes over such interpretations can increase in legal expenses incurred by the Fund. With respect to the Fund CFTC registration and regulation in its capacity as the Fund’s CPO and CTA as a result of the Fund’s commodities-related investments. The Fund is also subject to regulation as a commodity pool under the CEA. The Fund may incur additional expenses as a result of the registration and regulation obligations and certain investments may be limited or restricted. Additionally, new regulations could, among other things, restrict the Fund’s ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the Fund) and/or increase the costs of such derivatives transactions (for example, by increasing margin or capital requirements), and the Fund may be unable to fully execute its investment strategies as a result.
U.S. Treasury Securities Risk. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity, but the market prices for such securities are not guaranteed and will fluctuate. Because U.S. Treasury securities trade actively outside the United States, their prices may rise and fall as changes in global economic conditions affect the demand for these securities.
Volatility Investments Risk. Investments linked to equity volatility indexes can be highly volatile compared to investments in traditional securities and Funds may experience large losses. In particular, trading in VIX futures contracts have been very volatile and can be expected to be very volatile in the future. Unexpected levels of volatility may have an adverse impact on the Fund beyond the impact of any performance-based losses of the underlying benchmark.
Portfolio Holdings Information
A description of the policies and procedures with respect to the disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement of Additional Information (“SAI”). Currently, disclosure of the Fund’s holdings is required to be made quarterly within 60 days of the end of each fiscal quarter in the annual and semi-annual reports to Fund shareholders and in the quarterly holdings report on Form N-Q. The annual and semi-annual reports for the Fund is available by contacting the Fund, c/o Gemini Fund Services, LLC, 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022 or calling 1-833-735-1055.
Management of the Fund
The Adviser
The Trust, on behalf of the Fund has entered into an Investment Advisory Agreement (“Advisory Agreement”) with Certeza Fund Advisors LLC, located at 565 W 465 N, Suite 150, Providence, UT 84332, under which the Adviser manages the Fund’s investments subject to the supervision of the Board of Trustees. The Adviser offers both high net worth individual and institutional clients portfolio management services in a variety of alternative investment offerings, and is a registered investment adviser. The Adviser is newly formed and has been registered as an investment adviser with the SEC since November 16, 2020. The Adviser has also been registered with the CFTC as a commodity trading advisor and commodity pool operator since December 2020, and is a member of the National Futures Association (“NFA”) in such capacities. The Adviser is a wholly-owned subsidiary of Certeza Asset Management LLC, which has been registered with the CFTC as a commodity trading advisor since September 2012, and commodity pool operator since September 2017, and is a member of the NFA in such capacities. As of December 2020, the Adviser and its affiliates have approximately $65 million in assets under management. Under the Advisory Agreement, the Fund compensates the Adviser for its investment advisory services at the annual rate of 1.39% of the Fund’s average daily net assets, payable on a monthly basis.
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Subject to the general supervision of the Board of Trustees, the Adviser is responsible for managing the Fund in accordance with its investment objective and policies using the approach discussed in the “Overview” section of this Prospectus. The Adviser also maintains related records for the Fund.
Fund Expenses. The Fund is responsible for its own operating expenses. Pursuant to an operating expense limitation agreement between the Adviser and the Trust on behalf of the Fund, the Adviser has agreed to reduce its management fees and/or pay expenses of the Fund to ensure that the total amount of Fund operating expenses (excluding any front-end or contingent deferred loads, brokerage fees and commissions, acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary expenses such as litigation) for the Fund do not exceed 1.99%, and 1.74%, of the Fund’s average net assets, for Class A and Class I shares, respectively, through March 31, 2022. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Trustees. The Adviser is permitted to receive reimbursement from the Fund for fees it waived and Fund expenses it paid, subject to the limitation that: (1) the reimbursement for fees and expenses will be made only if payable within three years from the date the fees and expenses were initially waived or reimbursed; and (2) the reimbursement may not be made if it would cause the expense limitation in effect at the time of the waiver or currently in effect, whichever is lower, to be exceeded.
A discussion regarding the basis for the Board of Trustees’ approval of the Advisory Agreement will be available in the Fund’s first annual report to shareholders.
Portfolio Managers
Brett Nelson, CFA – Mr. Nelson founded Certeza Asset Management LLC in 2011 and holds the positions of Chief Investment Officer and Managing Member. Certeza Fund Advisors LLC is a wholly owned subsidiary of Certeza Asset Management LLC. Mr. Nelson has served as Chief Investment Officer of Certeza Asset Management LLC since 2011. Mr. Nelson received a B.S. in Finance from Utah State University in 2006. He holds the designation of Chartered Financial Analyst®.
Jim Macfarlane, CFA- Mr. Macfarlane joined Certeza Asset Management LLC in 2019 and holds the positions of Chief Executive Officer and Portfolio Manager. Prior to joining Certeza Asset Management LLC, Mr. Macfarlane held various roles at Goldman Sachs in both the US and Europe during his 12-year career with the firm. Mr. Macfarlane received a B.S. in Finance from Utah State University in 2007 and a Masters in Finance from the London Business School in 2014. He holds the designation of Chartered Financial Analyst®.
Patrick Sharp – Mr. Sharp joined Certeza Asset Management LLC in 2011 and holds the positions of Chief Technology Officer and Portfolio Manager. Mr. Sharp received his B.S. in Computer Science with a professional emphasis in Science from Utah State University in 2017.
Shareholder Information
Share Price
Shares of the Fund are sold at net asset value (“NAV”). The NAV of the Fund is determined at close of regular trading (normally 4:00 p.m. Eastern Time) on each day the New York Stock Exchange (“NYSE”) is open for business. NAV is computed by determining, on a per class basis, the aggregate market value of all assets of the Fund, less its liabilities, divided by the total number of shares outstanding ((assets-liabilities)/number of shares = NAV). The NYSE is closed on weekends and New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV takes into account, on a per class basis, the expenses and fees of the Fund, including management, administration, and distribution fees, which are accrued daily. The determination of NAV for a share class for a particular day is applicable to all applications for the purchase of shares, as well as all requests for the redemption of shares, received by the Fund (or an authorized broker or agent, or its authorized designee) before the close of trading on the NYSE on that day.
Generally, the Fund’s securities are valued each day at the last quoted sales price on each security’s primary exchange. Securities traded or dealt in upon one or more securities exchanges for which market quotations are readily available and not subject to restrictions against resale shall be valued at the last quoted sales price on the primary exchange or, in the absence of a sale on the primary exchange, at the mean between the current bid ask prices on such exchanges. Securities primarily traded in the National Association of Securities Dealers’ Automated Quotation System (“NASDAQ”) National Market System for which market quotations are readily available shall be valued using the NASDAQ Official Closing Price. Securities that are not traded or dealt in any securities exchange and for which over-the-counter market quotations are readily available generally shall be
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valued at the last sale price or, in the absence of a sale, at the mean between the current bid and ask price on such over-the-counter market. Debt securities not traded on an exchange may be valued at prices supplied by a pricing agent(s) based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics, such as rating, interest rate and maturity.
If market quotations are not readily available, securities will be valued at their fair market value as determined using the “fair value” procedures approved by the Board. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the sale of that security. The fair value prices can differ from market prices when they become available or when a price becomes available. The Board has delegated execution of these procedures to a fair value team composed of one or more officers from each of the (i) Trust, (ii) administrator, and (iii) Adviser. The team may also enlist third party consultants such as an audit firm or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
The Fund may use independent pricing services to assist in calculating the value of the Fund’s securities.
If trading in a portfolio security is halted and does not resume before the Fund calculates its NAV, the Adviser may need to price the security using the Fund’s fair value pricing guidelines. Without a fair value price, short-term traders could take advantage of the arbitrage opportunity and dilute the NAV of long-term investors. Fair valuation of the Fund’s portfolio securities can serve to reduce arbitrage opportunities available to short-term traders, but there is no assurance that fair value pricing policies will prevent dilution of the Fund’s NAV by short term traders. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value, or from the price that may be realized upon the actual sale of the security.
Choosing a Share Class
Description of Classes. The Trust has adopted a multiple class plan that allows the Fund to offer one or more classes of shares. The Fund has registered two classes of shares—Class I shares and Class A shares. The 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: Not all share classes may be available for purchase in all states.
· | Class I shares are sold at NAV without an initial sales charge. This means that 100% of your initial investment is placed into shares of a Fund. |
· | Class A shares are charged a front-end sales load. Class A shares are also charged a 0.25% Rule 12b-1 distribution and servicing fee. Class A shares do not have a contingent deferred sales charge (“CDSC”) except that a charge of 1.00% applies to certain redemptions made within twelve months, following purchases of $1 million or more without an initial sales charge. |
If you exceed $1,000,000 in Class A shares, subsequent investments in Class A shares will not incur a sales charge, provided that your aggregate investment in Class A shares exceeds $1,000,000. Class I shares may be purchased without the imposition of any sales charges. The Fund offers Class I shares primarily for direct investment by investors such as pension and profit-sharing plans, employee benefit trusts, endowments, foundations, corporations and high net worth individuals. Class I shares may also be offered through certain financial intermediaries (including broker-dealers) and their agents in fee based and other programs. In these programs financial intermediaries have made arrangements with a Fund and are authorized to buy and sell shares of the Fund that charge their customers transaction or other distribution or service fees with respect to their customers’ investments in the Fund.
More About Class A Shares
Class A shares are offered at their public offering price, which is NAV plus the applicable sales charge and is subject to 12b-1 distribution fees of up to 0.25% of the average daily net assets of Class A shares. The minimum initial investment in Class A shares of the Fund is $2,500. The minimum subsequent investment in Class A shares of the Fund is $50 for all other accounts. The sales charge varies, depending on how much you invest. There are no sales charges on reinvested distributions. The Fund reserves the right to waive sales charges at its discretion. The following sales charges apply to your purchases of Class A shares of the Fund:
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Amount of Transaction | Sales Charge as % of Public Offering Price(1) | Sales Charge as % of Net Amount Invested | Dealer Reallowance as a Percentage of Public Offering Price |
Less than $100,000 | 5.75% | 6.10% | 5.25% |
$100,000 but less than $250,000 | 4.50% | 4.71% | 4.00% |
$250,000 but less than $500,000 | 3.50% | 3.63% | 3.00% |
$500,000 but less than $1,000,000 | 2.50% | 2.56% | 2.00% |
$1,000,000 or more | 0.00% | 0.00% | **(2) |
(1) Offering price includes the front-end sales load. The sales charge you pay may differ slightly from the amount set forth above because of rounding that occurs in the calculation used to determine your sales charge.
(2) The Adviser shall reimburse the Fund in connection with commissions retained by authorized broker-dealers on purchases of Class A shares over $1 million calculated as follows: for sales of $1 million or more, payments may be made to those broker-dealers having at least $1 million of assets invested in a Fund, a fee of up to 1% of the offering price of such shares up to $2.5 million, 0.5% of the offering price from $2.5 million to $5 million, and 0.25% of the offering price over $5 million. The commission rate is determined based on the purchase amount combined with the current market value of existing investments in Class A shares. As shown, investors that purchase $1,000,000 or more of the Fund’s Class A shares will not pay any initial sales charge on the purchase. However, purchases of $1,000,000 or more of Class A shares may be subject up to a 1% CDSC on shares redeemed during the first 12 months after their purchase in the amount of the commissions paid on those shares redeemed.
Reducing Your Sales Charge
You may be eligible to purchase Class A shares at a reduced sales charge. To qualify for these reductions, you must notify the Fund’s distributor, Northern Lights Distributors, LLC (the “distributor”), in writing and supply your account number at the time of purchase. You may combine your purchase with those of your “immediate family” (your spouse and your children under the age of 21) for purposes of determining eligibility. If applicable, you will need to provide the account numbers of your spouse and your minor children as well as the ages of your minor children.
Letter of Intent. Under a Letter of Intent (“LOI”), you commit to purchase a specified dollar amount of Class A shares of the Fund, with a minimum of $50,000, during a 13-month period. At your written request, Class A shares purchases made during the previous 90 days may be included. The amount you agree to purchase determines the initial sales charge you pay. If the full-face amount of the LOI is not invested by the end of the 13-month period, your account will be adjusted to the higher initial sales charge level for the amount actually invested. You are not legally bound by the terms of your LOI to purchase the amount of your shares stated in the LOI. The LOI does, however, authorize the Fund to hold in escrow 5% of the total amount you intend to purchase. If you do not complete the total intended purchase at the end of the 13 month period, the Fund’s transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased).
Rights of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you may combine your new purchases of Class A shares with Class A shares of the Fund that you already own. The applicable initial sales charge for the new purchase is based on the total of your current purchase and the current value of all other Class A shares that you own. The reduced sales charge will apply only to current purchases and must be requested in writing when you buy your shares.
Shares of the Fund held as follows cannot be combined with your current purchase for purposes of reduced sales charges:
Waiving Your Class A Sales Charge
The sales charge on purchases of Class A shares is waived for certain types of investors, including:
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The Fund does not waive sales charges for the reinvestment of proceeds from the sale of shares of a different fund where those shares were subject to a front-end sales charge (sometimes called an “NAV transfer”).
The Fund also reserves the right to enter into agreements that reduce or eliminate sales charges for groups or classes of shareholders, or for Fund shares included in other investment plans such as “wrap accounts.” If you own Fund shares as part of another account or package, such as an IRA or a sweep account, you should read the terms and conditions that apply for that account. Those terms and conditions may supersede the terms and conditions discussed here. Contact your selling agent for further information.
Further information regarding the Fund’s sales charges, breakpoints and waivers is available free of charge upon request.
More About Class I Shares
Class I shares may be purchased at NAV without the imposition of any sales charges. This means that 100% of your initial investment is placed into shares of the Fund. The Fund offers Class I shares primarily for direct investment by investors such as pension and profit-sharing plans, employee benefit trusts, endowments, foundations, corporations and high net worth individuals. Class I shares may also be offered through certain financial intermediaries (including broker-dealers) and their agents in fee based and other programs. In these programs financial intermediaries have made arrangements with the Fund and are authorized to buy and sell shares of the Fund that charge their customers transaction or other distribution or service fees with respect to their customers’ investments in the Fund. Class I shares are sold at NAV without an initial sales charge, and are not subject to 12b-1 distribution and shareholder servicing fees. The minimum initial investment for Class I shares is $1,000,000. The minimum subsequent investment amount for Class I shares of the Fund is $10,000. The Fund may waive or reduce its minimum investment amount from time to time in the sole discretion of the Adviser.
How to Purchase Shares
Purchase by Mail. To purchase the Fund’s shares by mail, simply complete and sign the Account Application and mail it, along with a check made payable to the “Certeza Convex Core Fund,” as applicable to:
via regular mail: | via overnight mail: | |
Certeza Convex Core Fund | Certeza Convex Core Fund | |
c/o Gemini Fund Services, LLC | c/o Gemini Fund Services, LLC | |
P.O. Box 541150 | 4221 North 203rd Street, Suite 100 | |
Omaha, NE 68154 | Elkhorn, NE 68022 |
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Purchase through Brokers. You may invest in the Fund through brokers or agents who have entered into selling agreements with the Fund’s distributor. The brokers and agents are authorized to receive purchase and redemption orders on behalf of the Fund. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or its designee receives the order. The broker or agent may set their own initial and subsequent investment minimums. You may be charged a fee if you use a broker or agent to buy or redeem shares of the Fund. Finally, various servicing agents use procedures and impose restrictions that may be in addition to, or different from those applicable to investors purchasing shares directly from the Fund. You should carefully read the program materials provided to you by your servicing agent. Such brokers are authorized to designate other intermediaries to receive purchase and redemption orders on the Fund’s behalf.
Purchase by Wire. If you wish to wire money to make an investment in the Fund, please call the Fund at 1-833-735-1055for wiring instructions and to notify the Fund that a wire transfer is coming. Any commercial bank can transfer same-day funds via wire. The Fund will normally accept wired funds for investment on the day received if they are received by the Fund’s designated bank before the close of regular trading on the NYSE. Your bank may charge you a fee for wiring same-day funds.
Automatic Investment Plan. You may participate in the Fund’s Automatic Investment Plan, an investment plan that automatically moves money from your bank account and invests it in the Fund through the use of electronic funds transfers or automatic bank drafts. You may elect to make subsequent investments by transfers of a minimum of $100 on specified days of each month into your established Fund account. Please contact the Fund at 1-833-735-1055for more information about the Fund’s Automatic Investment Plan. Minimum initial investment requirements may be waived for Automatic Investment Plan investors, at the Fund’s discretion.
The Fund, however, reserves the right, in its sole discretion, to reject any application to purchase shares. Applications will not be accepted unless they are accompanied by a check drawn on a U.S. bank, thrift institutions, or credit union in U.S. funds for the full amount of the shares to be purchased. After you open an account, you may purchase additional shares by sending a check together with written instructions stating the name(s) on the account and the account number, to the above address. Make all checks payable to “Certeza Convex Core Fund”. The Fund will not accept payment in cashier’s checks or money orders. To prevent check fraud, the Fund will not accept third party checks, U.S. Treasury checks, credit card checks or starter checks for the purchase of shares.
Note: Gemini Fund Services, LLC, the Fund’s transfer agent, will charge a $25 fee against a shareholder’s account, in addition to any loss sustained by the Fund, for any check returned to the transfer agent for insufficient funds.
Anti-Money Laundering Program. The USA PATRIOT Act requires financial institutions, including the Fund, to adopt certain policies and programs to prevent money-laundering activities, including procedures to verify the identity of customers opening new accounts. As requested on the application, you should supply your full name, date of birth, social security number and permanent street address. Mailing addresses containing a P.O. Box will not be accepted. This information will assist the Fund in verifying your identity. Until such verification is made, the Fund may temporarily limit additional share purchases. In addition, the Fund may limit additional share purchases or close an account if it is unable to verify a shareholder’s identity. As required by law, the Fund may employ various procedures, such as comparing the information to fraud databases or requesting additional information or documentation from you, to ensure that the information supplied by you is correct.
In order to ensure compliance with these laws, the Account Application asks for, among other things, the following information for all “customers” seeking to open an “account” (as those terms are defined in rules adopted pursuant to the USA PATRIOT Act):
· | full name; |
· | date of birth (individuals only); |
· | Social Security or taxpayer identification number; and |
· | permanent street address (P.O. Box only is not acceptable). |
Accounts opened by entities, such as corporations, limited liability companies, partnerships or trusts, will require additional documentation.
Please note that if any information listed above is missing, your Account Application will be returned and your account will not be opened. In compliance with the USA PATRIOT Act and other applicable anti-money laundering laws and regulations, the Transfer Agent will verify the information on your application as part of the Program. The Fund reserves the right to request additional clarifying information and may close your account if such clarifying information is not received by the Fund within a reasonable
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time of the request or if the Fund cannot form a reasonable belief as to the true identity of a customer. If you require additional assistance when completing your Account Application, please contact the Transfer Agent at 1-833-735-1055.
How to Redeem Shares
The Fund typically expects that it will take up to 7 days following the receipt of your redemption request to pay out redemptions from cash, cash equivalents, proceeds from the sale of Fund shares, any line of credit, and then from the sale of portfolio securities. These redemption payment methods will be used in regular and stressed market conditions.
You may redeem all or any portion of the shares credited to your account by submitting a written request for redemption to:
via regular mail: | via overnight mail: | |
Certeza Convex Core Fund | Certeza Convex Core Fund | |
c/o Gemini Fund Services, LLC | c/o Gemini Fund Services, LLC | |
P.O. Box 541150 | 4221 North 203rd Street, Suite 100 | |
Omaha, NE 68154 | Elkhorn, NE 68022 |
Redemptions by Telephone: The telephone redemption privilege is automatically available to all new accounts except retirement accounts. If you do not want the telephone redemption privilege, you must indicate this in the appropriate area on your account application or you must write to the Fund and instruct it to remove this privilege from your account.
The proceeds will be sent by mail to the address designated on your account or wired directly to your existing account in a bank or brokerage firm in the United States as designated on your application. To redeem by telephone, call 1-833-735-1055. The redemption proceeds normally will be sent by mail or by wire within three business days after receipt of your telephone instructions. IRA accounts are not redeemable by telephone.
The Fund reserves the right to suspend the telephone redemption privileges with respect to your account if the name(s) or the address on the account has been changed within the previous 30 days. Neither the Fund, the transfer agent nor their respective affiliates will be liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expenses in acting on such telephone instructions and you will be required to bear the risk of any such loss. The Fund or the transfer agent, or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Fund and/or the transfer agent do not employ these procedures, they may be liable to you for losses due to unauthorized or fraudulent instructions. These procedures may include, among others, requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of the transactions and/or tape recording telephone instructions.
Redemptions through Broker: If shares of the Fund are held by a broker-dealer, financial institution or other servicing agent, you must contact that servicing agent to redeem shares of the Fund. The servicing agent may charge a fee for this service.
Redemptions by Wire: You may request that your redemption proceeds be wired directly to your bank account. The Fund’s transfer agent imposes a $15 fee for each wire redemption and deducts the fee directly from your account. Your bank may also impose a fee for the incoming wire.
Automatic Withdrawal Plan: If your individual accounts, IRA or other qualified plan account have a current account value of at least $10,000, you may participate in the Fund’s Automatic Withdrawal Plan, an investment plan that automatically moves money to your bank account from the Fund through the use of electronic funds transfers. You may elect to make subsequent withdrawals by transfers of a minimum of $100 on specified days of each month into your established bank account. Please contact the Fund at 1-833-735-1055 for more information about the Fund’s Automatic Withdrawal Plan.
Redemptions in Kind: The Fund reserves the right to honor requests for redemption or repurchase orders made by a shareholder during any 90-day period by making payment in whole or in part in portfolio securities (“redemption in kind”) if the amount of such a request is large enough to affect operations (if the request is greater than the lesser of $250,000 or 1% of the Fund’s net assets at the beginning of the 90-day period). The securities will be chosen by the Fund and valued using the same procedures as used in calculating the Fund’s NAV. A shareholder may incur transaction expenses in converting these securities to cash a securities redeemed in-kind remain at the risk of the market until they are sold and the shareholder will bear market risk until the securities are converted to cash.
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When Redemptions are Sent: Once the Fund receives your redemption request in “good order” as described below, it will issue a check based on the next determined NAV following your redemption request. The redemption proceeds normally will be sent by mail or by wire within three business days after receipt of a request in “good order.” If you purchase shares using a check and soon after request a redemption, your redemption proceeds will not be sent until the check used for your purchase has cleared your bank.
Good Order: Your redemption request will be processed if it is in “good order.” To be in good order, the following conditions must be satisfied: · The request should be in writing, unless redeeming by telephone, indicating the number of shares or dollar amount to be redeemed; · The request must identify your account number; · The request should be signed by you and any other person listed on the account, exactly as the shares are registered; and · If you request that the redemption proceeds be sent to a person, bank or an address other than that of record or paid to someone other than the record owner(s), or if the address was changed within the last 30 days, or if the proceeds of a requested redemption exceed $50,000, the signature(s) on the request must be medallion signature guaranteed by an eligible signature guarantor. |
When You Need Medallion Signature Guarantees: If you wish to change the bank or brokerage account that you have designated on your account, you may do so at any time by writing to the Fund with your signature guaranteed. A medallion signature guarantee assures that a signature is genuine and protects you from unauthorized account transfers. You will need your signature guaranteed if:
· | you request a redemption to be made payable to a person not on record with the Fund; |
· | you request that a redemption be mailed to an address other than that on record with the Fund; |
· | the proceeds of a requested redemption exceed $50,000; |
· | any redemption is transmitted by federal wire transfer to a bank other than the bank of record; or |
· | your address was changed within 30 days of your redemption request. |
Signatures may be guaranteed by any eligible guarantor institution (including banks, brokers and dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations). Further documentation will be required to change the designated account if shares are held by a corporation, fiduciary or other organization. A notary public cannot guarantee signatures.
Retirement Plans: If you own an IRA or other retirement plan, you must indicate on your redemption request whether the Fund should withhold federal income tax. Unless you elect in your redemption request that you do not want to have federal tax withheld, the redemption will be subject to withholding.
Low Balances: If at any time your account balance falls below $50,000 for Class I shares, the Fund may notify you that, unless the account is brought up to at least $50,000 for Class I shares within 60 days of the notice; your account could be closed. After the notice period, the Fund may redeem all of your shares and close your account by sending you a check to the address of record. Your account will not be closed if the account balance drops below required minimum due to a decline in NAV.
Tools to Combat Frequent Transactions
The Fund discourages and does not accommodate market timing. Frequent trading into and out of the Fund can harm all Fund shareholders by disrupting the Fund’s investment strategies, increasing Fund expenses, decreasing tax efficiency and diluting the value of shares held by long-term shareholders. The Fund is designed for long-term investors and is not intended for market timing or other disruptive trading activities. Accordingly, the Fund’s Board has approved policies that seek to curb these disruptive activities while recognizing that shareholders may have a legitimate need to adjust their Fund investments as their financial needs or circumstances change. The Fund currently uses several methods to reduce the risk of market timing. These methods include:
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Though these methods involve judgments that are inherently subjective and involve some selectivity in their application, the Fund seeks to make judgments and applications that are consistent with the interests of the Fund’s shareholders.
The Fund reserves the right to reject or restrict purchase or exchange requests for any reason, particularly when the shareholder’s trading activity suggests that the shareholder may be engaged in market timing or other disruptive trading activities. Neither the Fund nor the Adviser will be liable for any losses resulting from rejected purchase or exchange orders. The Adviser may also bar an investor who has violated these policies (and the investor’s financial adviser) from opening new accounts with the Fund.
Although the Fund attempts to limit disruptive trading activities, some investors use a variety of strategies to hide their identities and their trading practices. There can be no guarantee that the Fund will be able to identify or limit these activities. Omnibus account arrangements are common forms of holding shares of the Fund. While the Fund will encourage financial intermediaries to apply the Fund’s Market Timing Trading Policy to their customers who invest indirectly in the Fund, the Fund is limited in its ability to monitor the trading activity or enforce the Fund’s Market Timing Trading Policy with respect to customers of financial intermediaries. For example, should it occur, the Fund may not be able to detect market timing that may be facilitated by financial intermediaries or made difficult to identify in the omnibus accounts used by those intermediaries for aggregated purchases, exchanges and redemptions on behalf of all their customers. More specifically, unless the financial intermediaries have the ability to apply the Fund’s Market Timing Trading Policy to their customers through such methods as implementing short-term trading limitations or restrictions, the Fund may not be able to determine whether trading by customers of financial intermediaries is contrary to the Fund’s Market Timing Trading Policy. Brokers maintaining omnibus accounts with the Fund have agreed to provide shareholder transaction information to the extent known to the broker to the Fund upon request. If the Fund or its transfer agent or shareholder servicing agent suspects there is market timing activity in the account, the Fund will seek full cooperation from the service provider maintaining the account to identify the underlying participant. At the request of the Adviser, the service providers may take immediate action to stop any further short-term trading by such participants.
Householding. To reduce expenses, the Fund mail only one copy of the Prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call the Fund at 1-833-735-1055 on days the Fund are open for business or contact your financial institution. The Fund will begin sending you individual copies thirty days after receiving your request.
Distribution of Fund Shares
The Distributor
Northern Lights Distributors, LLC (the “Distributor”) is located at 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, and serves as distributor and principal underwriter to the Fund. The Distributor is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Shares of the Fund are offered on a continuous basis.
Additional Compensation to Financial Intermediaries
The distributor, its affiliates and the Adviser, out of its own resources, and without additional cost to the Fund or its shareholders, may provide additional cash payments or non-cash compensation to intermediaries who sell shares of the Fund. Such payments and compensation are in addition to service fees paid by the Fund, if any. These additional cash payments are generally made to intermediaries that provide shareholder servicing, marketing support and/or access to sales meetings, sales representatives and management representatives of the intermediary. Cash compensation may also be paid to intermediaries for inclusion of the Fund on a sales list, including a preferred or select sales list, in other sales programs or as an expense reimbursement in cases where the intermediary provides shareholder services to the Fund’s shareholders. The Adviser may also pay cash compensation in the form of finder’s fees that vary depending on the dollar amount of the shares sold.
Distributions and Taxes
Tax Status, Dividends and Distributions
Any sale or exchange of the Fund’s shares may generate tax liability (unless you are a tax-exempt investor or your investment is in a qualified retirement account). When you redeem your shares you may realize a taxable gain or loss. This is measured by the difference between the proceeds of the sale and the tax basis for the shares you sold. (To aid in computing your tax basis, you generally should retain your account statements for the period that you hold shares in the Fund.)
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The Fund intends to distribute substantially all of its net investment income and net capital gains annually. The distributions will be reinvested in shares of the Fund unless you elect to receive cash. Dividends from net investment income (including any excess of net short-term capital gain over net long-term capital loss) are taxable to investors as ordinary income, while distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss) are generally taxable as long-term capital gain, regardless of your holding period for the shares. Any dividends or capital gain distributions you receive from the Fund will normally be taxable to you when made, regardless of whether you reinvest dividends or capital gain distributions or receive them in cash. Certain dividends or distributions declared in October, November or December will be taxed to shareholders as if received in December if they are paid during the following January. Each year the Fund will inform you of the amount and type of your distributions. IRAs and other qualified retirement plans are exempt from federal income taxation until retirement proceeds are paid out to the participant.
Your redemptions, including exchanges, may result in a capital gain or loss for federal income tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the amount you receive when you sell them.
On the account application, you will be asked to certify that your social security number or taxpayer identification number is correct and that you are not subject to backup withholding for failing to report income to the IRS. If you are subject to backup withholding or you did not certify your taxpayer identification number, the IRS requires the Fund to withhold a percentage of any dividend, redemption or exchange proceeds. The Fund reserves the right to reject any application that does not include a certified social security or taxpayer identification number. If you do not have a social security number, you should indicate on the purchase form that your application to obtain a number is pending. The Fund is required to withhold taxes if a number is not delivered to the Fund within seven days.
This summary is not intended to be and should not be construed to be legal or tax advice. This summary is general in nature and should not be regarded as an exhaustive presentation of all possible tax ramifications. The tax considerations relevant to a specific shareholder depend upon its specific circumstances, and this summary does not attempt to discuss all potential tax considerations that could be relevant to a prospective shareholder with respect to the Fund or its investments. This general summary is based on the Code, the Federal Income Tax Regulations promulgated thereunder, and administrative and judicial interpretations thereof as of the date hereof, all of which are subject to change (potentially on a retroactive basis). You should consult your own independent tax advisors to determine the tax consequences of owning the Fund’s shares.
Other Reporting and Withholding Requirements. Payments to a shareholder that is either a foreign financial institution (“FFI”) or a non-financial foreign entity (“NFFE”) within the meaning of the Foreign Account Tax Compliance Act (“FATCA”) may be subject to a 30% withholding tax on: (a) income and dividends paid by the Fund and (b) certain capital gain distributions and the gross proceeds arising from the sale of Fund shares paid by the Fund after December 31, 2018. FATCA withholding tax generally can be avoided: (a) by an FFI, subject to any applicable intergovernmental agreement or other exemption, if it either enters into a valid agreement with the IRS or otherwise complies with the specific requirements and provisions of an applicable intergovernmental agreement, in each case to, among other requirements, to collect and report required information about certain direct and indirect ownership of foreign financial accounts held by U.S. persons with the FFI and (b) by an NFFE, if it: (i) certifies that it has no substantial U.S. persons as owners or (ii) if it does have such owners, reports information relating to them. The Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA. Withholding also may be required if a foreign entity that is a shareholder of the Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
Financial Highlights
Because
the Fund has only recently commenced investment operations, no financial highlights are available for the Fund at this time. In
the future, financial highlights will be presented in this section of the Prospectus.
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Privacy Policy
Revised May 2019
FACTS | WHAT DOES NORTHERN LIGHTS FUND TRUST II (“NLFT II”) DO WITH YOUR PERSONAL INFORMATION? | |||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | |||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: | |||
· Social Security number · Employment information · Account balances |
· Account transactions · Income · Investment experience |
|||
When you are no longer our customer, we continue to share your information as described in this notice. | ||||
How? | All financial companies need to share a customer’s personal information to run their everyday business - to process transactions, maintain customer accounts, and report to credit bureaus. In the section below, we list the reasons financial companies can share their customer’s personal information; the reasons NLFT II chooses to share; and whether you can limit this sharing. | |||
Reasons we can share your personal information | Does NLFT II share? |
Can you limit
this sharing? |
||
For our everyday business purposes --
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No | ||
For our marketing purposes --
to offer our products and services to you |
Yes | No | ||
For joint marketing with other financial companies | Yes | No | ||
For our affiliates’ everyday business purposes --
information about your transactions and experiences |
Yes | No | ||
For our affiliates’ everyday business purposes --
information about your creditworthiness |
No | We don’t share | ||
For nonaffiliates to market to you | No | We don’t share | ||
Questions? | Call 1-402-493-4603 | |||
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Who we are | ||
Who is providing this notice? | Northern Lights Fund Trust II | |
What we do | ||
How does NLFT II protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How does NLFT II collect my personal information? | We collect your personal information, for example, when you | |
· open an account · give us your income information · provide employment information |
· provide account information · give us your contact information |
|
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | ||
Why can’t I limit all sharing? |
Federal law gives you the right to limit only · sharing for affiliates’ everyday business purposes—information about your creditworthiness · affiliates from using your information to market to you · sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
|
Definitions | ||
Affiliates |
Companies related by common ownership or control. They can be financial and nonfinancial companies. · NLFT II has no affiliates. |
|
Nonaffiliates |
Companies not related by common ownership or control. They can be financial and nonfinancial companies. · NLFT II does not share with nonaffiliates so they can market to you. |
|
Joint marketing |
A formal agreement between nonaffiliated financial companies that together market financial products and services to you. · Our joint marketing partners include other financial service companies. |
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Investment Adviser
Certeza Fund Advisors LLC
565 W 465 N, Suite 150
Providence, UT 84332
Independent Registered Public Accounting Firm
Cohen & Company, Ltd.
1350 Euclid Ave., Suite 800
Cleveland, OH 44115
Legal Counsel
Alston & Bird, LLP
950 F Street NW
Washington, D.C. 20004
Custodian
Fifth Third Bank, National Association
38 Fountain Square Plaza
Cincinnati, OH 45263
Transfer Agent, Fund Accountant and Fund Administrator
Gemini Fund Services, LLC
4221 North 203rd Street, Suite 100
Elkhorn, NE 68022
Distributor
Northern Lights Distributors, LLC
4221 North 203rd Street, Suite 100
Elkhorn, NE 68022
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Certeza Convex Core Fund
a series of the Northern Lights Fund Trust II
FOR MORE INFORMATION |
You can find more information about the Fund in the following documents:
Statement of Additional Information
The SAI provides additional details about the investments and techniques of the Fund and certain other additional information. A current SAI is on file with the SEC and is incorporated into this Prospectus by reference. This means that the SAI is legally considered a part of this Prospectus even though it is not physically within this Prospectus.
Annual and Semi-Annual Reports
The Fund’s annual and semi-annual reports provide the most recent financial reports and portfolio listings. The annual report contains a discussion of the market conditions and investment strategies that affected the Fund’s performance during the Fund’s last fiscal year.
You can obtain a free copy of these documents, request other information, or make general inquiries about the Fund by calling the Fund (toll-free) at 1-833-735-1055, on the Fund’s website, www.certezafa.com, or by writing to:
Certeza Convex Core Fund
c/o Gemini Fund Services, LLC
4221 North 203rd Street, Suite 100
Elkhorn, NE 68022
You can review and copy information, including the Fund’s financial reports and SAI, at the SEC’s Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room by calling (202) 551-8090. Reports and other information about the Fund are also available:
· | free of charge from the SEC’s EDGAR database on the SEC’s Internet website at http://www.sec.gov; |
· | for a fee, by writing to the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549-1520; or |
· | for a fee, by electronic request at the following e-mail address: publicinfo@sec.gov. |
(The Trust’s SEC Investment Company Act file number is 811-22549)
Statement of Additional Information
Dated: December 28, 2020
Certeza Convex Core Fund
Class A Shares (Symbol: CNVEX)
Class I Shares (Symbol: CONVX)
This Statement of Additional Information (“SAI”) provides general information about the Certeza Convex Core Fund (the “Fund”), a series of Northern Lights Fund Trust II (the “Trust”). This SAI is not a prospectus and should be read in conjunction with the Fund’s current prospectus for Class A shares and Class I shares dated December 28, 2020 (the “Prospectus”), as supplemented and amended from time to time, which is incorporated herein by reference. To obtain a copy of the Prospectus, free of charge, please write or call the Fund at the address or telephone number below:
Certeza Convex Core Fund
c/o Gemini Fund Services, LLC
4221 North 203rd Street, Suite 100
Elkhorn, NE 68022
1-833-735-
1055
TABLE OF CONTENTS
---------------------------------
The Trust | 1 | |||
Investment Policies, Strategies and Associated Risks | 1 | |||
Fundamental Investment Limitations | 14 | |||
Management of the Fund | 16 | |||
Board of Trustees | 16 | |||
Board Leadership Structure | 16 | |||
Trustees and Officers | 18 | |||
Board Committees | 20 | |||
Other Committees of the Trust | 20 | |||
Trustee Compensation | 21 | |||
Control Persons and Principal Shareholders | 21 | |||
Investment Adviser | 21 | |||
Portfolio Managers | 23 | |||
Other Service Providers | 26 | |||
Distribution of Fund Shares | 27 | |||
Portfolio Transactions and Brokerage Allocation | 28 | |||
Portfolio Turnover | 29 | |||
Code of Ethics | 29 | |||
Proxy Voting Procedures | 30 | |||
Anti-Money Laundering Compliance Program | 30 | |||
Portfolio Holdings Information | 30 | |||
Determination of Net Asset Value | 32 | |||
Financial Statements | 44 | |||
APPENDIX “A” Proxy Voting Policy | 45 |
The Trust
The Certeza Convex Core Fund (the “Fund”), is a series of Northern Lights Fund Trust II, (the “Trust”) a Delaware statutory trust. The Trust was organized on August 26, 2010.
The Trust is registered as an open-end management investment company. The Trust is governed by its Board of Trustees (the “Board” or “Trustees”). The Fund may issue an unlimited number of shares of beneficial interest. All shares of the Fund have equal rights and privileges. Each share of the Fund is entitled to one vote on all matters as to which shares are entitled to vote. In addition, each share of the Fund is entitled to participate equally with other shares (i) in dividends and distributions declared by the Fund and (ii) on liquidation to its proportionate share of the assets remaining after satisfaction of outstanding liabilities. Shares of the Fund are fully paid, non-assessable and fully transferable when issued and have no pre-emptive, conversion or exchange rights. Fractional shares have proportionately the same rights, including voting rights, as are provided for a full share.
The Fund is a diversified series of the Trust. The Fund’s investment objectives, restrictions and policies are more fully described here and in the Prospectus. The Board may add classes to and reclassify the shares of the Fund, start other series and offer shares of a new fund under the Trust at any time.
The Fund has registered two classes of shares: Class A and Class I shares. Each share class represents an interest in the same assets of the Fund, has the same rights and is identical in all material respects except that (i) each class of shares may be subject to different (or no) sales loads, (ii) each class of shares may bear different (or no) distribution fees; (iii) each class of shares may have different shareholder features, such as minimum investment amounts; (iv) certain other class-specific expenses will be borne solely by the class to which such expenses are attributable, including transfer agent fees attributable to a specific class of shares, printing and postage expenses related to preparing and distributing materials to current shareholders of a specific class, registration fees paid by a specific class of shares, the expenses of administrative personnel and services required to support the shareholders of a specific class, litigation or other legal expenses relating to a class of shares, Trustees’ fees or expenses paid as a result of issues relating to a specific class of shares and accounting fees and expenses relating to a specific class of shares and (v) each class has exclusive voting rights with respect to matters relating to its own distribution arrangements.
Under the Trust’s Amended Agreement and Declaration of Trust, each Trustee will continue in office until the termination of the Trust or his/her earlier death, incapacity, resignation or removal. Shareholders can remove a Trustee to the extent provided by the Investment Company Act of 1940, as amended (the “1940 Act”) and the rules and regulations promulgated thereunder. Vacancies may be filled by a majority of the remaining Trustees, except insofar as the 1940 Act may require the election by shareholders. As a result, normally no annual or regular meetings of shareholders will be held unless matters arise requiring a vote of shareholders under the Agreement and Declaration of Trust or the 1940 Act.
Certeza Fund Advisors LLC (the “Adviser”) serves as the investment adviser to the Fund.
Investment Policies, Strategies and Associated Risks
The investment objective of the Certeza Convex Core Fund is to seek total return. The investment objective of the Fund and the descriptions of the Fund’s principal investment strategies are set forth under “Investment Strategies, Related Risks and Disclosure of Portfolio Holdings” in the Prospectus. The Fund’s investment objective is not fundamental and may be changed without the approval of a majority of the outstanding voting securities of the Trust, although the Fund will provide shareholders with notice of any change to the Fund’s investment objectives at least 60 days prior to such change.
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The following pages contain more detailed information about the types of instruments in which the Fund may invest, strategies the Adviser may employ in pursuit of the Fund’s investment objective and a summary of related risks.
Equity Securities. The Fund may invest in equity securities such as common stock, preferred stock, convertible securities, rights and warrants. Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. Warrants are options to purchase equity securities at a specified price for a specific time period. Rights are similar to warrants, but normally have a short duration and are distributed by the issuer to its shareholders. Although equity securities have a history of long term growth in value, their prices fluctuate based on changes in a company’s financial condition and on overall market and economic conditions.
Equity securities also include SPDRs (S&P Depositary Receipts, known as “Spiders”), DIAMONDS, QQQQs and a number of other exchange traded funds (“ETFs”). SPDRs represent ownership in the SPDR Trust, a unit investment trust that holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the S&P 500 Composite Price Index. SPDRs trade on the American Stock Exchange under the symbol SPY. A MidCap SPDR is similar to a SPDR except that it tracks the performance of the S&P MidCap 400 Index and trades on the American Stock Exchange under the symbol MDY. DIAMONDS represent ownership in the DIAMONDS Trust, a unit investment trust that serves as an index to the Dow Jones Industrial Average (the “Dow”) in that its holdings consists of the 30 component stocks of the Dow. DIAMONDS trade on the American Stock Exchange under the symbol DIA. QQQQs (NASDAQ-100 Index Tracking Stock) represent ownership in the NASDAQ-100 Trust, a unit investment trust that attempts to closely track the price and yield performance of the NASDAQ 100 Index by holding shares of all the companies in the Index. QQQQs trade on the American Stock Exchange under the symbol QQQQ. The Fund may also invest in a variety of other exchange traded funds, including, but not limited to, iShares, HOLDRs, Fidelity Select Portfolios, Select Sector SPDRs, Fortune e-50, Fortune 500 and streetTRACKS. To the extent the Fund invests in a sector product, the Fund is subject to the risks associated with that sector. Additionally, the Fund may invest in new exchange traded shares as they become available.
Securities Lending. The Fund may make long and short term loans of its portfolio securities to parties such as broker-dealers, banks, or institutional investors. Securities lending allows the Fund to retain ownership of the securities loaned and, at the same time, to earn additional income. Since there may be delays in the recovery of loaned securities, or even a loss of rights in collateral supplied, should the borrower fail financially, loans will be made only to parties whose creditworthiness has been reviewed and deemed satisfactory by the Adviser. Furthermore, they will only be made if, in the judgment of the Adviser, the consideration to be earned from such loans would justify the risk.
The Adviser understands that it is the current view of the staff of the Securities and Exchange Commission (the “SEC”) that the Fund may engage in loan transactions only under the following conditions: (1) the Fund must receive 100% collateral in the form of cash, cash equivalents (e.g., U.S. Treasury bills or notes) or other high grade liquid debt instruments from the borrower; (2) the borrower must increase the collateral whenever the market value of the securities loaned (determined on a daily basis) rises above the value of the collateral; (3) after giving notice, the Fund must be able to terminate the loan at any time; (4) the Fund must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and to any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; and (6) the Board of Trustees must be able to vote proxies on the securities loaned, either by terminating the loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in which the Fund is authorized to invest. Investing this cash subjects that investment, as well as the security loaned, to market forces (i.e., capital appreciation or depreciation).
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Illiquid Securities. The Fund may invest up to an aggregate amount of 15% of its net assets in illiquid investments, as such term is defined by Rule 22e-4 of the 1940 Act. The Fund may not invest in illiquid investments if, as a result of such investment, more than 15% of the Fund’s net assets would be invested in illiquid investments. Illiquid investments include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets. The inability of the Fund to dispose of illiquid investments readily or at a reasonable price could impair the Fund’s ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by the Fund that are eligible for resale pursuant to Rule 144A, except for certain 144A bonds, will be monitored by the Fund on an ongoing basis. In the event that more than 15% of the Fund’s net assets are invested in illiquid investments, the Fund, in accordance with Rule 22e-4(b)(1)(iv), will report the occurrence to both the Board and the SEC and seek to reduce its holdings of illiquid investments within a reasonable period of time.
U.S. Government Securities. The Fund may invest in U.S. government securities. Securities issued or guaranteed by the U.S. government or its agencies or instrumentalities include U.S. Treasury securities, which are backed by the full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities, and times of issuance. U.S. Treasury bills have initial maturities of one-year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities of the U.S. government including, but not limited to, obligations of U.S. government agencies or instrumentalities such as the Federal National Mortgage Association (“Fannie Mae”), the Government National Mortgage Association (“Ginnie Mae”), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the Federal Agricultural Mortgage Corporation (“Farmer Mac”). Some obligations issued or guaranteed by U.S. government agencies and instrumentalities, including, for example, Ginnie Mae passthrough certificates, are supported by the full faith and credit of the U.S. Treasury. Other obligations issued by or guaranteed by federal agencies, such as those securities issued by Fannie Mae, are supported by the discretionary authority of the U.S. government to purchase certain obligations of the federal agency, while other obligations issued by or guaranteed by federal agencies, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Treasury, while the U.S. government provides financial support to such U.S. government-sponsored federal agencies, no assurance can be given that the U.S. government will always do so, since the U.S. government is not so obligated by law. U.S. Treasury notes and bonds typically pay coupon interest semi-annually and repay the principal at maturity. On September 7, 2008, the U.S. Treasury announced a federal takeover of Fannie Mae and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), placing the two federal instrumentalities in conservatorship. Under the takeover, the U.S. Treasury agreed to acquire $1 billion of senior preferred stock of each instrumentality and obtained warrants for the purchase of common stock of each instrumentality (the “Senior Preferred Stock Purchase Agreement” or “Agreement”). Under the Agreement, the U.S. Treasury pledged to provide up to $200 billion per instrumentality as needed, including the contribution of cash capital to the instrumentalities in the event their liabilities exceed their assets. This was intended to ensure that the instrumentalities maintain a positive net worth and meet their financial obligations, preventing mandatory triggering of receivership. On December 24, 2009, the U.S. Treasury announced that it was amending the Agreement to allow the $200 billion cap on the U.S. Treasury’s funding commitment to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. As a result of this Agreement, the investments of holders, including the Fund, of mortgage-backed securities and other obligations issued by Fannie Mae and Freddie Mac are protected. The total public debt of the United States as a percentage of gross domestic product has grown rapidly since the beginning of the 2008–2009 financial downturn. Although high debt levels do not necessarily indicate or cause economic problems, they may create certain systemic risks if sound debt management practices are not implemented. A high national debt can raise concerns that the U.S. government will not be able to make principal or interest payments when they are due. This increase has also necessitated the need
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for the U.S. Congress to negotiate adjustments to the statutory debt limit to increase the cap on the amount the U.S. government is permitted to borrow to meet its existing obligations and finance current budget deficits. In August 2011, S&P lowered its long-term sovereign credit rating on the U.S. In explaining the downgrade at that time, S&P cited, among other reasons, controversy over raising the statutory debt limit and growth in public spending. On August 2, 2019, following passage by Congress, the President of the United States signed the Bipartisan Budget Act of 2019, which suspends the statutory debt limit through July 31, 2021. Any controversy or ongoing uncertainty regarding the statutory debt ceiling negotiations may impact the U.S. long-term sovereign credit rating and may cause market uncertainty. As a result, market prices and yields of securities supported by the full faith and credit of the U.S. government may be adversely affected.
Treasury Inflation-Protected Securities. The Fund may invest in underlying funds that invest in inflation-protected public obligations, commonly known as “TIPS,” of the U.S. Treasury, as well as TIPS of major governments and emerging market countries, excluding the United States. TIPS are a type of security issued by a government that is designed to provide inflation protection to investors. TIPS are income-generating instruments whose interest and principal payments are adjusted for inflation—a sustained increase in prices that erodes the purchasing power of money. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the Consumer Price Index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises or falls, both the principal value and the interest payments will increase or decrease. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of an investment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds
Financial Services Industry Obligations. The Fund may invest in each of the following obligations of the financial services industry:
(1) Certificate of Deposit. Certificates of deposit are negotiable certificates evidencing the indebtedness of a commercial bank or a savings and loan association to repay funds deposited with it for a definite period of time (usually from fourteen days to one year) at a stated or variable interest rate.
(2) Time Deposits. Time deposits are non-negotiable deposits maintained in a banking institution or a savings and loan association for a specified period of time at a stated interest rate.
(3) Bankers’ Acceptances. Bankers’ acceptances are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer, which instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity.
Repurchase Agreements. The Fund may invest in repurchase agreements fully collateralized by obligations issued by the U.S. government or agencies of the U.S. government (“U.S. Government Obligations”). A repurchase agreement is a short term investment in which the purchaser (i.e., the Fund) acquires ownership of a U.S. Government Obligation (which may be of any maturity) and the seller agrees to repurchase the obligation at a future time at a set price, thereby determining the yield during the purchaser’s holding period (usually not more than 7 days from the date of purchase). Any repurchase transaction in which the Fund engages will require full collateralization of the seller’s obligation during the entire term of the repurchase agreement. In the event of a bankruptcy or other default of the seller, the Fund could experience both delays in liquidating the underlying security and losses in value. However, the Fund intends to enter into repurchase agreements only with the custodian, other banks with assets of $1 billion or more and registered securities dealers determined by the Adviser to be creditworthy. The Adviser monitors the creditworthiness of the banks and securities dealers with which the Fund engages in repurchase transactions.
Borrowing. The Fund is permitted to borrow money up to one-third of the value of its total assets. Borrowing is a speculative technique that increases both investment opportunity and the Fund’s ability to achieve greater diversification. However, it also increases investment risk. Because the Fund’s investments will fluctuate in value, whereas the interest obligations on borrowed funds may be fixed, during times of borrowing, the Fund’s
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net asset value may tend to increase more when its investments increase in value, and decrease more when its investments decrease in value. In addition, interest costs on borrowings may fluctuate with changing market interest rates and may partially offset or exceed the return earned on the borrowed funds. Also, during times of borrowing under adverse market conditions, the Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor such sales.
Other Investment Companies. The Fund may invest up to 100% in shares of other investment companies, including money market mutual funds, other mutual funds or Exchange Traded Funds (“ETFs”). The Fund’s investments in money market mutual funds may be used for cash management purposes and to maintain liquidity in order to satisfy redemption requests or pay unanticipated expenses. The Fund limits its investments in securities issued by other investment companies in accordance with the 1940 Act or with certain terms and conditions of applicable exemptive orders issued by the SEC and approved by the Board of Trustees. Section 12(d)(1) of the 1940 Act precludes the Fund from acquiring (i) more than 3% of the total outstanding shares of another investment company; (ii) shares of another investment company having an aggregate value in excess of 5% of the value of the total assets of the Fund; or (iii) shares of another registered investment company and all other investment companies having an aggregate value in excess of 10% of the value of the total assets of the Fund. However, Section 12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d)(1) shall not apply to securities purchased or otherwise acquired by the Fund if (i) immediately after such purchase or acquisition not more than 3% of the total outstanding shares of such investment company is owned by the Fund and all affiliated persons of the Fund; and (ii) the Fund has not offered or sold, and is not proposing to offer or sell its shares through a principal underwriter or otherwise at a public or offering price that includes a sales load of more than 1 1/2%. SEC Rule 12d1-3 provides, however, that the Fund may rely on the Section 12(d)(1)(F) exemption and charge a sales load in excess of 1 1/2% provided the sales load and any service fee charged does not exceed limits set forth in applicable Financial Industry Regulatory Authority, Inc. (“FINRA”) rules.
If the Fund invests in investment companies, including ETFs, pursuant to Section 12(d)(1)(F), it must comply with the following voting restrictions: when the Fund exercises voting rights, by proxy or otherwise, with respect to investment companies owned by the Fund, the Fund will either seek instruction from the Fund’s shareholders with regard to the voting of all proxies and vote in accordance with such instructions, or vote the shares held by the Fund in the same proportion as the vote of all other holders of such security. In addition, an investment company purchased by the Fund pursuant to Section 12(d)(1)(F) shall not be required to redeem its shares in an amount exceeding 1% of such investment company’s total outstanding shares in any period of less than thirty days. In addition to the advisory and operational fees the Fund bears directly in connection with its own operation, the Fund also bears its pro rata portion of the advisory and operational expenses incurred indirectly through investments in other investment companies. In addition, ETFs are subject to the following risks that do not apply to conventional mutual funds: (1) the market price of the ETF’s shares may trade at a discount to their net asset value; (2) an active trading market for an ETF’s shares may not develop or be maintained; or (3) trading of an ETF’s shares may be halted if the listing exchange’s officials deem such action appropriate, the shares are de-listed from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally. Additionally, ETFs have management fees, which increase their cost.
Exchange-Traded Funds (“ETF”). An ETF generally is an open-end investment company, unit investment trust or a portfolio of securities deposited with a depository in exchange for depository receipts. The portfolios of ETFs generally consist of common stocks that closely track the performance and dividend yield of specific securities indices, either broad market, sector or international. ETFs provide investors the opportunity to buy or sell throughout the day an entire portfolio of stocks in a single security. Although index mutual funds are similar, they are generally sold and redeemed only once per day at market close. Broad securities market index ETFs include Standard & Poor’s Depository Receipts (“SPDRs”), which are interests in a unit investment trust representing an undivided interest in a portfolio of all of the common stocks of the S&P 500 Index. The ETFs invests are subject to liquidity risk. Liquidity risk exists when particular investments are difficult to
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purchase or sell, possibly preventing the sale of the security at an advantageous time or price. To the extent that an ETFs in which the Fund invests hold securities of companies with smaller market capitalizations or securities with substantial market risk, they will have a greater exposure to liquidity risk.
Options, Futures and Other Strategies
General. Investments in futures contracts, put and call options, forward contracts, swaps and options on securities, futures, broadly-based stock indices and currencies (collectively, “Financial Instruments”) as a substitute for a comparable market position in the underlying security, to attempt to hedge or limit the exposure of the Fund’s position, to create a synthetic money market position, for certain tax-related purposes and to effect closing transactions.
The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the Commodity Futures Trading Commission (the “CFTC”). In addition, the Fund’s ability to use Financial Instruments will be limited by tax considerations. In addition to the instruments, strategies and risks described below and in the Prospectus, the Fund’s Adviser may discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as the Adviser develop new techniques, as regulatory authorities broaden the range of permitted transactions and as new Financial Instruments or other techniques are developed. The Adviser may utilize these opportunities to the extent that they are consistent with the Fund’s investment objective and permitted by the Fund’s investment limitations and applicable regulatory authorities. The Prospectus or this SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below. Risks pertaining to particular Financial Instruments are described in the sections that follow.
(1) Successful use of most Financial Instruments depends upon the Adviser’s or investment model’s ability to predict movements of the overall securities markets, which requires different skills than predicting changes in the prices of individual securities. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of stock market trends by the Adviser may still not result in a successful transaction. The Adviser may be incorrect in their expectations as to the extent of market movements or the time span within which the movements take place, which, thus, may result in the strategy being unsuccessful.
(2) Options and futures prices can diverge from the prices of their underlying instruments. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect or no correlation also may result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded and from imposition of daily price fluctuation limits or trading halts.
(3) As described below, the Fund might be required to maintain assets as “cover,” maintain segregated accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (e.g., Financial Instruments other than purchased options). If the Fund were unable to close out its positions in such Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Fund’s ability to sell a portfolio security or make an investment when it would otherwise be favorable to do so or require that the Fund sell a portfolio security at a disadvantageous time. The Fund’s ability to close out a position in a Financial Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the
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transaction (the “counter-party”) to enter into a transaction closing out the position. Therefore, there is no assurance that any position can be closed out at a time and price that is favorable to the Fund.
(4) Losses may arise due to unanticipated market price movements, lack of a liquid secondary market for any particular instrument at a particular time or due to losses from premiums paid by the Fund on options transactions.
Cover. Transactions using Financial Instruments, other than purchased options, expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (1) an offsetting (“covered”) position in securities or other options or futures contracts or (2) cash and liquid assets with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its Custodian, or another approved custodian, in the prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of the Fund’s assets to cover accounts could impede portfolio management or the Fund’s ability to meet redemption requests or other current obligations.
Options. The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment and general market conditions. Options that expire unexercised have no value. Options currently are traded on the Chicago Board Options Exchange, the NYSE Amex Options exchange and other exchanges, as well as the OTC markets.
By buying a call option on a security, the Fund has the right, in return for the premium paid, to buy the security underlying the option at the exercise price. By writing (selling) a call option and receiving a premium, the Fund becomes obligated during the term of the option to deliver securities underlying the option at the exercise price if the option is exercised. By buying a put option, the Fund has the right, in return for the premium, to sell the security underlying the option at the exercise price. By writing a put option, the Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price.
Because options premiums paid or received by the Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities.
The Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Fund may terminate its obligation under a call or put option that it had written, by purchasing an identical call or put option. This is known as a closing purchase transaction. Conversely, the Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option. This is known as a closing sale transaction. Closing transactions permit the Fund to realize profits or limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between the Fund and its counter-party (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when the Fund purchases an OTC option, it relies on the counter-party from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counter-party to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the transaction.
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The Fund’s ability to establish and close out positions in exchange-traded options depends on the existence of a liquid market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counter-party or by a transaction in the secondary market if any such market exists. There can be no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counter-party, the Fund might be unable to close out an OTC option position at any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by the Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised.
Options on Indices. An index fluctuates with changes in the market values of the securities included in the index. Options on indices give the holder the right to receive an amount of cash upon exercise of the option. Receipt of this cash amount will depend upon the closing level of the index upon which the option is based being greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. Some stock index options are based on a broad market index such as the S&P 500 Index, the NYSE Composite Index or the NYSE Arca Major Market Index or on a narrower index such as the Philadelphia Stock Exchange Over-the-Counter Index.
Each of the exchanges has established limitations governing the maximum number of call or put options on the same index that may be bought or written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). Under these limitations, option positions of all investment companies advised by the Adviser are combined for purposes of these limits. Pursuant to these limitations, an exchange may order the liquidation of positions and may impose other sanctions or restrictions. These positions limits may restrict the number of listed options that the Fund may buy or sell.
Puts and calls on indices are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When the Fund writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from the Fund an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call times a specified multiple (“multiplier”), which determines the total value for each point of such difference. When the Fund buys a call on an index, it pays a premium and has the same rights to such call as are indicated above. When the Fund buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Fund’s exercise of the put, to deliver to the Fund an amount of cash if the closing level of the index upon which the put is based is less than the exercise price of the put, which amount of cash is determined by the multiplier, as described above for calls. When the Fund writes a put on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Fund to deliver to it an amount of cash equal to the difference between the closing level of the index and the exercise price times the multiplier if the closing level is less than the exercise price.
Risks of Options on Indices. If the Fund has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the Fund will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer.
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Futures Contracts and Options on Futures Contracts. A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified security on the expiration date of the contract. An index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying securities in the index is made.
When the Fund writes an option on a futures contract, it becomes obligated, in return for the premium paid, to assume a position in the futures contract at a specified exercise price at any time during the term of the option. If the Fund writes a call, it assumes a short futures position. If it writes a put, it assumes a long futures position. When the Fund purchases an option on a futures contract, it acquires the right in return for the premium it pays to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put).
Whether the Fund realizes a gain or loss from futures activities depends upon movements in the underlying security or index. The extent of the Fund’s loss from an unhedged short position in futures contracts or from writing unhedged call options on futures contracts is potentially unlimited. The Fund only purchases and sells futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade.
No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Fund is required to deposit “initial margin” in an amount generally equal to 10% or less of the contract value. Margin also must be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.
Subsequent “variation margin” payments are made to and from the futures commission merchant daily as the value of the futures position varies, a process known as “marking-to-market.” Variation margin does not involve borrowing, but rather represents a daily settlement of the Fund’s obligations to or from a futures commission merchant. When the Fund purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when the Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter into offsetting closing transactions, similar to closing transactions in options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures and options on futures contracts may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract or an option on a futures contract can vary from the previous day’s settlement price. Once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.
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If the Fund were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain cash or liquid assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including the options on futures markets), due to differences in the natures of those markets, are subject to the following factors, which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationships between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions.
Combined Positions. The Fund may purchase and write options in combination with each other. For example, the Fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
Short-Term Fixed Income Securities and Cash Investments
The Fund may invest in any of the following securities and instruments:
Money Market Mutual Funds. The Fund may invest in money market mutual funds in connection with its management of daily cash positions or as a temporary defensive measure. Generally, money market mutual funds seek to earn income consistent with the preservation of capital and maintenance of liquidity. They primarily invest in high quality money market obligations, including securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities, bank obligations and high-grade corporate instruments. These investments generally mature within 397 days from the date of purchase. An investment in a money market mutual fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any government agency. The Fund’s investments in money market mutual funds may be used for cash management purposes and to maintain liquidity in order to satisfy redemption requests or pay unanticipated expenses.
Your cost of investing in the Fund will generally be higher than the cost of investing directly in the underlying money market mutual fund shares. You will indirectly bear fees and expenses charged by the underlying money market mutual funds in addition to the Fund’s direct fees and expenses. Furthermore, the use of this strategy could affect the timing, amount and character of distributions to you and therefore may increase the amount of taxes payable by you.
Bank Certificates of Deposit, Bankers’ Acceptances and Time Deposits. The Fund may acquire certificates of deposit, bankers’ acceptances and time deposits. Certificates of deposit are negotiable certificates issued against monies deposited in a commercial bank for a definite period of time and earning a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning in effect that the bank unconditionally agrees
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to pay the face value of the instrument on maturity. Certificates of deposit and bankers’ acceptances acquired by the Fund will be dollar-denominated obligations of domestic or foreign banks or financial institutions which at the time of purchase have capital, surplus and undivided profits in excess of $100 million (including assets of both domestic and foreign branches), based on latest published reports, or less than $100 million if the principal amount of such bank obligations are fully insured by the U.S. Government.
Domestic banks and foreign banks are subject to different governmental regulations with respect to the amount and types of loans that may be made and interest rates that may be charged. In addition, the profitability of the banking industry depends largely upon the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. General economic conditions as well as exposure to credit losses arising from possible financial difficulties of borrowers play an important part in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks are, among other things, required to maintain specified levels of reserves, limited in the amount which they can loan to a single borrower and subject to other regulations designed to promote financial soundness. However, such laws and regulations do not necessarily apply to foreign bank obligations that the Fund may acquire.
In addition to purchasing certificates of deposit and bankers’ acceptances, to the extent permitted under the investment objective and policies stated above and in the Prospectus, the Fund may make interest-bearing time or other interest-bearing deposits in commercial or savings banks. Time deposits are non-negotiable deposits maintained at a banking institution for a specified period of time at a specified interest rate.
Savings Association Obligations. The Fund may invest in certificates of deposit (interest-bearing time deposits) issued by savings banks or savings and loan associations that have capital, surplus and undivided profits in excess of $100 million, based on latest published reports, or less than $100 million if the principal amount of such obligations is fully insured by the U.S. Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. The Fund may invest a portion of its assets in commercial paper and short-term notes. Commercial paper consists of unsecured promissory notes issued by corporations. Issues of commercial paper and short-term notes will normally have maturities of less than nine months and fixed rates of return, although such instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the time of purchase “A-2” or higher by S&P, “Prime-1” or “Prime-2” by Moody’s, or similarly rated by another nationally recognized statistical rating organization or, if unrated, will be determined by the Adviser to be of comparable quality.
Corporate obligations include bonds and notes issued by corporations to finance longer-term credit needs than supported by commercial paper. While such obligations generally have maturities of ten years or more, the Fund may purchase corporate obligations which have remaining maturities of one year or less from the date of purchase and which are rated “A” or higher by S&P or “A” or higher by Moody’s.
U.S. Government Obligations
The Fund may invest in various types of U.S. Government obligations. U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, such as the U.S. Treasury. U.S. Government obligations may include securities such as Treasury Inflation Protected Securities, or “TIPS.” Payment of principal and interest on U.S. Government obligations may be backed by the full faith and credit of the United States or may be backed solely by the issuing or guaranteeing agency or instrumentality itself. In the latter case, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment, which agency or instrumentality may be privately owned. There can be no assurance that the U.S. Government would
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provide financial support to its agencies or instrumentalities (including government-sponsored enterprises) where it is not obligated to do so. See also “Mortgage-Backed Securities,” below.
When-Issued Securities
The Fund may from time to time purchase securities on a “when-issued” basis. The price of such securities, which may be expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment for the when-issued securities take place at a later date. Normally, the settlement date occurs within one month of the purchase. During the period between purchase and settlement, the Fund makes no payment to the issuer and no interest accrues to the Fund. To the extent that assets of the Fund are held in cash pending the settlement of a purchase of securities, the Fund would earn no income. While when-issued securities may be sold prior to the settlement date, the Fund intends to purchase such securities with the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the value of the security in determining its net asset value. The market value of the when-issued securities may be more or less than the purchase price. The Fund does not believe that its net asset value or income will be adversely affected by the purchase of securities on a when-issued basis. The Fund will segregate liquid assets equal in value to commitments for when-issued securities, which may reduce but does not eliminate leverage.
Additional Risks
Counterparty Risk.
The Fund may engage in transactions in securities and financial instruments that involve counterparties. Counterparty risk is the risk that a counterparty (the other party to a transaction or an agreement or the party with whom the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest or settlement payments, or otherwise honor its obligations.
Risk of Potential Government Regulation of Derivatives
It is possible that government regulation of various types of derivative instruments, including futures and options on futures, may limit or prevent the Fund from using such instruments as a part of its investment strategy or may increase the costs associated with using those instruments and could ultimately prevent the Fund from being able to fully achieve its investment objectives. It is impossible to fully predict the effects of past, present or future legislation and regulation in this area, but the effects could be substantial and adverse.
The futures markets are subject to comprehensive statutes, regulations, and margin requirements. In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the implementation or reduction of speculative position limits, the implementation of higher margin requirements, the establishment of daily price limits and the suspension of trading.
The regulation of futures and options on futures in the U.S. is a rapidly changing area of law and is subject to modification by government and judicial action. There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of the Fund to continue to implement its investment strategies. In particular, the Dodd-Frank Act sets forth a legislative framework for over-the-counter (“OTC”) derivatives, such as swaps, in which the Fund may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and, among other things, requires clearing of many OTC derivatives transactions and imposes minimum margin and capital requirements on uncleared OTC derivatives transactions.
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In addition, in November 2019, the SEC proposed new regulations applicable to a registered investment company’s use of derivatives and related instruments. If adopted as proposed, these regulations could limit or impact the Fund’s ability to invest in derivatives and other instruments, limit the Fund’s ability to employ certain strategies that use derivatives and adversely affect the Fund’s performance, efficiency in implementing its strategy, liquidity and ability to pursue its investment objectives.
Additional Risks - Recent Market Events.
The Fund could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns. The value of a security or other instrument may decline due to changes in general market conditions, economic trends or events that are not specifically related to the issuer of the security or other instrument, or factors that affect a particular issuer or issuers, country, group of countries, region, market, industry, group of industries, sector or asset class. During a general market downturn, multiple asset classes may be negatively affected. Changes in market conditions and interest rates generally do not have the same impact on all types of securities and instruments.
Stresses associated with the 2008 financial crisis in the United States and global economies peaked approximately a decade ago, but periods of unusually high volatility in the financial markets and restrictive credit conditions, sometimes limited to a particular sector or a geography, continue to recur. Some countries, including the United States, have adopted and/or are considering the adoption of more protectionist trade policies, a move away from the tighter financial industry regulations that followed the financial crisis, and/or substantially reducing corporate taxes. The exact shape of these policies is still being considered, but the equity and debt markets may react strongly to expectations of change, which could increase volatility, especially if the market’s expectations are not borne out. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time. In addition, geopolitical and other risks, including environmental and public health, may add to instability in world economies and markets generally. Economies and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to countries experiencing economic, political and/or financial difficulties, the value and liquidity of the Fund’s investments may be negatively affected by such events.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. On March 11, 2020, the World Health Organization announced that it had made the assessment that COVID-19 can be characterized as a pandemic. COVID-19 has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, business and school closings, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty. The value of the Fund and the securities in which the Fund invests may be adversely affected by impacts caused by COVID-19 and other epidemics and pandemics that may arise in the future.
Index Performance Risk. The Fund is linked to an Index maintained by a third party provider unaffiliated with the Fund or adviser. There can be no guarantee or assurance that the methodology used by the third party provider to create the Index will result in the Fund achieving positive returns. Further, there can be no guarantee that the methodology underlying the Index or the daily calculation of the Index will be free from error. It is also possible that the value of the Index may be subject to intentional manipulation by third-party
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market participants. The Index used by the Fund may underperform other asset classes and may underperform other similar indices. Each of these factors could have a negative impact on the performance of the Fund.
Early Close/Trading Halt Risk. An exchange or market may close or issue trading halts on specific securities, or the ability to buy or sell certain securities or financial instruments may be restricted, which may result in a Fund being unable to buy or sell certain securities or financial instruments. For example , there is a risk that sharp price declines in securities owned by the Fund may trigger trading halts, which may result in the Fund’s shares trading at an increasingly large discount to NAV during part of, or all of, the trading day. In such circumstances, a Fund may be unable to rebalance its portfolio, may be unable to accurately price its investments and/or may incur substantial trading losses.
Fundamental Investment Limitations
The Trust (on behalf of the Fund) has adopted the following restrictions as fundamental policies, which may not be changed without the favorable vote of the holders of a “majority of the outstanding voting securities of the Fund,” as defined in the 1940 Act. Under the 1940 Act, the “vote of the holders of a majority of the outstanding voting securities” means the vote of the holders of the lesser of (i) 67% of the shares of the Fund represented at a meeting at which the holders of more than 50% of its outstanding shares are represented or (ii) more than 50% of the outstanding shares of the Fund.
The Fund may not:
1. | Issue senior securities. This limitation is not applicable to activities that may be deemed to involve the issuance or sale of a senior security by the Fund, provided that the Fund’s engagement in such activities is consistent with or permitted by the 1940 Act, as amended, the rules and regulations promulgated thereunder or interpretations of the SEC or its staff; |
2. | Borrow money, except (a) from a bank, provided that immediately after such borrowing there is an asset coverage of 300% for all borrowings of the Fund; or (b) from a bank or other persons for temporary purposes only, provided that such temporary borrowings are in an amount not exceeding 5% of the Fund’s total assets at the time when the borrowing is made. This limitation does not preclude the Fund from entering into reverse repurchase transactions, provided that the Fund has an asset coverage of 300% for all borrowings and repurchase commitments of the Fund pursuant to reverse repurchase transactions; |
3. | Purchase securities on margin, participate on a joint or joint and several basis in any securities trading account, or underwrite securities. (Does not preclude the Fund from obtaining such short-term credit as may be necessary for the clearance of purchases and sales of its portfolio securities, and except to the extent that the Fund may be deemed an underwriter under the Securities Act of 1933, by virtue of disposing of portfolio securities); |
4. | Purchase or sell real estate or interests in real estate. This limitation does not preclude the Fund from investing in companies engaged in the real estate business or that have a significant portion of their assets in real estate; |
5. | Invest 25% or more of the market value of its assets in the securities of companies engaged in any one industry. (Does not apply to investment in the securities of the U.S. Government, its agencies or instrumentalities.); |
6. | Purchase or sell commodities (unless acquired as a result of ownership of securities or other investments) or commodity futures contracts, except that the Fund may purchase and sell futures contracts and options to the full extent permitted under the 1940 Act, sell foreign currency contracts in accordance with any rules of the Commodity Futures Trading Commission, invest in securities or other instruments backed by commodities, and invest in companies that are engaged in a commodities business or have a significant portion of their assets in commodities; |
7. | Make loans to others, except (a) through the purchase of debt securities in accordance with its investment objectives and policies, (b) to the extent the entry into a repurchase agreement is deemed to be a loan, and (c) by loaning portfolio securities; or |
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8. | With respect to 75% of its total assets, invest 5% or more of its total assets in securities of a single issuer or hold more than 10% of the voting securities of such issuer (does not apply to investment in the securities of the U.S. government, its agencies or instrumentalities, or other investment companies). As a matter of operating policy, the Fund will not consider repurchase agreements to be subject to the above-stated 5% limitation if all of the collateral underlying the repurchase agreements are U.S. government securities and such repurchase agreements are fully collateralized. |
The following lists the non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board of Trustees, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may:
1. | Invest in other investment companies to the extent permitted by the Investment Company Act of 1940 (“1940 Act”) or the rules thereunder or pursuant to exemptive relief granted by the Securities and Exchange Commission (“SEC”). |
The Fund may not:
Except with respect to borrowing and illiquid securities, if a percentage or rating restriction on investment or use of assets set forth herein or in the Prospectus is adhered to at the time a transaction is effected, later changes in percentage resulting from any cause other than actions by the Fund will not be considered a violation.
Management of the Fund
Board of Trustees
The management and affairs of the Fund is supervised by the Board of Trustees. The Board of Trustees consists of five individuals, four (4) of whom are not “interested persons” (as defined under the 1940 Act) of the Trust and the Adviser (“Independent Trustees”). The Trustees are fiduciaries for the Fund’s shareholders and are governed by the laws of the State of Delaware in this regard. The Board of Trustees establishes policies for the operation of the Fund and appoints the officers who conduct the daily business of the Fund.
Board Leadership Structure
The Trust is led by Mr. Brian Nielsen, who has served as the Chairman of the Board since 2011. Mr. Nielsen is an interested person by virtue of his prior affiliation with Northern Lights Distributors, LLC (the Fund’s Distributor). The Board of Trustees is comprised of Mr. Nielsen and four (4) Independent Trustees. Under certain 1940 Act governance guidelines that apply to the Trust, the Independent Trustees will meet in executive session, at least quarterly. Under the Trust’s Agreement and Declaration of Trust and By-Laws, the Chairman of the Board is responsible for (a) presiding at board meetings, (b) calling special meetings on an as-needed basis, (c) setting the agendas for board meetings and (d) ensuring board members are provided necessary materials in advance of each board meeting. The Trust believes that (i) its Chairman, (ii) Keith Rhoades, the
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independent chair of the Audit Committee, and, (iii) as an entity, the full Board of Trustees, provide effective leadership that is in the best interests of the Trust, each of its funds and each shareholder. The Independent Trustees have selected Anthony Lewis as the Lead Independent Trustee.
In accordance with the fund governance standards prescribed by the SEC under the 1940 Act, the Independent Trustees on the Nominating Committee select and nominate all candidates for Independent Trustee positions. Each Trustee was appointed to serve on the Board of Trustees because of his experience, qualifications, attributes and/or skills. The Board of Trustees reviews its leadership structure regularly on at least an annual basis. The Board of Trustees believes that the structure described above facilitates the orderly and efficient flow of information to the Trustees from the officers of the Trust, the advisers of the funds that comprise the Trust and other service providers, and facilitates the effective evaluation of the risks and other issues, including conflicts of interest, that may impact the Trust as a whole as well as the funds individually. The Board of Trustees believes that the orderly and efficient flow of information and the ability of the Board of Trustees to bring each Trustee’s experience and skills to bear in overseeing the Trust’s operations is important given the characteristics and circumstances of the Trust, including: the unaffiliated nature of each investment adviser and the fund(s) managed by such adviser; the number of funds that comprise the Trust; the variety of asset classes that those funds reflect; the net assets of the Trust; the committee structure of the Trust; and the independent arrangements of each of the Trust’s series. For these reasons, the Board of Trustees believes that its leadership structure is appropriate.
Board Responsibilities.
The Board of Trustees’ role is one of oversight rather than day-to-day management of any of the Trust’s series. The Trust’s Audit Committee assists with this oversight function. The Board of Trustees’ oversight extends to the Trust’s risk management processes. Those processes are overseen by Trust officers, including the President, the Treasurer, the Secretary and Chief Compliance Officer (“CCO”), who regularly report to the Board of Trustees on a variety of matters at Board meetings.
Board Risk Oversight.
The Board of Trustees is comprised of Mr. Nielsen and four (4) Independent Trustees with a standing independent Audit Committee with a separate chair. The Board is responsible for overseeing risk management, and the full Board regularly engages in discussions of risk management and receives compliance reports that inform its oversight of risk management from its CCO at quarterly meetings and on an ad hoc basis, when and if necessary. The Audit Committee considers financial and reporting risk within its area of responsibilities. Generally, the Board believes that its oversight of material risks is adequately maintained through the compliance-reporting chain where the CCO is the primary recipient and communicator of such risk-related information and oversees the Trust’s service providers’ adherence to the Trust’s policies and procedures.
Investment advisers managing the Trust’s series report to the Trust’s CCO and the Board of Trustees, on a regular and as-needed basis, on actual and possible risks affecting the Trust’s series. These investment advisers report to the CCO and the Board of Trustees on various elements of risk, including investment, credit, liquidity, valuation, operational and compliance risks, as well as any overall business risks that could impact the Trust’s series.
The Board of Trustees has appointed the CCO, who reports directly to the Board of Trustees and who participates in its regular meetings. In addition, the CCO conducts on-going and continuous compliance testing and presents an annual report to the Board of Trustees in accordance with the Trust’s compliance policies and procedures. The CCO, together with the Trust’s President, Treasurer and Secretary, regularly discusses risk issues affecting the Trust and its series during Board of Trustee meetings. The CCO also provides updates to the Board of Trustees on the operation of the Trust’s compliance policies and procedures and on how these procedures are designed to mitigate risk. Finally, the CCO and/or other officers of the Trust report to the Board of Trustees in the event that any material risk issues arise in between Board meetings.
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Trustee Qualifications.
Generally, the Trust believes that each Trustee is competent to serve because of their individual overall merits including: (i) experience, (ii) qualifications, (iii) attributes and (iv) skills. Mr. Nielsen has over eighteen years of experience in the investment management and brokerage business including a focus in compliance, legal and regulatory oversight and possesses a strong understanding of the regulatory framework under which investment companies must operate. Since 2010, Thomas Sarkany has been the President of TTS Consultants, LLC, a financial services firm and from 1994 through 2010 held various roles at Value Line, Inc. (a publicly held company providing financial research, publications and money management services to retail and institutional investors), including Director of Marketing and Asset Management, Director of Index Licensing, and member of the Board of Directors. Anthony Lewis has been Chairman and CEO of The Lewis Group USA, an executive consulting firm, for the past ten years, and also serves as a Director, the Chairman of the Compensation Committee, and a Member of the Audit Committee of Torotel Inc. Keith Rhoades held various accounting roles at Union Pacific Railroad, including Senior Director of General Ledger/Financial Research. Randy Skalla has more than 20 years of investment management experience including serving as President of L5 Enterprises, Inc. since 2001 and from 2001 through 2017 was a member of the Orizon Investment Counsel Board. The Trust does not believe any one factor is determinative in assessing a Trustee’s qualifications, but that the collective experience of each Trustee makes them each highly qualified.
The Board of Trustees has established three standing board committees – the Audit Committee, the Compensation Committee, and the Nominating Committee. All Independent Trustees are members of the Audit Committee, Compensation Committee and the Nominating Committee. Inclusion of all Independent Trustees as members of all three standing committees allows all such Trustees to participate in the full range of the Board of Trustees’ oversight duties, including oversight of risk management processes.
Trustees and Officers
The Trustees and the officers of the Trust are listed below with their addresses, present positions with the Trust and principal occupations over at least the last five years. The business address of each Trustee and Officer is 225 Pictoria Drive, Suite 450, Cincinnati, OH 45246. All correspondence to the Trustees and Officers should be directed to c/o Gemini Fund Services, LLC, P.O. Box 541150, Omaha, Nebraska 68154.
Independent Trustees
Name and Year of Birth | Position/Term of Office* |
Principal Occupation During the Past Five Years |
Number of Portfolios in Fund Complex*** Overseen by Trustee | Other Directorships held by Trustee During the Past Five Years | |
Thomas T. Sarkany 1946
|
Trustee Since October 2011 | President, TTS Consultants, LLC (since 2010) (financial services). | 1 | Director, Aquila Distributors, Trustee, Arrow ETF Trust; Trustee, Arrow Investments Trust; Trustee, Northern Lights Fund Trust IV | |
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Anthony H. Lewis 1946
|
Trustee Since May 2011
|
Chairman and CEO of The Lewis Group USA (since 2007) (executive consulting firm). | 1 | Director, Member of the Compensation Committee and Member of the Risk Committee of Torotel Inc. (Magnetics, Aerospace and Defense), Trustee, Chairman of the Fair Valuation Committee and Member of the Audit Committee of the Wildermuth Endowment Strategy Fund |
Keith Rhoades 1948 |
Trustee Since May 2011 | Retired since 2008. | 1 | NONE |
Randal D. Skalla 1962
|
Trustee Since May 2011 |
President, L5 Enterprises, Inc. (since 2001) (financial services company).
|
1 | Board member, Orizon Investment Counsel (2001 to 2017) (financial services company) |
Interested Trustees and Officers
Name and Year of Birth | Position/Term of Office* |
Principal Occupation During the Past Five Years |
Number of Portfolios in Fund Complex*** Overseen by Trustee |
Other Directorships held by Trustee During the Past Five Years | |
Brian Nielsen** 1972
|
Trustee Since May 2011 |
Trustee of Northern Lights Fund Trust II (since 2011); Special Projects Counsel of NorthStar Financial Services Group, LLC (from 2018 to 2019); Secretary of CLS Investments, LLC (from 2001 to 2018); Secretary of Orion Advisor Services, LLC (from 2001 to 2018); Manager (from 2012 to 2015), General Counsel and Secretary (from 2003 to 2018) of NorthStar Financial Services Group, LLC; CEO (from 2012 to 2018), Secretary (from 2003 to 2018) and Manager (from 2005 to 2018) of Northern Lights Distributors, LLC; Director, Secretary and General Counsel of Constellation Trust Company (from 2004 to 2018); | 1 | Manager of Northern Lights Distributors, LLC (from 2005 to 2018); Manager of NorthStar Financial Services Group, LLC (from 2012 to 2015); Manager of Arbor Point Advisors, LLC (from 2012 to 2018); Director of Constellation Trust Company (from 2004 to 2018) | |
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CEO (from 2015 to 2018), Manager (from 2008 to 2015), General Counsel and Secretary (from 2011 to 2018) of Northern Lights Compliance Services, LLC; General Counsel and Secretary of Blu Giant, LLC (from 2011 to 2018); Secretary of Gemini Fund Services, LLC (from 2012 to 2018); Manager of Arbor Point Advisors, LLC (from 2012 to 2018); Secretary and General Counsel of NorthStar Holdings, LLC (from 2013 to 2015); Director, Secretary and General Counsel of NorthStar CTC Holdings, Inc. (from 2015 to 2018) and Secretary and Chief Legal Officer of AdvisorOne Funds (from 2003 to 2018). | ||||
Kevin E. Wolf 1969 |
Vice President of The Ultimus Group, LLC and Executive Vice President, Head of Fund Administration and Product, Gemini Fund Services, LLC (since 2019), President, Gemini Fund Services, LLC (2012 - 2019). | N/A | N/A | ||
Erik Naviloff 1968 |
Vice President of Gemini Fund Services, LLC (since 2012). | N/A | N/A | ||
Richard Malinowski 1983
|
Senior Vice President Legal Administration, Senior Vice President and Senior Managing Counsel, Gemini Fund Services, LLC, (since February 2020); Senior Vice President Legal Administration, Gemini Fund Services, LLC (since April 2017); Vice President and Counsel (April 2016 to 2017) and AVP and Staff Attorney (September 2012 to March 2016). | N/A | N/A | ||
Emile R. Molineaux 1962
|
Senior Compliance Officer and CCO of Various clients of Northern Lights Compliance Services, LLC, (since 2011). | N/A | N/A |
* The term of office for each Trustee and Officer listed above will continue indefinitely.
** Brian Nielsen is an “interested person” of the Trust as that term is defined under the 1940 Act, because of his prior affiliation with Northern Lights Distributors, LLC (the Fund’s Distributor).
*** As of November 30, 2020 the Trust was comprised of 19 active portfolios managed by unaffiliated investment advisers. The term “Fund Complex” applies only to the Fund and not any other series of the Trust. The Fund does not hold itself out as related to any other series within the Trust for investment purposes, nor does it share the same investment adviser with any other series.
Board Committees
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Audit Committee. The Board has an Audit Committee, which is comprised of the Independent Trustees. The Audit Committee reviews financial statements and other audit-related matters for the Fund. The Audit Committee also holds discussions with management and with the Fund’s independent auditor concerning the scope of the audit and the auditor’s independence and will meet at least four times annually. During the period ended November 30, 2020, the Audit Committee met ten times.
Nominating Committee. The Board has a Nominating Committee, which is comprised of the Independent Trustees. The Nominating Committee is responsible for seeking and reviewing candidates for consideration as nominees for the position of trustee and meets only as necessary. The Nominating Committee generally will not consider shareholder nominees.
Compensation Committee. The Board has a Compensation Committee, which is comprised of the Independent Trustees. The role of the Compensation Committee is to oversee the evaluation of, and review and approve compensation for, the Independent Trustees. The Compensation Committee will generally meet annually.
Other Committees of the Trust
Valuation Committee. The Trust has a Valuation Committee. The Valuation Committee is responsible for the following: (1) monitoring the valuation of Fund securities and other investments; and (2) as required, when the Board of Trustees is not in session, determining the fair value of illiquid securities and other holdings after consideration of all relevant factors, which determinations are reported to the Board. The Valuation Committee shall, at all times, consist of no less than three members, including the Trust’s President and Treasurer, and may include such number of alternate members that are officers of the Trust’s Administrator or the investment adviser of a series of the Trust as the Board of Trustees or the members of the Valuation Committee may from time to time designate. The Valuation Committee meets as necessary when a price for a portfolio security is not readily available.
Trustee Compensation
Each Trustee will receive a quarterly fee of $21,250 (the “Trustee Fee”) to be paid at the beginning of each calendar quarter, allocated among each of the various portfolios comprising the Trust. Each Trustee will also receive reimbursement for any reasonable expenses incurred attending the regular quarterly meetings of the Trust. In addition to the Trustee Fee, the Audit Committee Chairman will receive an additional quarterly fee of $4,000 and the Chairman of the Trust will receive an additional quarterly fee of $5,250. For special in-person meetings, each Trustee will receive a $2,500 special in-person meeting fee, as well as reimbursement for any reasonable expenses incurred attending the special in-person meeting, which fees will generally be paid by the Adviser requesting the special in-person meeting. None of the executive officers will receive compensation from the Trust.
The table below details the amount of compensation the Trustees received from the Fund during the period ended November 30, 2020.
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Name | The Fund | Pension or Retirement Benefits Accrued as Part of Fund Expenses | Estimated Annual Benefits Upon Retirement |
Total Compensation From the Fund Complex*** Paid to Trustees |
Thomas T. Sarkany | $0 | None | None | $0 |
Anthony Lewis | $0 | None | None | $0 |
Keith Rhoades* | $0 | None | None | $0 |
Randy Skalla | $0 | None | None | $0 |
Brian Nielsen** | $0 | None | None | $0 |
*Mr. Rhoades also serves as chairman of the Audit Committee.
**Mr. Nielsen is deemed to be an ‘interested person’ as defined in the 1940 Act as a result of his prior affiliation with Northern Lights Distributors, LLC (the Fund’s Distributor). Mr. Nielsen also serves as Chairman of the Board of Trustees.
***There are currently multiple series comprising the Trust. Trustees’ fees will be allocated equally to each series in the Trust. The term “Fund Complex” refers only to the Fund and not to any other series of the Trust. For the period ended November 30, 2020, aggregate independent Trustees’ fees were $462,000.
Trustee Ownership
Because there were no shares outstanding as of the date of this SAI, the Trustees and officers, as a group, owned 0% of the Fund’s outstanding shares.
As of December 31, 2019, the Trustees and officers, as a group, owned less than 1.00% of the Fund’s outstanding shares and the Fund Complex’s outstanding shares.
Control Persons and Principal Shareholders
A principal shareholder is any person who owns of record or beneficially 5% or more of the outstanding shares of the Fund. A control person is one who owns beneficially or through controlled companies more than 25% of the voting securities of the Fund or acknowledges the existence of control. A controlling person possesses the ability to control the outcome of matters submitted for shareholder vote by the Fund. As of the date of this SAI, there were no principal or control shareholders as there were no shares of the Fund outstanding.
Investment Adviser
As stated in the Prospectus, investment advisory services are provided to the Fund by Certeza Fund Advisors LLC, located at 565 W 465 N, Suite 150, Providence, UT 84332, pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser is owned 100% by Certeza Asset Management LLC. Certeza Asset Management LLC is 83.42% owned by Brett R. Nelson, 13.58% owned by M. Brett Jensen along with a 3.00% ownership by James H. Macfarlane. Subject to such policies as the Board of Trustees may determine, the Adviser is ultimately responsible for investment decisions for the Fund. Pursuant to the terms of the Advisory Agreement, the Adviser provides the Fund with such investment advice and supervision as it deems necessary for the proper supervision of the Fund’s investments.
After an initial period of two years, the Advisory Agreement will continue in effect from year to year only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund’s outstanding voting securities and by a majority of the trustees who are not parties to the Advisory Agreement or interested persons of any such party, at a meeting called for the purpose of voting on the Advisory Agreement. The Advisory Agreement is terminable without penalty by the Trust on behalf of the Fund upon 60 days’ prior written notice when authorized either by a majority vote of the Fund’s shareholders or by a vote of a majority of the Board of Trustees, or by the Adviser upon 60 days’ prior written notice, and will automatically terminate in the event of its “assignment” (as defined in the 1940 Act). The Advisory Agreement provides that the Adviser, under such agreement, shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for the Fund, except for willful misfeasance, bad faith or negligence in the performance
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of its duties, or by reason of reckless disregard of its obligations and duties thereunder.
Under the Advisory Agreement, the Adviser, under the supervision of the Board, agrees to invest the assets of the Fund in accordance with applicable law and the investment objectives, policies and restrictions set forth in the Fund’s current Prospectus and Statement of Additional Information, and subject to such further limitations as the Trust may from time to time impose by written notice to the Adviser. The Adviser shall act as the investment advisor to the Fund and, as such shall (i) obtain and evaluate such information relating to the economy, industries, business, securities markets and securities as it may deem necessary or useful in discharging its responsibilities here under, (ii) formulate a continuing program for the investment of the assets of the Fund in a manner consistent with its investment objective, policies and restrictions, and (iii) determine from time to time securities to be purchased, sold or retained by the Fund, and implement those decisions, including the selection of entities with or through which such purchases or sales are to be effected; provided, that the Adviser will place orders pursuant to its investment determinations either directly with the issuer or with a broker or dealer, and if with a broker or dealer, (a) will attempt to obtain the best price and execution of its orders, and (b) may nevertheless in its discretion purchase and sell portfolio securities from and to brokers who provide the Adviser with research, analysis, advice and similar services and pay such brokers in return a higher commission or spread than may be charged by other brokers. The Adviser also provides the Fund with all necessary office facilities and personnel for servicing the Fund’s investments, compensates all officers, Trustees and employees of the Trust who are officers, directors or employees of the Adviser, and all personnel of the Fund or the Adviser performing services relating to research, statistical and investment activities. The Advisory Agreement was approved by the Board of the Trust, including by a majority of the Independent Trustees, at a meeting held on October 14-15, 2020.
In addition, the Adviser, directly subject to the supervision of the Board of Trustees, provides the management services necessary for the operation of the Fund and such additional administrative services as reasonably requested by the Board of Trustees, including a majority of the Independent Trustees. These services include providing such office space, office equipment and office facilities as are adequate to fulfill the Adviser’s obligations under the Advisory Agreement; assisting the Trust in supervising relations with custodians, transfer and pricing agents, accountants, underwriters and other persons dealing with the Fund; assisting in preparing all general shareholder communications and conducting shareholder relations; maintaining the Fund’s records and the registration of the Fund’s shares under federal securities laws and making necessary filings under state securities laws; developing management and shareholder services for the Fund; and furnishing reports, evaluations and analyses on a variety of subjects to the Trustees.
Pursuant to the Advisory Agreement, the Fund pays the Adviser a management fee at the annual rate of 1.39% of the Certeza Convex Core Fund’s average daily net assets. The fee is computed daily and payable monthly. The Adviser has agreed contractually to waive its management fee and to reimburse operating expenses (excluding any front-end or contingent deferred loads, brokerage fees and commissions, acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary expenses such as litigation at least until March 31, 2022, such that net annual fund operating expenses of the Fund do not exceed the percentages in the table below. Adviser is permitted to receive reimbursement from the Fund for fees it waived and Fund expenses it paid, subject to the limitation that: (1) the reimbursement for fees and expenses will be made only if payable within three years from the date the fees and expenses were initially waived or reimbursed; and (2) the reimbursement may not be made if it would cause the expense limitation in effect at the time of the waiver or currently in effect, whichever is lower, to be exceeded.
Certeza Convex Core Fund | Expense Limitation |
Class A | 1.99% |
Class I | 1.74% |
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Expenses not expressly assumed by the Adviser under the Advisory Agreement are paid by the Fund. Under the terms of the Advisory Agreement, the Fund is responsible for the payment of the following expenses among others: (a) the fees payable to the Adviser, (b) the fees and expenses of Trustees who are not affiliated persons of the Adviser or Distributor (as defined under the section entitled (“The Distributor”) (c) the fees and certain expenses of the Custodian (as defined under the section entitled “Custodian”) and Transfer and Dividend Disbursing Agent (as defined under the section entitled “Transfer Agent”), including the cost of maintaining certain required records of the Fund and of pricing the Fund’s shares, (d) the charges and expenses of legal counsel and independent accountants for the Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to the Fund in connection with its securities transactions, (f) all taxes and corporate fees payable by the Fund to governmental agencies, (g) the fees of any trade association of which the Fund may be a member, (h) the cost of share certificates representing shares of the Fund, (i) the cost of fidelity and liability insurance, (j) the fees and expenses involved in registering and maintaining registration of the Fund and of their shares with the SEC, qualifying its shares under state securities laws, including the preparation and printing of the Fund’s registration statements and prospectuses for such purposes, (k) all expenses of shareholders and Trustees’ meetings (including travel expenses of trustees and officers of the Trust who are directors, officers or employees of the Adviser) and of preparing, printing and mailing reports, proxy statements and prospectuses to shareholders in the amount necessary for distribution to the shareholders, and (l) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust’s business.
Portfolio Managers
The following section provides information regarding the Portfolio Managers, other accounts managed by the Portfolio Managers, compensation, material conflicts of interests, and any ownership of securities in the Fund.
Brett Nelson, CFA – Mr. Nelson founded Certeza Asset Management LLC in 2011 and holds the positions of Chief Investment Officer and Managing Member. Certeza Fund Advisors LLC is a wholly owned subsidiary of Certeza Asset Management LLC. Mr. Nelson has served as Chief Investment Officer of Certeza Asset Management LLC since 2011. Mr. Nelson received a B.S. in Finance from Utah State University in 2006. He holds the designation of Chartered Financial Analyst®.
Jim Macfarlane, CFA- Mr. Macfarlane joined Certeza Asset Management LLC in 2019 and holds the positions of Chief Executive Officer and Portfolio Manager. Prior to joining Certeza Asset Management LLC, Mr. Macfarlane held various roles at Goldman Sachs in both the US and Europe during his 12-year career with the firm. Mr. Macfarlane received a B.S. in Finance from Utah State University in 2007 and a Masters in Finance from the London Business School in 2014. He holds the designation of Chartered Financial Analyst®.
Patrick Sharp – Mr. Sharp joined Certeza Asset Management LLC in 2011 and holds the positions of Chief Technology Officer and Portfolio Manager. Mr. Sharp received his B.S. in Computer Science with a professional emphasis in Science from Utah State University in 2017.
Other Accounts Managed by the Portfolio Manager
The table below identifies, for the Portfolio Manager of the Fund, the number of accounts managed (excluding the Fund) and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. To the extent that the advisory fees for any of these accounts are based on account performance, this information is reflected in separate tables below. Asset amounts are approximate as of the date of this SAI, and have been rounded. The following table lists the number and types of accounts managed by the portfolio manager and assets under management in those accounts as of November 30, 2020.
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Portfolio Manager |
Registered Investment Companies (excluding the Funds) |
Other Pooled Investment Vehicles |
Other Accounts | |||
Number of Accounts | Total Assets in the Accounts | Number of Accounts | Total Assets in the Accounts | Number of Accounts | Total Assets in the Accounts | |
Brett Nelson | 0 | 0 | 1 | $6,500,000 | 10 | $59,100,000 |
Jim Macfarlane | 0 | 0 | 1 | $6,500,000 | 10 | $59,100,000 |
Patrick Sharp | 0 | 0 | 1 | $6,500,000 | 10 | $59,100,000 |
Material Conflicts of Interest
Actual or apparent material conflicts of interest may arise when a Portfolio Manager has day-to-day management responsibilities with respect to more than one investment account or in other circumstances. While the Fund is currently the Adviser’s only client, the Adviser expects to manage additional client accounts in the future. Additionally, affiliates of the Adviser manage client accounts that may invest in similar instruments as the Fund. Accordingly, Portfolio managers who manage other investment accounts in addition to the Fund may be presented with the potential conflicts described below.
Allocation of Investment Opportunities: If the portfolio manager identifies a limited investment opportunity that may be suitable for multiple client accounts, the Fund may not be able to take full advantage of that opportunity due to liquidity constraints and other factors. The Adviser has adopted policies and procedures designed to ensure that allocations of limited investment opportunities are conducted in a fair and equitable manner between client accounts.
Although the portfolio manager uses the same approved list of securities and other instruments for all accounts within a strategy, performance of each account may vary due to a variety of factors, including differing account restrictions, tax management, cash flows, commission rates and inception dates of accounts within a period of time, etc. As a result, the portfolio of securities and other instruments held in any single client account may perform better or worse than the portfolio of securities and other instruments held in another similarly managed client account or in the Fund.
Allocation of Partially Filled Transactions in Securities and Other Instruments: The Adviser expects to typically aggregate for execution as a single transaction orders for the purchase or sale of a particular security or other instrument. If the Adviser is unable to fill an aggregated order completely, but receives a partial fill, the trader will typically allocate the transactions relating to the partially filled order to clients on a pro rata basis. The Adviser may make exceptions from this general policy from time to time based on factors such as the availability of cash, country/regional/sector allocation decisions, investment guidelines and restrictions, and the costs for minimal allocation actions and in all circumstances takes precautions to avoid systematically disadvantaging any client.
Opposite (e.g. Contradictory) Transactions in Securities: The Adviser and its affiliates provide investment advisory services for various clients, including the Fund, and under various investment mandates and may give advice and take action, with respect to any of those clients that may differ from the advice given, or the timing or nature of action taken, with respect to any individual client account.
In the course of providing advisory services, the Adviser or its affiliates may simultaneously recommend the sale of a particular security or other instrument for one client account while recommending the purchase of the same or similar security or other instrument for another account. This may occur for a variety of reasons. For example, in order to raise cash to handle a redemption/withdrawal from a client account, the portfolio manager may be forced to sell a security that is ranked a buy in a model portfolio.
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Personal Securities Transactions: The Adviser allows its employees to trade in securities and other instruments that it recommends to clients with the approval of the Adviser’s chief compliance officer. These transactions may occur at or about the same time that the portfolio manager is purchasing, holding or selling the same or similar securities or instruments for client account portfolios. The actions taken by such persons on a personal basis may be, or be deemed to be, inconsistent with the actions taken by the Adviser for its client accounts. Clients should understand that these activities might create a conflict of interest between the Adviser, its access persons and its clients.
Employees of the Adviser may also invest in the Fund and other commingled vehicles that are managed by the portfolio manager. To address this potential conflict, employees must pre-clear all security transactions and provide quarterly and annual holdings statements. In addition, the Adviser has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including shareholder’s interests in the Fund).
In addition, some portfolios may have fee structures that are or have the potential to be higher than the advisory fees paid by the Fund, which can cause potential conflicts in the allocation of investment opportunities between the Fund and other client accounts. However, in addition to the precautions discussed above, the compensation structure for portfolio managers (see "Portfolio Manager Compensation" below) generally does not provide any incentive to favor one account over another because that part of a portfolio manager’s bonus based on performance is not based on the performance of one account to the exclusion of others.
Portfolio Manager’s Compensation
The Portfolio Managers’ compensation is a fixed salary that is set by reference to industry standards. Bonuses paid to the Portfolio Managers are based on the profitability of the Adviser.
Portfolio Managers’ Ownership of the Fund
Because there were no shares outstanding as of the date of this SAI, the Portfolio Manager owned 0% of the Fund’s outstanding shares.
Other Service Providers
Administrator
Pursuant to the Fund Services Agreement (the “Administration Service Agreement”), Gemini Fund Services, LLC (“GFS”), 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022 (the “Administrator”), acts as administrator for the Fund, subject to the supervision of the Board. GFS is primarily in the business of providing administrative, fund accounting and transfer agent services to retail and institutional mutual funds. GFS is an affiliate of the Distributor. GFS may provide persons to serve as officers of the Fund. Such officers may be directors, officers or employees of GFS or its affiliates.
On February 1, 2019, NorthStar Financial Services Group, LLC, the parent company of GFS and its affiliated companies including Northern Lights Distributors, LLC and Northern Lights Compliance Services, LLC (collectively, the “Gemini Companies”), sold its interest in the Gemini Companies to a third party private equity firm that contemporaneously acquired Ultimus Fund Solutions, LLC (an independent mutual fund administration firm) and its affiliates (collectively, the “Ultimus Companies”). As a result of these separate transactions, the Gemini Companies and the Ultimus Companies are now indirectly owned through a common parent entity, The Ultimus Group, LLC.
The Administration Service Agreement is terminable by the Board or GFS on 60 days’ prior written notice and may be assigned provided the non-assigning party provides prior written consent. This Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of GFS or reckless
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disregard of its obligations thereunder, GFS shall not be liable for any action or failure to act in accordance with its duties thereunder.
Under the Administration Service Agreement, GFS provides facilitating administrative services, including: (i) providing services of persons competent to perform such administrative and clerical functions as are necessary to provide effective administration of the Fund; (ii) facilitating the performance of administrative and professional services to the Fund by others, including the Fund’s Custodian; (iii) preparing, but not paying for, the periodic updating of the Fund’s Registration Statement, Prospectuses and Statement of Additional Information in conjunction with Fund counsel, including the printing of such documents for the purpose of filings with the SEC and state securities administrators, and preparing reports to the Fund’s shareholders and the SEC; (iv) preparing in conjunction with Fund counsel, but not paying for, all filings under the securities or “Blue Sky” laws of such states or countries as are designated by the Distributor, which may be required to register or qualify, or continue the registration or qualification, of the Fund and/or their shares under such laws; (v) preparing notices and agendas for meetings of the Board and minutes of such meetings in all matters required by the 1940 Act to be acted upon by the Board; and (vi) monitoring daily and periodic compliance with respect to all requirements and restrictions of the 1940 Act, the Internal Revenue Code and the Prospectus.
For the services rendered to the Fund by the Administrator, the Fund pays the Administrator the greater of an annual minimum fee or an asset based fee, which scales downward based upon net assets for fund administration, fund accounting and transfer agency services.
Fund Accounting
GFS, pursuant to the Administration Service Agreement, provides the Fund with accounting services, including: (i) daily computation of net asset value; (ii) maintenance of security ledgers and books and records as required by the 1940 Act; (iii) production of the Fund’s listing of portfolio securities and general ledger reports; (iv) reconciliation of accounting records; (v) calculation of yield and total return for the Fund; (vi) maintaining certain books and records described in Rule 31a-1 under the 1940 Act, and reconciling account information and balances among the Fund’s custodian or Adviser; and (vii) monitoring and evaluating daily income and expense accruals, and sales and redemptions of shares of the Fund. The Fund also pays the Administrator for any out-of-pocket expenses.
Transfer Agent
GFS, 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, acts as transfer, dividend disbursing, and shareholder servicing agent for the Fund pursuant to a written agreement with the Fund. Under the agreement, GFS is responsible for administering and performing transfer agent functions, dividend distribution, shareholder administration, and maintaining necessary records in accordance with applicable rules and regulations.
Custodian
Fifth Third Bank, National Association, 38 Fountain Square Plaza, Cincinnati, OH 45263 serves as the custodian of the Fund’s assets pursuant to a Custody Agreement by and between the Custodian and the Trust on behalf of the Fund. The Custodian’s responsibilities include safeguarding and controlling the Fund’s cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Fund’s investments. Pursuant to the Custody Agreement, the Custodian also maintains original entry documents and books of record and general ledgers; posts cash receipts and disbursements; and records purchases and sales based upon communications from the Adviser. The Fund may employ foreign sub-custodians that are approved by the Board to hold foreign assets.
Compliance Services
Northern Lights Compliance Services, LLC (“NLCS”), 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, an affiliate of GFS and the Distributor, provides a Chief Compliance Officer to the Trust as well as
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related compliance services pursuant to a consulting agreement between NLCS and the Trust. The Fund pays a compliance service fee to NLCS.
Legal Counsel
Alston & Bird, LLP, 950 F Street NW, Washington, D.C. 20004, serves as counsel to the Fund. Blank Rome LLP, 1271 Avenue of the Americas, New York, NY 10020, serves as counsel to the Independent Trustees.
Independent Registered Public Accounting Firm
Cohen & Company Ltd. serves as the independent registered public accounting firm of the Fund.
Distribution of Fund Shares
Northern Lights Distributors, LLC, located at 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022 (the “Distributor”) serves as the principal underwriter and national distributor for the shares of the Fund pursuant to an Underwriting Agreement with the Trust (the “Underwriting Agreement”). The Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934 and each state’s securities laws and is a member of FINRA. The offering of the Fund’s shares is continuous. The Underwriting Agreement provides that the Distributor, as agent in connection with the distribution of Fund shares, will use reasonable efforts to facilitate the sale of the Fund’s shares.
The Underwriting Agreement has an initial term of two years and will continue in effect only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund’s outstanding voting securities and, in either case, by a majority of the trustees who are not parties to the Underwriting Agreement or “interested persons” (as defined in the 1940 Act) of any such party. The Underwriting Agreement is terminable without penalty by the Trust on behalf of the Fund on 60 days’ notice when authorized either by a majority vote of the Fund’s outstanding voting securities or by vote of a majority of the Board of Trustees, including a majority of the trustees who are not “interested persons” (as defined in the 1940 Act) of the Trust, or by the Distributor on 60 days’ notice, and will automatically terminate in the event of its “assignment” (as defined in the 1940 Act).
Portfolio Transactions and Brokerage Allocation
Pursuant to the Advisory Agreement, the Adviser determines which securities are to be purchased and sold by the Fund and which broker-dealers are eligible to execute the Fund’s portfolio transactions. Purchases and sales of securities in the OTC market will generally be executed directly with a “market-maker” unless, in the opinion of the Adviser, a better price and execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund will be effected through broker-dealers (including banks) that specialize in the types of securities that the Fund will be holding, unless better executions are available elsewhere. Dealers usually act as principal for their own accounts. Purchases from dealers will include a spread between the bid and the asked price. If the execution and price offered by more than one dealer are comparable, the order may be allocated to a dealer that has provided research or other services as discussed below.
In placing portfolio transactions, the Adviser will use reasonable efforts to choose broker-dealers capable of providing the services necessary to obtain the most favorable price and execution available. The full range and quality of services available will be considered in making these determinations, such as the size of the order, the difficulty of execution, the operational facilities of the firm involved, the firm’s risk in positioning a block of securities and other factors. In those instances where it is reasonably determined that more than one broker-dealer can offer the services needed to obtain the most favorable price and execution available, consideration may be given to those broker-dealers that furnish or supply research and statistical information to the Adviser that they may lawfully and appropriately use in their investment advisory capacities, as well as
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provide other brokerage services in addition to execution services. The Adviser considers such information, which is in addition to and not in lieu of the services required to be performed by it under its Advisory Agreement with the Fund, to be useful in varying degrees, but of indeterminable value.
While it is the Fund’s general policy to first seek to obtain the most favorable price and execution available in selecting a broker-dealer to execute portfolio transactions for the Fund, weight is also given to the ability of a broker-dealer to furnish brokerage and research services to the Fund or to the Adviser, even if the specific services are not directly useful to the Fund and may be useful to the Adviser in advising other clients. In negotiating commissions with a broker or evaluating the spread to be paid to a dealer, the Fund may therefore pay a higher commission or spread than would be the case if no weight were given to the furnishing of these supplemental services, provided that the amount of such commission or spread has been determined in good faith by the Adviser to be reasonable in relation to the value of the brokerage and/or research services provided by such broker-dealer. The standard of reasonableness is to be measured in light of the Adviser’s overall responsibilities to the Fund.
Investment decisions for the Fund may or may not be made independently from those of other client accounts of the Adviser. In certain instances, investment decisions will be made similar to other accounts managed. In the case where the Fund uses similar strategies, applicable procedures will be taken to ensure trading allocations will be handled fairly and abide by all appropriate rules and regulations. Nevertheless, it is possible that at times identical securities will be acceptable for both the Fund and one or more of such client accounts. In such event, the position of the Fund and such client account(s) in the same issuer may vary and the length of time that each may choose to hold its investment in the same issuer may likewise vary. However, to the extent any of these client accounts seek to acquire the same security as the Fund at the same time, the Fund may not be able to acquire as large a portion of such security as it desires, or it may have to pay a higher price or obtain a lower yield for such security. Similarly, the Fund may not be able to obtain as high a price for, or as large an execution of, an order to sell any particular security at the same time. If one or more of such client accounts simultaneously purchases or sells the same security that the Fund is purchasing or selling, each day’s transactions in such security will be allocated between the Fund and all such client accounts in a manner deemed equitable by the Adviser, taking into account the respective sizes of the accounts and the amount being purchased or sold. It is recognized that in some cases this system could have a detrimental effect on the price or value of the security insofar as the Fund is concerned. In other cases, however, it is believed that the ability of the Fund to participate in volume transactions may produce better executions for the Fund. Notwithstanding the above, the Adviser may execute buy and sell orders for accounts and take action in performance of their duties with respect to any of their accounts that may differ from actions taken with respect to another account, so long as the Adviser shall, to the extent practical, allocate investment opportunities to accounts, including the Fund, over a period of time on a fair and equitable basis and in accordance with applicable law.
The Fund is required to identify any securities of its “regular brokers or dealers” that the Fund has acquired during its most recent fiscal year. The Fund is also required to identify any brokerage transactions during its most recent fiscal year that were directed to a broker because of research services provided, along with the amount of any such transactions and any related commissions paid by the Fund.
Brokers or dealers executing a portfolio transaction on behalf of the Fund may receive a commission in excess of the amount of commission another broker or dealer would have charged for executing the transaction if the Adviser determines in good faith that such commission is reasonable in relation to the value of brokerage, research and other services provided to the Fund. In allocating portfolio brokerage, the Adviser may select brokers or dealers who also provide brokerage, research and other services to other accounts over which the Adviser exercises investment discretion. Some of the services received as the result of Fund transactions may primarily benefit accounts other than the Fund, while services received as the result of portfolio transactions effected on behalf of those other accounts may primarily benefit the Fund.
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Portfolio Turnover
Although the Fund generally will not invest for short-term trading purposes, portfolio securities may be sold without regard to the length of time they have been held when, in the opinion of the Adviser, investment considerations warrant such action. Portfolio turnover rate is calculated by dividing (i) the lesser of purchases or sales of portfolio securities for the fiscal year by (ii) the monthly average of the value of portfolio securities owned during the fiscal year. A 100% turnover rate would occur if all the securities in the Fund’s portfolio, with the exception of securities whose maturities at the time of acquisition were one year or less, were sold and either repurchased or replaced within one year. A high rate of portfolio turnover (100% or more) generally leads to above-average transaction costs, could generate capital gains that must be distributed to shareholders as short-term capital gains taxed at ordinary income tax rates (currently as high as 37%) and could increase brokerage commission costs. To the extent that the Fund experiences an increase in brokerage commissions due to a higher portfolio turnover rate, the performance of the Fund could be negatively impacted by the increased expenses incurred by the Fund and may result in a greater number of taxable transactions.
Code of Ethics
The Fund, the Adviser, and the Distributor have each adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes permit, subject to certain conditions, personnel of the Adviser, and Distributor to invest in securities that may be purchased or held by the Fund.
Proxy Voting Procedures
The Board has adopted Proxy Voting Policies and Procedures (“Policies”) on behalf of the Trust, which delegate the responsibility for voting proxies of securities held by the Fund to the Adviser, subject to the Board’s continuing oversight. The Policies require that the Adviser vote proxies received in a manner consistent with the best interests of the Fund and its shareholders. The Policies also require the Adviser to present to the Board, at least annually, the Adviser’s Proxy Policies and a record of each proxy voted by the Adviser on behalf of the Fund, including a report on the resolution of all proxies identified by the Adviser as involving a conflict of interest. Notwithstanding this delegation of responsibilities, however, the Fund retains the right to vote proxies relating to its portfolio securities. A copy of the Adviser’s Proxy Voting Policy is attached hereto as Appendix A.
More Information. The actual voting records relating to portfolio securities during the 12-month period ended June 30 will be available without charge, upon request, by calling toll-free, 1-800-SEC-0330 or by accessing the SEC’s website at www.sec.gov.
Anti-Money Laundering Compliance Program
The Trust has established an Anti-Money Laundering Compliance Program (the “Program”) as required by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”). To ensure compliance with this law, the Trust’s Program provides for the development of internal practices, procedures and controls, designation of anti-money laundering compliance officers, an ongoing training program and an independent audit function to determine the effectiveness of the Program. The Trust’s CCO serves as its Anti-Money Laundering Compliance Officer.
Procedures to implement the Program include, but are not limited to, determining that the Fund’s Distributor and Transfer Agent have established proper anti-money laundering procedures, reporting suspicious and/or fraudulent activity and a providing a complete and thorough review of all new opening account applications. The Trust will not transact business with any person or entity whose identity cannot be adequately verified under the provisions of the USA PATRIOT Act.
As a result of the Program, the Trust may be required to “freeze” the account of a shareholder if the shareholder appears to be involved in suspicious activity or if certain account information matches information
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on government lists of known terrorists or other suspicious persons, or the Trust may be required to transfer the account or proceeds of the account to a governmental agency.
Portfolio Holdings Information
The Trust has adopted policies and procedures that govern the disclosure of the Fund’s portfolio holdings. These policies and procedures are designed to ensure that such disclosure is in the best interests of Fund shareholders.
It is the Trust’s policy to: (1) ensure that any disclosure of portfolio holdings information is in the best interest of Trust shareholders; (2) protect the confidentiality of portfolio holdings information; (3) have procedures in place to guard against personal trading based on the information; and (4) ensure that the disclosure of portfolio holdings information does not create conflicts between the interests of the Trust’s shareholders and those of the Trust’s affiliates.
The Fund discloses its portfolio holdings in regulatory filings and shareholder reports, as required by federal and state securities laws and may disclose portfolio holdings information in response to requests by governmental authorities. The Fund discloses its portfolio holdings directly to shareholders by mailing said annual and semi-annual shareholder reports to shareholders approximately two months after the end of the fiscal year and semi-annual period. In addition, the Fund files its portfolio holdings in periodic reports with the SEC on Forms N-CSR, and N-Q on a sixty day lag and on Form N-CEN on a, 75 days lag, at, the end of the relevant quarter/semi-annual or annual period. These filings are available to the public on the SEC’s website at SEC.gov.
The Fund may choose to make portfolio holdings information available to rating agencies such as Lipper, Morningstar or Bloomberg earlier and more frequently on a confidential basis.
Under limited circumstances, as described below, the Fund’s portfolio holdings may be disclosed to, or known by, certain third parties in advance of their filing with the Securities and Exchange Commission on Form N-CSR or Form N-Q. In each case, a determination has been made that such advance disclosure is supported by a legitimate business purpose and that the recipient is subject to a duty to keep the information confidential.
The Adviser. Personnel of the Adviser, including personnel responsible for managing the Fund’s portfolio, may have full daily access to Fund portfolio holdings since that information is necessary in order for the Adviser to provide their management, administrative, and investment services to the Fund. As required for purposes of analyzing the impact of existing and future market changes on the prices, availability, demand and liquidity of such securities, as well as for the assistance of portfolio managers in the trading of such securities, Adviser personnel may also release and discuss certain portfolio holdings with various broker-dealers.
Gemini Fund Services, LLC. Gemini Fund Services, LLC is the transfer agent, fund accountant and administrator for the Fund; therefore, its personnel have full daily access to the Fund’s portfolio holdings since that information is necessary in order for them to provide the agreed-upon services for the Trust.
Northern Lights Compliance Services, LLC. Northern Lights Compliance Services, LLC provides a consulting services to the Fund as well as related compliance services; therefore, its personnel have full daily access to the Fund’s portfolio holdings since that information is necessary in order for them to provide the agreed-upon services for the Trust.
Fifth Third Bank, National Association. Fifth Third Bank, National Association is custodian for the Fund; therefore, its personnel have full daily access to the Fund’s portfolio holdings since that information is necessary in order for them to provide the agreed-upon services for the Trust.
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[Cohen & Company Ltd. Cohen & Company Ltd. is the Fund’s independent registered public accounting firm; therefore, its personnel have access to the Fund’s portfolio holdings in connection with auditing of the Fund’s annual financial statements and providing other audit, tax and related services for the Fund.
Alston & Bird, LLP. Alston & Bird, LLP is counsel to the Fund; therefore, its personnel have access to the Fund’s portfolio holdings in connection with review of the Fund’s annual and semi-annual shareholder reports and SEC filings.
Blank Rome LLP. Blank Rome LLP is counsel to the Independent Trustees.
Additions to List of Approved Recipients
The Trust’s Chief Compliance Officer is the person responsible, and whose prior approval is required, for any disclosure of the Fund’s portfolio securities at any time or to any persons other than those described above. In such cases, the recipient must have a legitimate business need for the information and must be subject to a duty to keep the information confidential. There are no ongoing arrangements in place with respect to the disclosure of portfolio holdings. In no event shall the Fund, the Adviser, or any other party receive any direct or indirect compensation in connection with the disclosure of information about the Fund’s portfolio holdings.
Compliance With Portfolio Holdings Disclosure Procedures
The Trust’s Chief Compliance Officer will report periodically to the Board with respect to compliance with the Fund’s portfolio holdings disclosure procedures, and from time to time will provide the Board any updates to the portfolio holdings disclosure policies and procedures.
There is no assurance that the Trust’s policies on disclosure of portfolio holdings will protect the Fund from the potential misuse of holdings information by individuals or firms in possession of that information.
Determination of Net Asset Value
As indicated in the Prospectus under the heading "Net Asset Value," the net asset value ("NAV") of the Fund's shares, by class, is determined by dividing the total value of the Fund's portfolio investments and other assets, less any liabilities, by the total number of shares outstanding of the Fund, by class.
Generally, the Fund’s domestic securities (including underlying ETFs which hold portfolio securities primarily listed on foreign (non-U.S.) exchanges) are valued each day at the last quoted sales price on each security’s primary exchange. Securities traded or dealt in upon one or more securities exchanges for which market quotations are readily available and not subject to restrictions against resale shall be valued at the last quoted sales price on the primary exchange or, in the absence of a sale on the primary exchange, at the mean between the current bid and ask prices on such exchange. Securities primarily traded in the National Association of Securities Dealers’ Automated Quotation System (“NASDAQ”) National Market System for which market quotations are readily available shall be valued using the NASDAQ Official Closing Price. If market quotations are not readily available, securities will be valued at their fair market value as determined in good faith by the Fund’s fair value committee in accordance with procedures approved by the Board and as further described below. Securities that are not traded or dealt in any securities exchange (whether domestic or foreign) and for which over-the-counter market quotations are readily available generally shall be valued at the last sale price
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or, in the absence of a sale, at the mean between the current bid and ask price on such over-the- counter market.
Certain securities or investments for which daily market quotes are not readily available may be valued, pursuant to guidelines established by the Board, with reference to other securities or indices. Debt securities not traded on an exchange may be valued at prices supplied by a pricing agent(s) based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics, such as rating, interest rate and maturity. Short-term investments having a maturity of 60 days or less may be generally valued at amortized cost when it approximated fair value.
Exchange traded options are valued at the last quoted sales price or, in the absence of a sale, at the mean between the current bid and ask prices on the exchange on which such options are traded. Futures and options on futures are valued at the settlement price determined by the exchange. Other securities for which market quotes are not readily available are valued at fair value as determined in good faith by the Board or persons acting at their direction. Swap agreements and other derivatives are generally valued daily based upon quotations from market makers or by a pricing service in accordance with the valuation procedures approved by the Board.
Under certain circumstances, the Fund may use an independent pricing service to calculate the fair market value of foreign equity securities on a daily basis by applying valuation factors to the last sale price or the mean price as noted above. The fair market values supplied by the independent pricing service will generally reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or the value of other instruments that have a strong correlation to the fair-valued securities. The independent pricing service will also take into account the current relevant currency exchange rate. A security that is fair valued may be valued at a price higher or lower than actual market quotations or the value determined by other funds using their own fair valuation procedures. Because foreign securities may trade on days when Fund shares are not priced, the value of securities held by the Fund can change on days when Fund shares cannot be redeemed or purchased. In the event that a foreign security’s market quotations are not readily available or are deemed unreliable (for reasons other than because the foreign exchange on which it trades closed before the Fund’s calculation of NAV), the security will be valued at its fair market value as determined in good faith by the Fund’s fair value committee in accordance with procedures approved by the Board as discussed below. Without fair valuation, it is possible that short-term traders could take advantage of the arbitrage opportunity and dilute the NAV of long-term investors. Fair valuation of the Fund’s portfolio securities can serve to reduce arbitrage opportunities available to short-term traders, but there is no assurance that it will prevent dilution of the Fund’s NAV by short-term traders. In addition, because the Fund may invest in underlying ETFs which hold portfolio securities primarily listed on foreign (non-U.S.) exchanges, and these exchanges may trade on weekends or other days when the underlying ETFs do not price their shares, the value of these portfolio securities may change on days when you may not be able to buy or sell Fund shares.
Investments initially valued in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. As a result, the NAV of the Fund's shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the New York Stock Exchange is closed and an investor is not able to purchase, redeem or exchange shares.
Fund shares are valued at the close of regular trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time) (the "NYSE Close") on each day that the New York Stock Exchange is open. For purposes of calculating the NAV, the Fund normally use pricing data for domestic equity securities received shortly after the NYSE Close and does not normally take into account trading, clearances or settlements that take place after the NYSE Close. Domestic fixed income and foreign securities are normally priced using data reflecting the earlier closing of the principal markets for those securities. Information that becomes known to the Fund
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or its agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of the security or the NAV determined earlier that day.
When market quotations are insufficient or not readily available, the Fund may value securities at fair value or estimate their value as determined in good faith by the Board or its designees, pursuant to procedures approved by the Board. Fair valuation may also be used by the Board if extraordinary events occur after the close of the relevant market but prior to the NYSE Close.
The Fund may hold securities, such as private placements, interests in commodity pools, other non-traded securities or temporarily illiquid securities, for which market quotations are not readily available or are determined to be unreliable. These securities will be valued at their fair market value as determined using the “fair value” procedures approved by the Board. The Board has delegated execution of these procedures to a fair value team composed of one of more officers from each of the (i) Trust, (ii) administrator, and (iii) adviser and/or sub-adviser. The team may also enlist third party consultants such as an audit firm or financial officer of a security issuer on an as-needed basis to assist in determining a security-specific fair value. The Board reviews and ratifies the execution of this process and the resultant fair value prices at least quarterly to assure the process produces reliable results.
Fair Value Committee and Valuation Process. The fair value committee is composed of one of more officers from each of the (i) Trust, (ii) administrator, and (iii) adviser and/or sub-adviser. The applicable investments are valued collectively via inputs from each of these groups. For example, fair value determinations are required for the following securities: (i) securities for which market quotations are insufficient or not readily available on a particular business day (including securities for which there is a short and temporary lapse in the provision of a price by the regular pricing source), (ii) securities for which, in the judgment of the adviser or sub-adviser, the prices or values available do not represent the fair value of the instrument. Factors which may cause the adviser or sub-adviser to make such a judgment include, but are not limited to, the following: only a bid price or an asked price is available; the spread between bid and asked prices is substantial; the frequency of sales; the thinness of the market; the size of reported trades; and actions of the securities markets, such as the suspension or limitation of trading; (iii) securities determined to be illiquid; (iv) securities with respect to which an event that will affect the value thereof has occurred (a “significant event”) since the closing prices were established on the principal exchange on which they are traded, but prior to the Fund’s calculation of its net asset value. Specifically, interests in commodity pools or managed futures pools are valued on a daily basis by reference to the closing market prices of each futures contract or other asset held by a pool, as adjusted for pool expenses. Restricted or illiquid securities, such as private placements or non-traded securities are valued via inputs from the adviser or sub-adviser valuation based upon the current bid for the security from two or more independent dealers or other parties reasonably familiar with the facts and circumstances of the security (who should take into consideration all relevant factors as may be appropriate under the circumstances). If the adviser or sub-adviser is unable to obtain a current bid from such independent dealers or other independent parties, the fair value team shall determine the fair value of such security using the following factors: (i) the type of security; (ii) the cost at date of purchase; (iii) the size and nature of the Fund's holdings; (iv) the discount from market value of unrestricted securities of the same class at the time of purchase and subsequent thereto; (v) information as to any transactions or offers with respect to the security; (vi) the nature and duration of restrictions on disposition of the security and the existence of any registration rights; (vii) how the yield of the security compares to similar securities of companies of similar or equal creditworthiness; (viii) the level of recent trades of similar or comparable securities; (ix) the liquidity characteristics of the security; (x) current market conditions; and (xi) the market value of any securities into which the security is convertible or exchangeable.
Standards For Fair Value Determinations. As a general principle, the fair value of a security is the amount that the Fund might reasonably expect to realize upon its current sale. The Trust has adopted Financial Accounting Standards Board Statement of Financial Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). In accordance with ASC 820, fair value is defined as the price
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that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. ASC 820 establishes a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available under the circumstances.
Various inputs are used in determining the value of the Fund's investments relating to ASC 820. These inputs are summarized in the three broad levels listed below.
Level 1 – quoted prices in active markets for identical securities.
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
The fair value team takes into account the relevant factors and surrounding circumstances, which may include: (i) the nature and pricing history (if any) of the security; (ii) whether any dealer quotations for the security are available; (iii) possible valuation methodologies that could be used to determine the fair value of the security; (iv) the recommendation of a portfolio manager of the Fund with respect to the valuation of the security; (v) whether the same or similar securities are held by other funds managed by the Adviser (or sub-adviser) or other funds and the method used to price the security in those funds; (vi) the extent to which the fair value to be determined for the security will result from the use of data or formulae produced by independent third parties and (vii) the liquidity or illiquidity of the market for the security.
Board of Trustees Determination. The Board of Trustees meets at least quarterly to consider the valuations provided by the fair value committee and to ratify the valuations made for the applicable securities. The Board of Trustees considers the reports provided by the fair value committee, including follow up studies of subsequent market-provided prices when available, in reviewing and determining in good faith the fair value of the applicable portfolio securities.
The Trust expects that the New York Stock Exchange (“NYSE”) will be closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
With respect to any portion of the Fund’s assets that are invested in one or more open-end management investment companies registered under the 1940 Act, the Fund’s net asset value is calculated based upon the net asset values of those open-end management investment companies, and the prospectuses for these companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
Purchase of Shares
Orders for shares received by the Fund in good order prior to the close of business on the NYSE on each day during such periods that the NYSE is open for trading are priced at NAV per share computed as of the close
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of the regular session of trading on the NYSE. Orders received in good order after the close of the NYSE, or on a day it is not open for trading, are priced at the close of such NYSE on the next day on which it is open for trading at the next determined NAV or offering price per share.
Redemption of Shares
The Fund will redeem all or any portion of a shareholder’s shares in the Fund when requested in accordance with the procedures set forth in the “Redemptions” section of the Prospectus. Under the 1940 Act, a shareholder’s right to redeem shares and to receive payment therefore may be suspended at times:
(a) when the NYSE is closed, other than customary weekend and holiday closings;
(b) when trading on that exchange is restricted for any reason;
(c) when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, provided that applicable rules and regulations of the SEC (or any succeeding governmental authority) will govern as to whether the conditions prescribed in (b) or (c) exist; or
(d) when the SEC by order permits a suspension of the right to redemption or a postponement of the date of payment on redemption.
In case of suspension of the right of redemption, payment of a redemption request will be made based on the NAV next determined after the termination of the suspension.
The Fund may purchase shares of certain series which charge a redemption fee to shareholders (such as the Fund) that redeem shares of the underlying fund within a certain period of time (such as one year). The fee is payable to the underlying fund. Accordingly, if the Fund were to invest in an underlying fund and incur a redemption fee as a result of redeeming shares in such underlying fund, the Fund would bear such redemption fee. The Fund will not, however, invest in shares of an underlying fund that is sold with a contingent deferred sales load.
Supporting documents in addition to those listed under “Redemptions” in the Prospectus will be required from executors, administrators, Trustees, or if redemption is requested by someone other than the shareholder of record. Such documents include, but are not restricted to, stock powers, Trust instruments, certificates of death, appointments as executor, certificates of corporate authority and waiver of tax required in some states when settling estates.
Under section 72.1021(a) of the Texas Property Code, initial investors in the Fund who are Texas residents may designate a representative to receive notices of abandoned property in connection with Fund shares. Texas shareholders who wish to appoint a representative should notify the Trust’s Transfer Agent by writing to the address below to obtain a form for providing written notice to the Trust:
Certeza Convex Core Fund
c/o Gemini Fund Services, LLC
4221 North 203rd Street, Suite 100
Elkhorn, Nebraska 68022
Tax Status
The following discussion is general in nature and should not be regarded as an exhaustive presentation of all possible tax ramifications. The tax considerations relevant to a specific shareholder depend upon its specific circumstances, and the following general summary does not attempt to discuss all potential tax considerations that could be relevant to a prospective shareholder with respect to the Fund or its investments. This general summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Federal Income Tax Regulations promulgated thereunder, and administrative and judicial interpretations thereof as of the date hereof, all of which are subject to change (potentially on a retroactive basis).
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The following discussion of tax consequences is for the general information of shareholders that are subject to tax. Shareholders that are IRAs or other qualified retirement plans are exempt from income taxation under the Code. All shareholders should consult a qualified tax advisor regarding their investment in the Fund.
The Fund has elected to qualify and intends to continue to qualify to be treated as a regulated investment company under Subchapter M of the Code, for each taxable year by complying with all applicable requirements regarding the source of its income, the diversification of its assets, and the timing and amount of its distributions. The Fund’s policy is to distribute to its shareholders all of its investment company taxable income and any net realized capital gains for each fiscal year in a manner that complies with the distribution requirements of the Code, so that the Fund will not be subject to any federal income or excise taxes based on net income. However, the Board may elect to pay such excise taxes if it determines that payment is, under the circumstances, in the best interests of the Fund. If the Fund does not qualify as a regulated investment company, it may be taxed as a corporation.
In order to qualify as a regulated investment company under Subchapter M of the Code, the Fund must, among other things, derive at least 90% of its gross income each year from dividends, interest, payments with respect to loans of stock and securities, gains from the sale or other disposition of stock or securities or foreign currency gains related to investments in stock or securities, or other income (generally including gains from options, futures or forward contracts) derived with respect to the business of investing in stock, securities or currency, and net income derived from an interest in a qualified publicly traded partnership. The Fund must also satisfy the following two asset diversification tests. At the end of each quarter of each taxable year, (i) at least 50% of the value of the Fund’s total assets must be represented by cash and cash items (including receivables), U.S. Government securities, the securities of other regulated investment companies, and other securities, with such other securities being limited in respect of any one issuer to an amount not greater than 5% of the market value of such Fund’s total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund’s total assets may be invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), the securities of any two or more issuers (other than the securities of other regulated investment companies) that such Fund controls (by owning 20% or more of their outstanding voting stock) and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses, or the securities of one or more qualified publicly traded partnerships. The Fund must also distribute each taxable year sufficient dividends to its shareholders to claim a dividends paid deduction equal to at least the sum of 90% of such Fund’s investment company taxable income (which generally includes dividends, interest, and the excess of net short-term capital gain over net long-term capital loss) and 90% of such Fund’s net tax-exempt interest, if any. Following the enactment of the Regulated Investment Company Act of 2010, if the Fund fails to satisfy these qualifying income and asset tests, and such failure was due to reasonable cause and not willful neglect, it may be permitted to “cure” such failures (and thereby not jeopardize its tax status as a regulated investment company) under certain circumstances.
If the Fund fails to qualify as a regulated investment company under Subchapter M in any year (and such failure is not subject to cure as discussed above), it will be treated as a corporation for federal income tax purposes. Such that the Fund would be required to pay income taxes on its net investment income and net realized capital gains, if any, at the rates generally applicable to corporations. Shareholders of such Fund generally would not be liable for income tax on the Fund’s net investment income or net realized capital gains in their individual capacities. Distributions to shareholders, whether from the Fund’s net investment income or net realized capital gains, would be treated as taxable dividends to the extent of current or accumulated earnings and profits of such Fund.
In addition to the taxable year 90% distribution requirement described in the previous paragraph, and in order to avoid the imposition of a nondeductible 4% excise tax, the Fund must distribute (or be deemed to have distributed) by December 31 of each calendar year (i) at least 98% of its ordinary income for such year, (ii) at
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least 98.2% of the excess of its realized capital gains over its realized capital losses for the 12-month period ending on October 31 during such year, and (iii) any amounts from prior years that were not distributed and on which no federal income tax was paid. The Fund intends to declare and pay dividends and other distributions, as stated in the Prospectus.
Net investment income generally consists of interest and dividend income, less expenses. Net realized capital gains for a fiscal period are computed by taking into account any capital loss carryforward of the Fund.
Capital losses sustained and not used in a taxable year may be carried forward indefinitely to offset capital gains of the Fund in future years.
Distributions of net investment income and net realized capital gains by the Fund will be taxable to shareholders whether made in cash or reinvested by the Fund in shares. Shareholders receiving a distribution from the Fund in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the NAV of a share of the Fund on the reinvestment date. Fund distributions also will be included in individual and corporate shareholders’ income on which the alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund’s shares by a shareholder will be required to file information reports with the Internal Revenue Service (“IRS”) with respect to distributions and payments made to the shareholder. In addition, the Fund will be required to withhold federal income tax on taxable dividends, redemptions and other payments made to accounts of individual or other non–exempt shareholders who have not furnished their correct taxpayer identification numbers and certain required certifications on the New Account application or with respect to which the Fund or the securities dealer has been notified by the IRS that the number furnished is incorrect or that the account is otherwise subject to withholding.
The Fund may receive dividend distributions from U.S. corporations. To the extent that the Fund receives such dividends and distributes them to its shareholders, and meets certain other requirements of the Code, corporate shareholders of the Fund may be entitled to the “dividends received” deduction. Availability of the deduction is subject to certain holding period and debt–financing limitations.
Distributions of net investment income and net short-term capital gains are taxable to shareholders as ordinary income or qualified dividend income. Under current law, distributions of certain qualified dividend income paid out of the Fund’s investment company taxable income may be taxable to noncorporate shareholders at long-term capital gain rates, which are currently significantly lower than the highest rate that applies to ordinary income.
The Fund may be subject to foreign withholding taxes on dividends and interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into futures contracts and forward contracts and purchasing options, involves complex rules that will determine the character and timing of recognition of the income received in connection therewith by the Fund. Income from foreign currencies (except certain gains therefrom that may be excluded by future regulations) and income from transactions in options, futures contracts and forward contracts derived by the Fund with respect to its business of investing in securities or foreign currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium paid by the Fund is recorded as an asset and is subsequently adjusted to the current market value of the option. Any gain or loss realized by the Fund upon the expiration or sale of such options held by the Fund generally will be capital gain or loss.
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Any security, option, or other position entered into or held by the Fund that substantially diminishes the Fund’s risk of loss from any other position held by the Fund may constitute a “straddle” for federal income tax purposes. In general, straddles are subject to certain rules that may affect the amount, character and timing of the Fund’s gains and losses with respect to straddle positions by requiring, among other things, that the loss realized on disposition of one position of a straddle be deferred until gain is realized on disposition of the offsetting position; that the Fund’s holding period in certain straddle positions not begin until the straddle is terminated (possibly resulting in the gain being treated as short–term capital gain rather than long–term capital gain); and that losses recognized with respect to certain straddle positions, which would otherwise constitute short–term capital losses, be treated as long–term capital losses. Different elections are available to the Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are subject to Section 1256 of the Code (“Section 1256 Contracts”) and that are held by the Fund at the end of its taxable year generally will be required to be “marked to market” for federal income tax purposes, that is, deemed to have been sold at
market value. Sixty percent of any net gain or loss recognized on these deemed sales and 60% of any net
gain or loss realized from any actual sales of Section 1256 Contracts will be treated as long–term capital gain or loss, and the balance will be treated as short–term capital gain or loss.
Offsetting positions held by the Fund (e.g., certain Funds’ options collar strategy) involving certain derivative instruments, such as options, forward, and futures, as well as its long and short positions in portfolio securities, may be considered, for U.S. federal income tax purposes, to constitute “straddles.” Straddles are defined to include “offsetting positions” in actively traded personal property. For instance, a straddle can arise if the Fund writes a certain covered call option on a stock (i.e., a call on a stock owned by the Fund), or writes a call option on a stock index to the extent the Fund’s stock holdings (and any subset thereof) and the index on which it has written a call overlap sufficiently to constitute a straddle under applicable Treasury Regulations. The tax treatment of “straddles” is governed by section 1092 of the Code which, in certain circumstances, overrides or modifies the provisions of section 1256 described above. If the Fund is treated as entering into a “straddle” and at least one (but not all) of the Fund’s positions in derivative contracts comprising a part of such straddle is a Section 1256 Contract, then such straddle could be characterized as a “mixed straddle.” Each Fund may make one or more elections with respect to “mixed straddles.” Depending upon which election is made, if any, the results with respect to the Fund may differ. Generally, to the extent the straddle rules apply to positions established by the Fund, losses realized by the Fund may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long--term capital gain may be characterized as short-term capital gain. In addition, the existence of a straddle can cause the holding periods to be tolled on the offsetting positions. As a result, the straddle rules could cause distributions that would otherwise constitute “qualified dividend income” or qualify for the dividends-received deduction to fail to satisfy the applicable holding period requirements described above. Furthermore, the Fund may be required to capitalize, rather than deduct currently, any interest expense and carrying charges applicable to a position that is part of a straddle, including any interest on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle. The application of the straddle rules to certain offsetting Fund positions can therefore affect the amount, timing and/or character of distributions to shareholders, and may result in significant differences from the amount, timing and/or character of distributions that would have been made by the Fund if it had not entered into offsetting positions in respect of certain of its portfolio securities.
Section 988 of the Code contains special tax rules applicable to certain foreign currency transactions that
may affect the amount, timing and character of income, gain or loss recognized by the Fund. Under these
rules, foreign exchange gain or loss realized with respect to foreign currency–denominated debt instruments, foreign currency forward contracts, foreign currency denominated payables and receivables and foreign currency options and futures contracts (other than options and futures contracts that are governed by the mark–to–market and 60/40 rules of Section 1256 of the Code and for which no election is made) is treated as ordinary income or loss. Some part of the Fund’s gain or loss on the sale or other disposition of shares of a
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foreign corporation may, because of changes in foreign currency exchange rates, be treated as ordinary income or loss under Section 988 of the Code rather than as capital gain or loss.
A shareholder who purchases shares of the Fund by tendering payment for the shares in the form of other securities may be required to recognize gain or loss for income tax purposes on the difference, if any, between the adjusted basis of the securities tendered to the fund and the purchase price of the Fund’s shares acquired by the shareholder.
Section 475 of the Code requires that a “dealer” in securities must generally “mark to market” at the end of its taxable year all securities which it owns. The resulting gain or loss is treated as ordinary (and not capital) gain or loss, except to the extent allocable to periods during which the dealer held the security for
investment. The “mark to market” rules do not apply, however, to a security held for investment which is
clearly identified in the dealer’s records as being held for investment before the end of the day in which the security was acquired. The IRS has issued guidance under Section 475 that provides that, for example, a bank that regularly originates and sells loans is a dealer in securities, and subject to the “mark to market” rules. Shares of the Fund held by a dealer in securities will be subject to the “mark to market” rules unless they are held by the dealer for investment and the dealer property identifies the shares as held for investment.
Redemptions of shares of the Fund will result in gains or losses for tax purposes to the extent of the difference between the proceeds and the shareholder’s adjusted tax basis for the shares. Any loss realized upon the redemption of shares within six months from their date of purchase will be treated as a long–term capital loss to the extent of distributions of long–term capital gain dividends during such six–month period. All or a portion of a loss realized upon the redemption of shares may be disallowed to the extent shares are purchased (including shares acquired by means of reinvested dividends) within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local income taxes, and the treatment thereof may differ from the federal income tax treatment. Foreign taxes may apply to non–U.S. investors.
Nonresident aliens and foreign persons are subject to different tax rules, and may be subject to withholding of up to 30% on certain payments received from the Fund. Shareholders are advised to consult with their own tax advisers concerning the application of foreign, federal, state and local taxes to an investment in the Fund.
Under the Code, the Fund will be required to report to the Internal Revenue Service all distributions of taxable income and capital gains as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt shareholders. Under the backup withholding provisions of Section 3406 of the Code, distributions of taxable net investment income and net capital gain and proceeds from the redemption or exchange of the shares of a regulated investment company may be subject to withholding of federal income tax (currently at a rate of 24%) in the case of non-exempt shareholders who fail to furnish the investment company with their taxpayer identification numbers and with required certifications regarding their status under the federal income tax law, or if the Fund is notified by the IRS or a broker that withholding is required due to an incorrect TIN or a previous failure to report taxable interest or dividends. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld.
The above discussion and the related discussion in the Prospectus are not intended to be complete discussions of all applicable federal tax consequences of an investment in the Fund. Alston & Bird LLP has expressed no opinion in respect thereof.
Options, Futures, Forward Contracts and Swap Agreements
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To the extent such investments are permissible for the Fund, the Fund’s transactions in options, futures contracts, hedging transactions, forward contracts, straddles and foreign currencies will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund’s securities, convert long-term capital gains into short-term capital gains and convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders.
To the extent such investments are permissible, certain of the Fund’s hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Fund’s book income exceeds its taxable income, the distribution (if any) of such excess book income will be treated as (i) a dividend to the extent of the Fund’s remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter, as a return of capital to the extent of the recipient’s basis in the shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset. If the Fund’s book income is less than taxable income, the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment.
Passive Foreign Investment Companies
Investment by the Fund in certain “passive foreign investment companies” (“PFICs”) could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making distributions to Fund shareholders. However, the Fund may elect to treat a PFIC as a “qualified electing fund” (“QEF”), in which case the Fund will be required to include its share of the company’s income and net capital gains annually, regardless of whether it receives any distribution from the company.
The Fund also may make an election to mark the gains (and to a limited extent losses) in such holdings “to the market” as though it had sold and repurchased its holdings in those PFICs on the last day of the Fund’s taxable year. Such gains and losses are treated as ordinary income and loss. The QEF and mark-to-market elections may accelerate the recognition of income (without the receipt of cash) and increase the amount required to be distributed for the Fund to avoid taxation. Making either of these elections therefore may require the Fund to liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirement, which also may accelerate the recognition of gain and affect the Fund’s total return.
Foreign Currency Transactions
The Fund’s transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
Foreign Taxation
Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax treaties and conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the value of the Fund’s total assets at the close of its taxable year consists of securities of foreign corporations, the Fund may be able to elect to “pass through” to its shareholders the amount of eligible foreign income and similar taxes paid by the Fund. If this election is made, a shareholder generally subject to tax will be required to include in gross income (in addition to taxable
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dividends actually received) his or her pro rata share of the foreign taxes paid by the Fund, and may be entitled either to deduct (as an itemized deduction) his or her pro rata share of foreign taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. federal income tax liability, subject to certain limitations. In particular, a shareholder must hold his or her shares (without protection from risk of loss) on the ex-dividend date and for at least 15 more days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a gain dividend. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each shareholder will be notified within 60 days after the close of the Fund’s taxable year whether the foreign taxes paid by the Fund will “pass through” for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder’s U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the pass-through election is made, the source of the Fund’s income will flow through to shareholders of the Fund. With respect to the Fund, gains from the sale of securities will be treated as derived from U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency-denominated debt securities, receivables and payables will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, and to certain other types of income. A shareholder may be unable to claim a credit for the full amount of his or her proportionate share of the foreign taxes paid by the Fund. The foreign tax credit can be used to offset only 90% of the revised alternative minimum tax imposed on corporations and individuals and foreign taxes generally are not deductible in computing alternative minimum taxable income.
Original Issue Discount and Pay-In-Kind Securities
Current federal tax law requires the holder of a U.S. Treasury or other fixed income zero coupon security to accrue as income each year a portion of the discount at which the security was purchased, even though the holder receives no interest payment in cash on the security during the year. In addition, pay-in-kind securities will give rise to income, which is required to be distributed and is taxable even though the Fund holding the security receives no interest payment in cash on the security during the year.
Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount (“OID”) is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. A portion of the OID includable in income with respect to certain high-yield corporate debt securities (including certain pay-in-kind securities) may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund in the secondary market may be treated as having market discount. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on such debt security. Market discount generally accrues in equal daily installments. The Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, the Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. The Fund may make one or more of the elections applicable to debt
41 |
securities having acquisition discount, or OID, which could affect the character and timing of recognition of income.
In addition, the 2017 Tax Cuts and Jobs Act requires that taxpayers, such as the Fund, that use an accrual method of accounting for U.S. federal income tax purposes are generally required to include certain amounts in income no later than the time such amounts are reflected on such taxpayer’s applicable financial statements. Certain fees treated as OID may be included as income for financial statement purposes when received (as opposed to being accrued into income over the term of the debt instrument), which may thus require such amounts be treated as taxable income of the Fund upon their receipt.
If the Fund holds the foregoing kinds of securities, it may be required to pay out as an income distribution each year an amount that is greater than the total amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or by liquidation of portfolio securities, if necessary (including when it is not advantageous to do so). The Fund may realize gains or losses from such liquidations. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution, if any, than they would in the absence of such transactions.
Shareholders of the Fund may be subject to state and local taxes on distributions received from the Fund and on redemptions of the Fund’s shares.
A brief explanation of the form and character of the distribution accompany each distribution. In January of each year the Fund issues to each shareholder a statement of the federal income tax status of all distributions.
Shareholders should consult their tax advisors about the application of federal, state and local and foreign tax law in light of their particular situation.
Dividends and Distributions
The Fund will receive income in the form of dividends and interest earned on its investments in securities. This income, less the expenses incurred in its operations, is the Fund’s net investment income, substantially all of which will be declared as dividends to the Fund’s shareholders.
The amount of income dividend payments by the Fund is dependent upon the amount of net investment income received by the Fund from its portfolio holdings, is not guaranteed and is subject to the discretion of the Board. The Fund does not pay “interest” or guarantee any fixed rate of return on an investment in its shares.
The Fund also may derive capital gains or losses in connection with sales or other dispositions of its portfolio securities. Any net gain the Fund may realize from transactions involving investments held less than the period required for long–term capital gain or loss recognition or otherwise producing short–term capital gains and losses, although a distribution from capital gains, will be distributed to shareholders with and as a part of dividends giving rise to ordinary income. If during any year the Fund realizes a net gain on transactions involving investments held more than the period required for long–term capital gain or loss recognition or otherwise producing long–term capital gains and losses, the Fund will have a net long–term capital gain. For more information concerning applicable capital gains tax rates, see your tax advisor.
Any dividend or distribution paid by the Fund reduces the Fund’s NAV per share on the date paid by the amount of the dividend or distribution per share. Accordingly, a dividend or distribution paid shortly after a purchase of shares by a shareholder would represent, in substance, a partial return of capital (to the extent it is paid on the shares so purchased), even though it would be subject to income taxes.
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Dividends and other distributions will be made in the form of additional shares of the Fund unless the shareholder has otherwise indicated. Investors have the right to change their elections with respect to the
reinvestment of dividends and distributions by notifying the Transfer Agent in writing, but any such change will be effective only as to dividends and other distributions for which the record date is seven or more business days after the Transfer Agent has received the written request.
Financial Statements
The Fund has only recently commenced operations as of the date of this SAI and therefore does not have a financial history.
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APPENDIX “A” Proxy Voting Policy
PROXY VOTING & CLASS ACTION LAWSUITS POLICIES AND PROCEDURES
BACKGROUND
Under Rule 206(4)-6 of the Act an investment adviser is prohibited from exercising voting authority with respect to client securities unless: (i) the adviser has adopted and implemented written policies and procedures that are reasonably designed to ensure that the adviser votes proxies in the best interest of its clients, which procedures must include how the adviser addresses material conflicts of interest that may arise between the interest of the adviser and its clients; (ii) the adviser describes its proxy voting procedures to its clients and provides copies on request, and (iii) the adviser discloses to clients how they may obtain information on how the adviser voted their proxies.
GENERAL POLICY
Currently, Certeza Fund Advisors’ only client is the Fund, and although Certeza’s investment strategy generally doesn’t result in the adviser holding equity securities, Certeza, as a matter of policy and as a fiduciary, has responsibility for voting proxies for portfolio securities consistent with the best economic interests of the client.
PROCEDURES
· | Certeza Fund Advisors’ sole client current is the Certeza Convex Core Fund and, as a fiduciary of the Fund, shall vote the proxies of the Funds’ portfolio securities in a manner consistent with the best interest of the Fund and its shareholders. Proxy voting will also adhere to the Northern Lights Fund Trust II Proxy Voting Policy which delegates the responsibility of voting proxies on behalf of the Funds to the Adviser. The Chief Investment Officer and/or his designee is primarily responsible for receiving the proxies, casting the vote, maintenance of records, and will coordinate with Ultimus Fund Administration for N-PX filing. With regards to any conflict of interest, Certeza will always vote in favor of the Fund. |
· | Absent specific client instructions, it is Certeza Fund Advisors’ general policy to vote in accordance with management. In any instance where a proxy vote deviates from the recommendation of management, Certeza generally considers factors such as: shareholders’ proposals; cost effects of such proposals; effect on employees; and executive and director compensation. In any instance where Certeza votes a proxy differently from the recommendation of management, the CIO or his designee is required to prepare and maintain a written explanation of the reason for the deviation, as well as a representation that Certeza and its staff are not conflicted in making the chosen voting decision. |
· | Certeza Fund Advisors shall analyze each proxy on a case-by-case basis, informed by the guidelines elaborated below, subject to the requirement that all votes shall be cast solely in the long- term interest of its clients. Certeza does not intend for these guidelines to be exhaustive. Hundreds of issues appear on proxy ballots every year, and it is neither practical nor productive to fashion voting guidelines and policies which attempt to address every eventuality. Certeza shall revise its guidelines as events warrant. Certeza may also decide to rely on an independent proxy voting service, such as Institutional Shareholder Services (ISS) if deemed necessary in the future. |
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· | Certeza Fund Advisors serves as investment adviser to certain investment companies under the Northern Lights Fund Trust II. These funds invest in other investment companies that are not affiliated (“Underlying Funds”) and are required by the Investment Company Act of 1940, as amended (the “1940 Act”) Act to handle proxies received from Underlying Funds in a certain manner. Notwithstanding the guidelines provided in these procedures, it is the policy of Certeza Fund Advisors to vote all proxies received from the Underlying Funds in the same proportion that all shares of the Underlying Funds are voted, or in accordance with instructions received from fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940 Act. After properly voted, the proxy materials are placed in a file maintained by the Chief Compliance Officer for future reference. |
The
Chief Compliance Officer or designee will periodically review the Proxy Voting Policies and Procedure.
Disclosure to Clients
Certeza will disclose to its clients how they may obtain information about how Certeza voted with respect to their securities.
Books and Records
In connection with voting proxies and these Proxy Voting Policies and Procedures, Certeza shall maintain (in hardcopy or electronic form) such books and records as may be required by applicable law, rules or regulations, including:
i. | Certeza’ policies and procedures relating to voting proxies; |
ii. | A copy of each proxy statement that Certeza receives regarding clients’ securities, provided that Certeza may rely on (a) a third party to make and retain, on Certeza’ behalf, pursuant to a written undertaking, a copy of proxy statements or (b) obtaining a copy of proxy statements from the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system; |
iii. | A record of each vote cast by Certeza on behalf of clients, provided that Certeza may rely on a third party to make and retain, on Certeza’ behalf, pursuant to a written undertaking, records of votes cast; |
iv. | Copies of any documents created by Certeza that were material to making a decision on how to vote proxies on behalf of a client or that outline the basis for that decision; and |
v. | A record of each written client request for proxy voting information and a copy of any written response by Certeza to any written or oral client request for information on how Certeza voted proxies on behalf of the requesting client. |
Such books and records will be maintained and preserved in an easily accessible place for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years in Certeza’ main business office.
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Northern Lights Fund Trust II
PART C
OTHER INFORMATION
ITEM 28.
EXHIBITS.
[1] Is filed herewith.
2 To be filed by subsequent amendment.
3 Previously filed on June 16, 2011 in the Registrant's Registration Statement on Form N-1A, and hereby incorporated by reference.
4 Previously filed on June 28, 2011 in the Registrant's Pre-Effective Amendment No. 2, and hereby incorporated by reference.
5 Previously filed on August 3, 2011 in the Registrant's Proxy/Registration Statement on Form N-14, and hereby incorporated by reference.
6 Previously filed on August 3, 2011 in the Registrant's Post-Effective Amendment No. 2, and hereby incorporated by reference.
7 Previously filed on August 19, 2011 in the Registrant's Post-Effective Amendment No. 3, and hereby incorporated by reference.
8 Previously filed on August 26, 2011 in the Registrant's Post-Effective Amendment No. 4, and hereby incorporated by reference.
9 Previously filed on September 20, 2011 in the Registrant's Post-Effective Amendment No. 5, and hereby incorporated by reference.
10 Previously filed on October 3, 2011 in the Registrant's Post-Effective Amendment No. 9, and hereby incorporated by reference.
11 Previously filed on October 27, 2011 in the Registrant's Post-Effective Amendment No. 12, and hereby incorporated by reference.
12 Previously filed on October 27, 2011 in the Registrant's Post-Effective Amendment No. 13, and hereby incorporated by reference.
13 Previously filed on November 2, 2011 in the Registrant's Post-Effective Amendment No. 14, and hereby incorporated by reference.
14Previously filed on November 17, 2011 in the Registrant's Post-Effective Amendment No. 18 and hereby incorporated by reference.
15Previously filed on November 22, 2011 in the Registrant's Post-Effective Amendment No. 20 and hereby incorporated by reference.
16Previously filed on December 14, 2011 in the Registrant's Post-Effective Amendment No. 24 and hereby incorporated by reference.
17 Previously filed on December 19, 2011 in the Registrant's Post-Effective Amendment No. 25 and hereby incorporated by reference.
18Previously filed on December 20, 2011 in the Registrant's Post-Effective Amendment No. 27 and hereby incorporated by reference.
19Previously filed on January 4, 2012 in the Registrant's Post-Effective Amendment No. 29 and hereby incorporated by reference.
20Previously filed on January 10, 2012 in the Registrant's Post-Effective Amendment No. 31 and hereby incorporated by reference.
21Previously filed on January 10, 2012 in the Registrant's Post-Effective Amendment No. 32 and hereby incorporated by reference.
22Previously filed on January 27, 2012 in the Registrant's Post-Effective Amendment No. 34 and hereby incorporated by reference.
23Previously filed on February 2, 2012 in the Registrant's Post-Effective Amendment No. 37 and hereby incorporated by reference.
24Previously filed on February 7, 2012 in the Registrant's Post-Effective Amendment No. 39 and hereby incorporated by reference.
25Previously filed on February 10, 2012 in the Registrant's Post-Effective Amendment No. 40 and hereby incorporated by reference.
26Previously filed on March 8, 2012 in the Registrant's Post-Effective Amendment No. 45 and hereby incorporated by reference.
27Previously filed on March 9, 2012 in the Registrant's Post-Effective Amendment No. 46 and hereby incorporated by reference.
28Previously filed on March 13, 2012 in the Registrant's Post-Effective Amendment No. 47 and hereby incorporated by reference.
29Previously filed on March 23, 2012 in the Registrant's Post-Effective Amendment No. 51 and hereby incorporated by reference.
30Previously filed on March 27, 2012 in the Registrant's Post-Effective Amendment No. 52 and hereby incorporated by reference.
31Previously filed on April 12, 2012 in the Registrant's Post-Effective Amendment No. 56 and hereby incorporated by reference.
32Previously filed on April 17, 2012 in the Registrant's Post-Effective Amendment No. 57 and hereby incorporated by reference.
33Previously filed on May 15, 2012 in the Registrant's Post-Effective Amendment No. 62 and hereby incorporated by reference.
34Previously filed on May 25, 2012 in the Registrant's Post-Effective Amendment No. 65 and hereby incorporated by reference.
35Previously filed on June 19, 2012 in the Registrant's Post-Effective Amendment No. 68 and hereby incorporated by reference.
36Previously filed on June 28, 2012 in the Registrant's Post-Effective Amendment No. 69 and hereby incorporated by reference.
37Previously filed on July 27, 2012 in the Registrant's Post-Effective Amendment No. 73 and hereby incorporated by reference.
38Previously filed on August 17, 2012 in the Registrant's Post-Effective Amendment No. 75 and hereby incorporated by reference.
39Previously filed on September 20, 2012 in the Registrant's Post-Effective Amendment No. 78 and hereby incorporated by reference.
40Previously filed on October 19, 2012 in the Registrant's Post-Effective Amendment No. 81 and hereby incorporated by reference.
41Previously filed on November 9, 2012 in the Registrant's Post-Effective Amendment No. 86 and hereby incorporated by reference.
42Previously filed on December 28, 2012 in the Registrant's Post-Effective Amendment No. 88 and hereby incorporated by reference.
43Previously filed on January 17, 2013 in the Registrant's Post-Effective Amendment No. 91 and hereby incorporated by reference.
44Previously filed on January 30, 2013 in the Registrant's Post-Effective Amendment No. 92 and hereby incorporated by reference.
45Previously filed on February 1, 2013 in the Registrant's Post-Effective Amendment No. 93 and hereby incorporated by reference.
46Previously filed on March 22, 2013 in the Registrant's Post-Effective Amendment No. 95 and hereby incorporated by reference.
47Previously filed on March 28, 2013 in the Registrant's Post-Effective Amendment No. 96 and hereby incorporated by reference.
48Previously filed on April 17, 2013 in the Registrant's Post-Effective Amendment No. 99 and hereby incorporated by reference.
49Previously filed on April 30, 2013 in the Registrant's Post-Effective Amendment No. 101 and hereby incorporated by reference.
50Previously filed on June 7, 2013 in the Registrant's Post-Effective Amendment No. 103 and hereby incorporated by reference.
51Previously filed on June 25, 2013 in the Registrant's Post-Effective Amendment No. 105 and hereby incorporated by reference.
52Previously filed on July 29, 2013 in the Registrant's Post-Effective Amendment No. 109 and hereby incorporated by reference.
53Previously filed on September 3, 2013 in the Registrant's Post-Effective Amendment No. 112 and hereby incorporated by reference.
54Previously filed on September 19, 2013 in the Registrant's Post-Effective Amendment No. 115 and hereby incorporated by reference.
55Previously filed on September 26, 2013 in the Registrant's Post-Effective Amendment No. 117 and hereby incorporated by reference.
56Previously filed on September 30, 2013 in the Registrant's Post-Effective Amendment No. 118 and hereby incorporated by reference.
57Previously filed on November 18, 2013 in the Registrant's Post-Effective Amendment No. 123 and hereby incorporated by reference.
58Previously filed on December 17, 2013 in the Registrant's Post-Effective Amendment No. 125 and hereby incorporated by reference.
59Previously filed on December 27, 2013 in the Registrant's Post-Effective Amendment No. 127 and hereby incorporated by reference.
60Previously filed on December 27, 2013 in the Registrant's Post-Effective Amendment No. 128 and hereby incorporated by reference.
61Previously filed on December 30, 2013 in the Registrant's Post-Effective Amendment No. 131 and hereby incorporated by reference.
62Previously filed on January 13, 2014 in the Registrant's Post-Effective Amendment No. 134 and hereby incorporated by reference.
63Previously filed on January 13, 2014 in the Registrant's Post-Effective Amendment No. 135 and hereby incorporated by reference.
64Previously filed on March 14, 2014 in the Registrant's Post-Effective Amendment No. 138 and hereby incorporated by reference
65Previously filed on March 26, 2014 in the Registrant's Post-Effective Amendment No. 141 and hereby incorporated by reference.
66Previously filed on March 26, 2014 in the Registrant's Post-Effective Amendment No. 142 and hereby incorporated by reference.
67Previously filed on March 27, 2014 in the Registrant's Post-Effective Amendment No. 143 and hereby incorporated by reference
68Previously filed on March 27, 2014 in the Registrant's Post-Effective Amendment No. 144 and hereby incorporated by reference
69Previously filed on March 27, 2014 in the Registrant's Post-Effective Amendment No. 145 and hereby incorporated by reference
70Previously filed on March 28, 2014 in the Registrant's Post-Effective Amendment No. 146 and hereby incorporated by reference.
71Previously filed on March 28, 2014 in the Registrant's Post-Effective Amendment No. 147 and hereby incorporated by reference.
72Previously filed on April 30, 2014 in the Registrant's Post-Effective Amendment No. 149 and hereby incorporated by reference.
73Previously filed on April 30, 2014 in the Registrant's Post-Effective Amendment No. 150 and hereby incorporated by reference.
74Previously filed on June 2, 2014 in the Registrant's Post-Effective Amendment No. 155 and hereby incorporated by reference.
75Previously filed on June 20, 2014 in the Registrant's Post-Effective Amendment No. 157 and hereby incorporated by reference.
76Previously filed on June 25, 2014 in the Registrant's Post-Effective Amendment No. 158 and hereby incorporated by reference.
77Previously filed on June 27, 2014 in the Registrant's Post-Effective Amendment No. 159 and hereby incorporated by reference.
78Previously filed on June 27, 2014 in the Registrant's Post-Effective Amendment No. 160 and hereby incorporated by reference.
79Previously filed on July 8, 2014 in the Registrant's Post-Effective Amendment No. 163 and hereby incorporated by reference.
80Previously filed on July 24, 2014 in the Registrant's Post-Effective Amendment No. 168 and hereby incorporated by reference.
81Previously filed on September 3, 2014 in the Registrant's Post-Effective Amendment No. 170 and hereby incorporated by reference.
82Previously filed on September 24, 2014 in the Registrant's Post-Effective Amendment No. 175 and hereby incorporated by reference.
83Previously filed on September 24, 2014 in the Registrant's Post-Effective Amendment No. 176 and hereby incorporated by reference.
84Previously filed on September 25, 2014 in the Registrant's Post-Effective Amendment No. 177 and hereby incorporated by reference.
85Previously filed on September 26, 2014 in the Registrant's Post-Effective Amendment No. 178 and hereby incorporated by reference.
86Previously filed on November 21, 2014 in the Registrant's Post-Effective Amendment No. 189 and hereby incorporated by reference.
87Previously filed on December 4, 2014 in the Registrant's Post-Effective Amendment No. 190 and hereby incorporated by reference.
88Previously filed on December 23, 2014 in the Registrant's Post-Effective Amendment No. 192 and hereby incorporated by reference.
89Previously filed on December 29, 2014 in the Registrant's Post-Effective Amendment No. 192 and hereby incorporated by reference.
90Previously filed on December 30, 2014 in the Registrant's Post-Effective Amendment No. 197 and hereby incorporated by reference.
91Previously filed on December 31, 2014 in the Registrant's Post-Effective Amendment No. 200 and hereby incorporated by reference.
92Previously filed on December 31, 2014 in the Registrant's Post-Effective Amendment No. 201 and hereby incorporated by reference.
93Previously filed on January 27, 2015 in the Registrant's Post-Effective Amendment No. 207 and hereby incorporated by reference.
94Previously filed on March 16, 2015 in the Registrant's Post-Effective Amendment No. 209 and hereby incorporated by reference.
95Previously filed on March 23, 2015 in the Registrant's Post-Effective Amendment No. 210 and hereby incorporated by reference.
96Previously filed on March 23, 2015 in the Registrant's Post-Effective Amendment No. 211 and hereby incorporated by reference.
97Previously filed on March 24, 2015 in the Registrant's Post-Effective Amendment No. 212 and hereby incorporated by reference.
98Previously filed on March 25, 2015 in the Registrant's Post-Effective Amendment No. 213 and hereby incorporated by reference.
99Previously filed on March 27, 2015 in the Registrant's Post-Effective Amendment No. 214 and hereby incorporated by reference.
100Previously filed on March 30, 2015 in the Registrant's Post-Effective Amendment No. 215 and hereby incorporated by reference.
101Previously filed on April 29, 2015 in the Registrant's Post-Effective Amendment No. 225 and hereby incorporated by reference.
102Previously filed on April 29, 2015 in the Registrant's Post-Effective Amendment No. 226 and hereby incorporated by reference.
103Previously filed on April 29, 2015 in the Registrant's Post-Effective Amendment No. 227 and hereby incorporated by reference.
104Previously filed on May 26, 2015 in the Registrant's Post-Effective Amendment No. 233 and hereby incorporated by reference.
105Previously filed on June 26, 2015 in the Registrant's Post-Effective Amendment No. 234 and hereby incorporated by reference.
106Previously filed on June 29, 2015 in the Registrant's Post-Effective Amendment No. 235 and hereby incorporated by reference.
107Previously filed on July 14, 2015 in the Registrant's Post-Effective Amendment No. 238 and hereby incorporated by reference.
108Previously filed on July 24, 2015 in the Registrant's Post-Effective Amendment No. 240 and hereby incorporated by reference.
109Previously filed on July 28, 2015 in the Registrant's Post-Effective Amendment No. 242 and hereby incorporated by reference.
110Previously filed on September 23, 2015 in the Registrant's Post-Effective Amendment No. 251 and hereby incorporated by reference.
111Previously filed on September 23, 2015 in the Registrant's Post-Effective Amendment No. 252 and hereby incorporated by reference.
112Previously filed on September 24, 2015 in the Registrant's Post-Effective Amendment No. 253 and hereby incorporated by reference.
113Previously filed on September 25, 2015 in the Registrant's Post-Effective Amendment No. 254 and hereby incorporated by reference.
114Previously filed on September 25, 2015 in the Registrant's Post-Effective Amendment No. 255 and hereby incorporated by reference.
115Previously filed on September 28, 2015 in the Registrant's Post-Effective Amendment No. 256 and hereby incorporated by reference.
116Previously filed on October 14, 2015 in the Registrant's Post-Effective Amendment No. 262 and hereby incorporated by reference.
117Previously filed on November 19, 2015 in the Registrant's Post-Effective Amendment No. 268 and hereby incorporated by reference.
118Previously filed on November 19, 2015 in the Registrant's Post-Effective Amendment No. 269 and hereby incorporated by reference.
119Previously filed on December 21, 2015 in the Registrant's Post-Effective Amendment No. 280 and hereby incorporated by reference.
120Previously filed on December 21, 2015 in the Registrant's Post-Effective Amendment No. 281 and hereby incorporated by reference.
121Previously filed on December 23, 2015 in the Registrant's Post-Effective Amendment No. 282 and hereby incorporated by reference.
122Previously filed on December 23, 2015 in the Registrant's Post-Effective Amendment No. 283 and hereby incorporated by reference.
123Previously filed on December 28, 2015 in the Registrant's Post-Effective Amendment No. 284 and hereby incorporated by reference.
124Previously filed on December 29, 2015 in the Registrant's Post-Effective Amendment No. 285 and hereby incorporated by reference.
125Previously filed on January 29, 2016 in the Registrant's Post-Effective Amendment No. 290 and hereby incorporated by reference.
126Previously filed on February 26, 2016 in the Registrant's Post-Effective Amendment No. 293 and hereby incorporated by reference.
127Previously filed on February 26, 2016 in the Registrant's Post-Effective Amendment No. 294 and hereby incorporated by reference.
128Previously filed on March 17, 2016 in the Registrant's Post-Effective Amendment No. 297 and hereby incorporated by reference.
129Previously filed on March 18, 2016 in the Registrant's Post-Effective Amendment No. 298 and hereby incorporated by reference.
130Previously filed on March 22, 2016 in the Registrant's Post-Effective Amendment No. 299 and hereby incorporated by reference.
131Previously filed on March 23, 2016 in the Registrant's Post-Effective Amendment No. 300 and hereby incorporated by reference.
132Previously filed on March 28, 2016 in the Registrant's Post-Effective Amendment No. 301 and hereby incorporated by reference.
133Previously filed on March 28, 2016 in the Registrant's Post-Effective Amendment No. 301 and hereby incorporated by reference.
134Previously filed on April 22, 2016 in the Registrant's Post-Effective Amendment No. 308 and hereby incorporated by reference.
135Previously filed on June 26, 2016 in the Registrant's Post-Effective Amendment No. 312 and hereby incorporated by reference.
136Previously filed on July 27, 2016 in the Registrant's Post-Effective Amendment No. 313 and hereby incorporated by reference.
137Previously filed on September 27, 2016 in the Registrant's Post-Effective Amendment No. 315 and hereby incorporated by reference.
138Previously filed on September 27, 2016 in the Registrant's Post-Effective Amendment No. 316 and hereby incorporated by reference.
139Previously filed on September 27, 2016 in the Registrant's Post-Effective Amendment No. 317 and hereby incorporated by reference.
140Previously filed on September 27, 2016 in the Registrant's Post-Effective Amendment No. 318 and hereby incorporated by reference.
141Previously filed on December 27, 2016 in the Registrant's Post-Effective Amendment No. 324 and hereby incorporated by reference.
142Previously filed on December 27, 2016 in the Registrant's Post-Effective Amendment No. 325 and hereby incorporated by reference.
143Previously filed on December 28, 2016 in the Registrant's Post-Effective Amendment No. 326 and hereby incorporated by reference.
144Previously filed on February 27, 2017 in the Registrant's Post-Effective Amendment No. 331 and hereby incorporated by reference.
145Previously filed on February 28, 2017 in the Registrant's Post-Effective Amendment No. 332 and hereby incorporated by reference.
146Previously filed on March 1, 2017 in the Registrant's Post-Effective Amendment No. 333 and hereby incorporated by reference.
147Previously filed on March 3, 2017 in the Registrant's Post-Effective Amendment No. 334 and hereby incorporated by reference.
148Previously filed on March 27, 2017 in the Registrant's Post-Effective Amendment No. 337 and hereby incorporated by reference.
149Previously filed on March 28, 2017 in the Registrant's Post-Effective Amendment No. 338 and hereby incorporated by reference.
150Previously filed on March 28, 2017 in the Registrant's Post-Effective Amendment No. 339 and hereby incorporated by reference.
151Previously filed on March 29, 2017 in the Registrant's Post-Effective Amendment No. 340 and hereby incorporated by reference.
152Previously filed on March 29, 2017 in the Registrant's Post-Effective Amendment No. 341 and hereby incorporated by reference.
153Previously filed on April 13, 2017 in the Registrant's Post-Effective Amendment No. 347 and hereby incorporated by reference.
154Previously filed on April 28, 2017 in the Registrant's Post-Effective Amendment No. 348 and hereby incorporated by reference.
155Previously filed on May 17, 2017 in the Registrant's Post-Effective Amendment No. 351 and hereby incorporated by reference.
156Previously filed on June 16, 2017 in the Registrant's Post-Effective Amendment No. 353 and hereby incorporated by reference.
157Previously filed on June 27, 2017 in the Registrant's Post-Effective Amendment No. 354 and hereby incorporated by reference.
158Previously filed on July 28, 2017 in the Registrant's Post-Effective Amendment No. 356 and hereby incorporated by reference.
159Previously filed on August 25, 2017 in the Registrant's Post-Effective Amendment No. 358 and hereby incorporated by reference.
1609Previously filed on September 27, 2017 in the Registrant's Post-Effective Amendment No. 361 and hereby incorporated by reference
161Previously filed on September 27, 2017 in the Registrant's Post-Effective Amendment No. 362 and hereby incorporated by reference.
162Previously filed on November 22, 2017 in the Registrant's Post-Effective Amendment No. 367 and hereby incorporated by reference.
163Previously filed on December 4, 2017 in the Registrant's Post-Effective Amendment No. 370 and hereby incorporated by reference.
164Previously filed on December 27, 2017 in the Registrant's Post-Effective Amendment No. 372 and hereby incorporated by reference.
165Previously filed on December 27, 2017 in the Registrant's Post-Effective Amendment No. 373 and hereby incorporated by reference.
166Previously filed on December 28, 2017 in the Registrant's Post-Effective Amendment No. 374 and hereby incorporated by reference.
167Previously filed on February 23, 2018 in the Registrant's Post-Effective Amendment No. 379 and hereby incorporated by reference.
168Previously filed on March 26, 2018 in the Registrant's Post-Effective Amendment No. 381 and hereby incorporated by reference.
169Previously filed on March 26, 2018 in the Registrant's Post-Effective Amendment No. 382 and hereby incorporated by reference.
170Previously filed on March 27, 2018 in the Registrant's Post-Effective Amendment No. 383 and hereby incorporated by reference.
171Previously filed on March 28, 2018 in the Registrant's Post-Effective Amendment No. 384 and hereby incorporated by reference.
172Previously filed on March 29, 2018 in the Registrant's Post-Effective Amendment No. 385 and hereby incorporated by reference.
173Previously filed on April 18, 2018 in the Registrant's Post-Effective Amendment No. 391 and hereby incorporated by reference.
174Previously filed on April 27, 2018 in the Registrant's Post-Effective Amendment No. 394 and hereby incorporated by reference.
175Previously filed on June 27, 2018 in the Registrant's Post-Effective Amendment No. 395 and hereby incorporated by reference.
176Previously filed on July 27, 2018 in the Registrant's Post-Effective Amendment No. 397 and hereby incorporated by reference.
177Previously filed on September 25, 2018 in the Registrant's Post-Effective Amendment No. 400 and hereby incorporated by reference.
178Previously filed on September 26, 2018 in the Registrant's Post-Effective Amendment No. 401 and hereby incorporated by reference.
179Previously filed on October 31, 2018 in the Registrant's Post-Effective Amendment No. 404 and hereby incorporated by reference.
180Previously filed on December 28, 2018 in the Registrant's Post-Effective Amendment No. 405 and hereby incorporated by reference.
181Previously filed on December 28, 2018 in the Registrant's Post-Effective Amendment No. 406 and hereby incorporated by reference.
182Previously filed on February 27, 2019 in the Registrant's Post-Effective Amendment No. 411 and hereby incorporated by reference.
183Previously filed on March 26, 2019 in the Registrant's Post-Effective Amendment No. 413 and hereby incorporated by reference.
184Previously filed on March 26, 2019 in the Registrant's Post-Effective Amendment No. 414 and hereby incorporated by reference.
185Previously filed on March 27, 2019 in the Registrant's Post-Effective Amendment No. 415 and hereby incorporated by reference.
186Previously filed on March 28, 2019 in the Registrant's Post-Effective Amendment No. 416 and hereby incorporated by reference.
187Previously filed on March 29, 2019 in the Registrant's Post-Effective Amendment No. 417 and hereby incorporated by reference.
188Previously filed on April 5, 2019 in the Registrant's Post-Effective Amendment No. 422 and hereby incorporated by reference.
189Previously filed on April 26, 2019 in the Registrant's Post-Effective Amendment No. 428 and hereby incorporated by reference.
190Previously filed on April 29, 2019 in the Registrant's Post-Effective Amendment No. 429 and hereby incorporated by reference.
191Previously filed on May 3, 2019 in the Registrant's Post-Effective Amendment No. 429 and hereby incorporated by reference.
192Previously filed on June 28, 2019 in the Registrant's Post-Effective Amendment No. 435 and hereby incorporated by reference.
193Previously filed on July 26, 2019 in the Registrant's Post-Effective Amendment No. 437 and hereby incorporated by reference.
194Previously filed on September 26, 2019 in the Registrant's Post-Effective Amendment No. 440 and hereby incorporated by reference.
195Previously filed on September 30, 2019 in the Registrant's Post-Effective Amendment No. 441 and hereby incorporated by reference.
196Previously filed on December 23, 2019 in the Registrant's Post-Effective Amendment No. 445 and hereby incorporated by reference.
197Previously filed on December 27, 2019 in the Registrant's Post-Effective Amendment No. 446 and hereby incorporated by reference.
198Previously filed on February 25, 2020 in the Registrant's Post-Effective Amendment No. 449 and hereby incorporated by reference.
199Previously filed on February 25, 2020 in the Registrant's Post-Effective Amendment No. 450 and hereby incorporated by reference.
200Previously filed on March 24, 2020 in the Registrant's Post-Effective Amendment No. 453 and hereby incorporated by reference.
201Previously filed on March 25, 2020 in the Registrant's Post-Effective Amendment No. 454 and hereby incorporated by reference.
202Previously filed on March 26, 2020 in the Registrant's Post-Effective Amendment No. 455 and hereby incorporated by reference.
203Previously filed on March 27, 2020 in the Registrant's Post-Effective Amendment No. 456 and hereby incorporated by reference.
204Previously filed on April 14, 2020 in the Registrant's Post-Effective Amendment No. 461 and hereby incorporated by reference.
205Previously filed on April 17, 2020 in the Registrant's Post-Effective Amendment No. 462 and hereby incorporated by reference.
206Previously filed on April 24, 2020 in the Registrant's Post-Effective Amendment No. 463 and hereby incorporated by reference.
207Previously filed on April 27, 2020 in the Registrant's Post-Effective Amendment No. 464 and hereby incorporated by reference.
208Previously filed on April 28, 2020 in the Registrant's Post-Effective Amendment No. 465 and hereby incorporated by reference.
209Previously filed on June 15, 2020 in the Registrant's Post-Effective Amendment No. 471 and hereby incorporated by reference.
210Previously filed on June 25, 2020 in the Registrant's Post-Effective Amendment No. 472 and hereby incorporated by reference.
211Previously filed on July 27, 2020 in the Registrant's Post-Effective Amendment No. 475 and hereby incorporated by reference.
212Previously filed on September 24, 2020 in the Registrant's Post-Effective Amendment No. 477 and hereby incorporated by reference.
213Previously filed on September 25, 2020 in the Registrant's Post-Effective Amendment No. 478 and hereby incorporated by reference.
ITEM 29.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
None.
ITEM 30.
INDEMNIFICATION.
Article VIII, Section 2(a) of the Agreement and Declaration of Trust provides that to the fullest extent that limitations on the liability of Trustees and officers are permitted by the Delaware Statutory Trust Act of 2002, the officers and Trustees shall not be responsible or liable in any event for any act or omission of: any agent or employee of the Trust; any investment adviser or principal underwriter of the Trust; or with respect to each Trustee and officer, the act or omission of any other Trustee or officer, respectively. The Trust, out of the Trust Property, is required to indemnify and hold harmless each and every officer and Trustee from and against any and all claims and demands whatsoever arising out of or related to such officer’s or Trustee’s performance of his or her duties as an officer or Trustee of the Trust. This limitation on liability applies to events occurring at the time a person serves as a Trustee or officer of the Trust whether or not such person is a Trustee or officer at the time of any proceeding in which liability is asserted. Nothing contained in the Agreement and Declaration of Trust indemnifies holds harmless or protects any officer or Trustee from or against any liability to the Trust or any shareholder to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
Article VIII, Section 2(b) provides that every note, bond, contract, instrument, certificate or undertaking and every other act or document whatsoever issued, executed or done by or on behalf of the Trust, the officers or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been issued, executed or done only in such Person’s capacity as Trustee and/or as officer, and such Trustee or officer, as applicable, shall not be personally liable therefore, except as described in the last sentence of the first paragraph of Section 2 of Article VIII.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the provisions of Delaware law and the Agreement and Declaration of the Registrant or the By-Laws of the Registrant, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Trust in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
ITEM 31.
BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Certain information pertaining to the business and other connections of each Advisor of each series of the Trust is hereby incorporated herein by reference to the section of the respective Prospectus captioned “Investment Advisor” and to the section of the respective Statement of Additional Information captioned “Investment Advisory and Other Services.” The information required by this Item 31 with respect to each director, officer or partner of each Advisor is incorporated by reference to the Advisor’s Uniform Application for Investment Adviser Registration (Form ADV) on file with the Securities and Exchange Commission (“SEC”). Each Advisor’s Form ADV may be obtained, free of charge, at the SEC’s website at www.adviserinfo.sec.gov, and may be requested by File No. as follows:
Two Oaks Investment Management, LLC, adviser to the Two Oaks Diversified Growth and Income Fund -- File No. 801-72390.
North Star Investment Management Corp., adviser to the North Star Opportunity Fund, North Star Dividend Fund, North Star Micro Cap Fund and North Star Bond Fund – File No. 801-62013.
Eaton Vance WaterOak Advisors, adviser to WOA All Asset I– File No. 801-63334
Kovitz Investment Group Partners, LLC, adviser to the Al Frank Fund – File No. 801-107054.
Innealta Capital, LLC, adviser to the Dynamic U.S. Opportunity Fund, Dynamic International Opportunity Fund, Acclivity Mid Cap Multi-Style Fund, Acclivity Small Cap Growth Fund, Acclivity Small Cap Value Fund, Acclivity Broad Equity Multi-Style Fund and the Dynamic Global Diversified Fund. – File No. 801-112421
Longboard Asset Management, LP, adviser to the Longboard Managed Futures Strategy and Longboard Alternative Growth Fund – File No. 801-72623.
KKM Financial, LLC, adviser to the Essential 40 Stock Fund – File No. 801-77094.
Price Asset Management, LLC, adviser to the PCS Commodity Strategy Fund – File No. 801-77076.
F/m Investments, LLC adviser to the F/m Investments European L/S Small Cap Fund – File No. 801-116853.
FormulaFolio Investments, LLC, adviser to the FormulaFolios US Equity Fund – File No. 801-72780.
Invenomic Capital Management, LP. adviser to the Invenomic Fund – File No. 801-110459.
Certeza Fund Advisors, LLC, adviser to the Certeza Convex Core Fund – 801-119809.
ITEM 32.
PRINCIPAL UNDERWRITER.
(a)
Northern Lights Distributors, LLC (“NLD”), is the principal underwriter for all series of Northern Lights Fund Trust II. NLD also acts as principal underwriter for the following:
AdvisorOne Funds, Arrow Investments Trust (ETF’s Only), Arrow ETF Trust, Boyar Value Fund Inc., Centerstone Investors Trust, Copeland Trust, Miller Investment Trust, Mutual Fund and Variable Insurance Trust, Mutual Fund Series Trust, North Country Funds, Northern Lights Fund Trust, Northern Lights Fund Trust III, New Age Alpha Trust, Northern Lights Fund Trust IV, Northern Lights Variable Trust, OCM Mutual Fund, PREDEX, Princeton Private Investment Access Fund, The Saratoga Advantage Trust, Tributary Funds, Inc., Two Roads Shared Trust and Unified Series Trust.
(b)
NLD is registered with Securities and Exchange Commission as a broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. The principal business address of NLD is 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022. NLD is an affiliate of Gemini Fund Services, LLC. To the best of Registrant’s knowledge, the following are the managers and officers of NLD:
Name | Positions and Offices with Underwriter | Positions and Offices with the Trust |
William J. Strait | President, Secretary, General Counsel and Manager | None |
David James | Manager | None |
Mike Nielsen | Chief Compliance Officer and AML Compliance Officer | None |
Stephen Preston | Financial Operations Principal | None |
Melvin Van Cleave | Chief Information Securities Officer | None |
(c) Not Applicable.
ITEM 33.
LOCATION OF ACCOUNTS AND RECORDS.
The following entities prepare, maintain and preserve the records required by Section 31 (a) of the 1940 Act for the Registrant. These services are provided to the Registrant for such periods prescribed by the rules and regulations of the U.S. Securities and Exchange Commission under the 1940 Act and such records are the property of the entity required to maintain and preserve such records and will be surrendered promptly on request.
Bank of New York Mellon (“BNYM”), One Wall Street, New York, NY 10286, provides custodian services to the Two Oaks Diversified Growth and Income Fund pursuant to a Custody Agreement between BNYM and the Trust.
U.S. Bank, National Association (“U.S. Bank”), 1555 North River Center Drive, Milwaukee, WI 53212, provides custodian services to the Al Frank Fund, F/m Investments European L/S Small Cap Fund, Invenomic Fund, FormulaFolios US Equity Fund, pursuant to a Custody Agreement between U.S. Bank and the Trust.
MUFG Union Bank, National Association (“Union Bank”), 400 California Street, San Francisco, CA 94104, provides custodian services to the North Star Opportunity Fund, WOA All Asset I, Dynamic U.S. Opportunity Fund, Dynamic International Opportunity Fund, Longboard Managed Futures Strategy Fund, Longboard Alternative Growth Fund, North Star Dividend Fund, North Star Micro Cap Fund, North Star Bond Fund, PCS Commodity Strategy Fund, Essential 40 Stock Fund, Acclivity Mid Cap Multi-Style Fund, Acclivity Small Cap Growth Fund, Acclivity Small Cap Value Fund, Acclivity Broad Equity Multi-Style Fund and the Dynamic Global Diversified Fund pursuant to a Custody Agreement between Union Bank and the Trust.
Fifth Third Bank, National Association (“Fifth Third”), 38 Fountain Square Plaza, Cincinnati, OH 54263, provides custodian services to the Certeza Convex Core Fund pursuant to a Custody Agreement between Fifth Third and the Trust.
Gemini Fund Services, LLC (“GFS”), located at 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, provides transfer agent and dividend disbursing services pursuant to a Transfer Agency and Service Agreements between GFS and the Trust. In such capacities, GFS provides pricing for each Fund’s portfolio securities, keeps records regarding securities and other assets in custody and in transfer, bank statements, canceled checks, financial books and records, and keeps records of each shareholder’s account and all disbursement made to shareholders. GFS also maintains all records required pursuant to Administrative Service Agreements with the Trust.
NLD located at 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, serves as principal underwriter for all series of Northern Lights Fund Trust II. NLD maintains all records required to be maintained pursuant to each Fund’s Distribution Plan and Agreement adopted pursuant to Rule 12b-1 under the 1940 Act.
Northern Lights Compliance Services, LLC (“NLCS”), located at 4221 North 203rd Street, Suite 100, Elkhorn, NE 68022, provides CCO and compliance services to each Fund of the Trust.
Two Oaks Investment Management, LLC, located at 7110 North Fresno Street, Suite 450, Fresno CA, 93720 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Two Oaks Diversified Growth and Income Fund.
North Star Investment Management Corp. located at 20 N. Wacker Drive, Suite 1416, Chicago, IL 60606 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the North Star Opportunity Fund, North Star Dividend Fund, North Star Micro Cap Fund and North Star Bond Fund.
Water Oak Advisors LLC located at 145 Lincoln Avenue, Suite A, Winter Park, FL 32789 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the WOA All Asset I.
Kovitz Investment Group Partners, LLC located at 115 South LaSalle Street, 27th Floor, Chicago, IL 60603 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Al Frank Fund.
Innealta Capital, LLC located at 13215 Bee Cave Parkway, Building A, Suite 240, Austin, TX 78738
pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Dynamic U.S. Opportunity Fund, Dynamic International Opportunity Fund, Acclivity Mid Cap Multi-Style Fund, Acclivity Small Cap Growth Fund and the Acclivity Small Cap Value Fund, Acclivity Broad Equity Multi-Style Fund and the Dynamic Global Diversified Fund.
Longboard Asset Management, LP located at P.O. Box 97730, Phoenix, Arizona 85060-7730 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Longboard Managed Futures Strategy Fund and the Longboard Alternative Growth Fund.
KKM Financial, LLC, located at 311 South Wacker Drive, Suite 650, Chicago, IL 60606 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Essential 40 Stock Fund.
Price Asset Management, LLC, located at 141 West Jackson Boulevard, Suite 1320A, Chicago, IL 60604 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the PCS Commodity Strategy Fund.
FormulaFolio Investments, LLC located at 89 Ionia SW, Suite 600, Grand Rapids, MI 49503 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the FormulaFolios US Equity Fund.
Invenomic Capital Management, LP, located at 211 Congress Street, 7th Floor, Boston, MA 02110 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Invenomic Fund.
F/m Investments, LLC located at 3050 K. Street, Suite W-170, Washington, D.C. 20007 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the F/m Investments European L/S Small Cap Fund.
Certeza Fund Advisors, LLC located at 1047 South 100 West, Suite 220, Logan, UT 84321 pursuant to the Investment Advisory Agreement with the Trust, maintains all records required pursuant to such agreement with respect to the Certeza Convex Core Fund.
ITEM 34.
MANAGEMENT SERVICES.
Not applicable.
ITEM 35.
UNDERTAKINGS.
See Item 30 above, second paragraph.
One or more of the Registrant’s series may invest up to 25% of its respective total assets in a wholly-owned and controlled subsidiary (each a “Subsidiary” and collectively the “Subsidiaries”). Each Subsidiary will operate under the supervision of the Registrant. The Registrant hereby undertakes that the Subsidiaries will submit to inspection by the U. S. Securities and Exchange Commission.
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Post-Effective Amendment No. 482 to its Registration Statement to be signed on its behalf by the undersigned, thereunto authorized, in the City of Hauppauge, State of New York, on December 23, 2020.
NORTHERN LIGHTS FUND TRUST II
By: __________________________
Kevin Wolf*
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date |
Brian Nielsen* |
_________________________ Trustee & Chairman |
December 23, 2020 |
Thomas Sarkany* |
_________________________ Trustee |
December 23, 2020 |
Anthony Lewis* |
_________________________ Trustee |
December 23, 2020 |
Keith Rhoades* |
_________________________ Trustee |
December 23, 2020 |
Randy Skalla* |
_________________________ Trustee |
December 23, 2020 |
Kevin Wolf* |
_________________________ President and Principal Executive Officer |
December 23, 2020 |
Erik Naviloff* |
_________________________ Treasurer and Principal Financial Officer |
December 23, 2020 |
*By: /s/Allyson Stewart
Allyson Stewart
*Attorney-in-Fact – pursuant to powers of attorney incorporated by reference to Post-Effective Amendment No. 351 (filed on May 17, 2017) in the Registrant's Registration Statement on Form N-1A.
EXHIBIT INDEX
Exhibit 99.28
CUSTODY AGREEMENT
THIS AGREEMENT, is made as of December 4, 2020 (the Agreement), by and between Northern Lights Fund Trust II, a statutory trust organized under the laws of the State of Delaware (the Company), and Fifth Third Bank, National Association (Fifth Third Bank) (the Custodian).
W I T N E S S E T H:
WHEREAS, the Company desires that the Securities and cash of each of the investment portfolios identified in Exhibit A hereto which Exhibit may be added to from time to time by notice from the Company to the Custodian (such investment portfolios are individually referred to herein as a Fund and, collectively, as the Funds), be held and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Company is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, the Custodian represents that it is a bank having the qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the Company and the Custodian hereby agree as follows:
ARTICLE
I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
1.1 Account(s) means the custodial account maintained by the Custodian pursuant to this Agreement established in the name of and on behalf of the Company.
1.2 Applications means, collectively, the CAD Application and Channel Access Application.
1.3 Authorized Person means any Officer or other person duly authorized by resolution of the Board to give Oral Instructions and Written Instructions on behalf of the Company and named in Exhibit B hereto or in such resolutions of the Board, certified by an Officer, as may be received by the Custodian from time to time.
1.4 Bank means Fifth Third Bank, National Association.
1.5 Bank Services means services and products the Custodian or its affiliates provide to the Company that can be accessed through the Applications.
1.6 Board means the Companys board of directors or board of trustees, as applicable, and the directors or trustees from time to time serving under the Companys then-current organizational documents.
1.7 Book-Entry System means a system of tracking ownership of securities where no certificate is given to investors.
1
1.8 Business Day means any day recognized as a settlement day by The New York Stock Exchange, Inc. and any other day for which the Company computes the net asset value of the Fund.
1.9 Channel Access Application means the then-current Access Channels and Channel Services made available to the Company by the Custodian.
1.10 Channel Access System means the overall concept or program, including the then-current systems, computers and communication facilities made available to the Company, which enables access to, and online management of, Bank Services.
1.11 Channel Access Interface means the methodology by which the Company uses the Channel Access Application to create an online connection to the Channel Access System, which will allow the Company to give Instructions and perform Transactions from a remote location.
1.12 Channel Services means the then-current access made available by the Custodian for the Company to give Instructions and perform Transactions pursuant to an Online Channel Access Agreement, which must be entered into separately between Custodian and the Company.
1.13 Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
1.14 Commodity Futures Trading Commission (CFTC) means an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974.
1.15 Corporate Action Information means all information communicated to the Company related to Corporate Actions.
1.16 Corporate Actions means any actions undertaken by or relating to an issuer of Securities that has an effect upon the Company or a Fund including, without limitation, the inception of Court Actions.
1.17 Custody Account means any account in the name of the Fund, which is provided for in Section 3.2 below.
1.18 Customer Profile Schedule means a certain Customer Profile Schedule form (including Account Disclosures and Consents) executed by Company and delivered to Custodian in which Company provides certain information and makes certain elections which Company hereby certifies to be true and accurate and are considered to be Instructions from Company.
1.19 Deposits has the same meaning as provided in the Federal Deposit Insurance Act, 12 U.S. Code § 1813(l), and refers to those Deposits held by Fifth Third Bank, National Association.
1.20 DTC means the Depository Trust Corporation.
1.21 E-Sign Act means United States Electronic Signatures in Global and National Commerce Act, P.L. 106-229.
1.22 Eligible Foreign Custodian means an entity that is incorporated or organized under the laws of a country, other than the United States, and that is a Qualified Foreign Bank (an organization entitled to certain exemptions from the nonbanking activities restrictions of the Bank Holding Company
2
Act of 1956 [12 U.S.C. § 1841 et seq.], including for certain limited commercial and industrial activities in the United States) or a majority-owned direct or indirect subsidiary of a U.S. bank or bank-holding company.
1.23 FDIC means Federal Deposit Insurance Corporation.
1.24 FINRA means The Financial Industry Regulatory Authority.
1.25 Foreign Depository means (a) Euroclear, (b) Clearstream Banking, societe anonyme, (c) each Eligible Securities Depository as defined in Rule 17f-7 under the 1940 Act identified to the Company from time to time, and (d) the respective successors and nominees of the foregoing.
1.26 Institutional Delivery System (IDS) means a trade confirmation and affirmation system provided by the DTC.
1.27 Instruction(s) means, collectively, Written Instructions and Oral Instructions, in a form and format acceptable to the Custodian, submitted by the Company and successfully received by the Custodian through the Applications or otherwise, which comply with all applicable requirements of the Custodian and the terms of this Agreement, which requests that a task be performed on behalf of the Company.
1.28 Interfaces means, collectively, the CAD Interface and the Channel Access Interface.
1.29 Investment Advisor means a person or business regulated by the Securities and Exchange Commission that provides investment advice or counsel, and is governed by the Investment Advisers Act of 1940, as amended.
1.30 Manuals means on-line or printed user manuals that describe the process and assist with the use of the Applications.
1.31 Offeror means a person or entity making a proposal to enter into a contract.
1.32 Officer means the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Company.
1.33 Online Channel Access Agreement is a separate agreement that may be entered into between the Company and the Custodian, which provides the Company access to various websites or portals as well as direct access to, and management of, Bank Services provided by the Custodian.
1.34 Options Clearing Corporation means an organization established in 1972 to process and guarantee the transactions in options that take place on the organized exchanges.
1.35 Oral Instructions means Instructions orally transmitted to and accepted by the Custodian because such instructions are: (i) reasonably believed by the Custodian to have been given by an Authorized Person, (ii) recorded and kept among the records of the Custodian made in the ordinary course of business and (iii) orally confirmed by the Custodian.
1.36 Proper Instructions means Oral Instructions or Written Instructions. Proper Instructions may include recurring or continuous event only if they are written instructions.
3
1.37 Property means the property listed on a certain receipt(s) or as indicated on the confirmation separately supplied by the Custodian to the Company in connection with this Agreement, which may include, without limitation, common and preferred stocks, bonds, debentures, notes, money market instruments or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for any of the foregoing, or evidencing any other rights or interests therein. Administrative Assets and Shadow Posted Assets are not Property of the Account.
1.38 Securities shall include, without limitation, common and preferred stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, bankers acceptances, mortgage-backed securities, other money market instruments or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that the Custodian has the facilities to clear and to service.
1.39 Securities Depository means The Depository Trust Company and (provided that the Custodian shall have received a copy of a resolution of the Board, certified by an Officer, specifically approving the use of such clearing agency as a depository for the Fund) any other clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities and Exchange Act of 1934 (the 1934 Act), which acts as a system for the central handling of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities.
1.40 Shares means the units of beneficial interest issued by the Company, including without limitation, units of beneficial interest in a Fund.
1.41 Specified Country means each country listed on Schedule A attached hereto and each country, other than the United States, constituting the primary market for a security with respect to which the Company has given settlement instruction to the Custodian.
1.42 System(s) means, collectively, the CAD System and the Channel Access System.
1.43 Transactions means the Custodians performance of certain tasks pursuant to Instructions.
1.44 Company ID means a Company-specific user identification code.
1.45 Voluntary Corporate Actions means those Corporate Actions for which security holders are entitled or required to make an election or decision among alternative courses of action such as, among other things, certain tender offers, conversions, distributions or exchanges that are voluntary by their terms.
1.46 Voluntary Election Instructions means those messages timely delivered from the Company to the Custodian through the CAD System unambiguously identifying the Companys election or decision among alternative courses of action triggered by the occurrence of a Voluntary Corporate Action.
4
1.47 Written Instructions means (i) written communications actually received by the Custodian and signed by one or more persons as the Board shall have from time to time authorized, or (ii) communications by telex or any other such system from a person or persons reasonably believed by the Custodian to be Authorized, (iii) communications transmitted electronically through the Institutional Delivery System (IDS), or (iv) communications transmitted through the use of Applications, as more fully set forth in Exhibit C, or any other similar electronic instruction system acceptable to Custodian and approved by resolutions of the Board, a copy of which, certified by an Officer, shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF THE CUSTODIAN
2.1 Appointment. The Company and Fund(s) hereby constitutes and appoints the Custodian as custodian of all Securities and cash owned by or in the possession of the Company at any time during the period of this Agreement, provided that such Securities or cash at all times shall be and remain the property of the Company.
2.2 Acceptance. The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth and in accordance with the 1940 Act as amended. Except as specifically set forth herein, the Custodian shall have no liability and assumes no responsibility for any non-compliance by the Company or a Fund of any laws, rules or regulations.
2.3 Foreign Custody. If applicable and or necessary the Custodian hereby accepts the delegation of responsibilities with respect to each Specified Country and agrees in performing the responsibilities as a foreign custody manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Companys assets would exercise. The Custodian shall provide to the Board at such times as deemed reasonable and appropriate based on the circumstances of the Company and any of the Companys foreign custody arrangements, written reports notifying the Board of the placement of assets of the Company with a particular Foreign Depository within a Specified Country and of any material change in the arrangements (including the contract governing such arrangements) with respect to assets of such Company with any Foreign Depository. Under U.S. federal law, any part of a Fund kept by either the Custodian or any sub-custodians or Depositories in foreign locations (outside of the U.S.) is not insured by the FDIC. In the event of the liquidation of the Custodian, any sub-custodian, or any Depository, foreign branch deposits have a lesser preference than U.S. deposits, and such foreign deposits are subject to cross-border risks.
2.4 Data Security. The Company will cause all persons using the Applications, or otherwise, to treat all applicable user and authorization codes, passwords and authentication keys with extreme care, and it will establish internal control and safekeeping procedures to restrict the availability of the same to persons duly authorized to give Instructions. The Company acknowledges that it has the sole responsibility to assure that only persons duly authorized use the Applications and that the Custodian shall not be responsible nor liable for any hack of the Custodians systems using any Company log-in or account information or for any other unauthorized use thereof.
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2.5 SEC Shareholder Communications Disclosure. The Securities and Exchange Commission (SEC) has adopted a rule that requires the Custodian, as holder of securities, to contact the Company, the beneficial owner having authority to vote those securities, to determine whether the Company would like the Custodian to provide the Companys name, address and share position to companies whose shares the Custodian holds for the Companys benefit. With respect to Securities and Exchange Commission Rule 14b-2 under the U.S. Shareholder Communications Act, regarding disclosure of beneficial owners to issuers of securities, unless the Company objects on the Customer Profile Schedule, or to the Custodian elsewhere in writing, the Custodian will release said information to requesting companies.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the Custodian for the account of the Company, except Securities maintained in a Securities Depository or Book-Entry System, shall be physically segregated from other Securities and non-cash property in the possession of the Custodian and shall be identified as subject to this Agreement.
3.2 Custody Account. The Custodian shall open and maintain in its trust department a custody account in the name of the Company, subject only to draft or order of the Custodian, in which the Custodian shall enter and carry all Securities, cash and other assets of the Company that are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may appoint, and at any time remove, any domestic bank or trust company that has been approved by the Board and is qualified to act as a custodian under the 1940 Act, as sub-custodian to hold Securities and cash of the Company and to carry out such other provisions of this Agreement as it may determine, and may also open and maintain one or more banking accounts with such a bank or trust company (any such accounts to be in the name of the Custodian and subject only to its draft or order), provided, however, that the appointment of any such agent shall not relieve the Custodian of any of its obligations or liabilities under this Agreement.
3.4 Appointment of Foreign Agents. Except as may otherwise be agreed upon in writing, Assets of the Company shall at all times be maintained in custody of a Foreign Depository. With respect to holding the Property with an Eligible Foreign Custodian, it is expressly understood and agreed that:
(a) | The Custodian will endeavor, to the extent feasible, to hold securities in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for cancellation and/or payment and/or registration, or where such Securities are acquired; |
(b) | Cash which is maintained in a foreign country will be in any currency which may be legally held in such country and may be held in non-interest bearing accounts; |
(c) | Foreign Depositories may hold Securities in central securities depositories or clearing agencies in which such participates; |
(d) | Unless otherwise agreed to in writing by the parties hereto or otherwise required by local law or practice, Securities deposited with a Foreign Depository will be held in |
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a single account in the name of the Custodian or its designee sub-custodian as custodian or trustee for its customers;
(e) | Settlement of and payment for Securities received for, and delivered from the Company may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including without limitation, the delivery of Securities to a purchaser, broker, dealer or their prospective agents either against a receipt for future payment or without any payment (so-called free delivery); and |
(f) | The Company is solely responsible for the payment of and the reclamation, where applicable, of taxes. The Custodian will, however, cooperate with the Company in connection with the Companys payment or reclamation of taxes and shall make the necessary filings in connection with obtaining tax exemptions and tax reclamations, which are available to the Company. |
3.5 Delivery of Assets to the Custodian. The Company shall deliver, or cause to be delivered, to the Custodian all of the Companys applicable Securities, cash and other assets, including (a) all payments of income, payments of principal and capital distributions received by the Company with respect to such Securities, cash or other assets owned by the Company at any time during the period of this Agreement, and (b) all cash received by the Company for the issuance, at any time during such period, of shares. The Custodian shall not be responsible for such Securities, cash or other assets until actually received by it.
3.6 Securities Depositories and Book-Entry Systems. The Custodian may deposit and/or maintain Securities of the Company in a Securities Depository or in a Book-Entry System, subject to the following provisions:
(a) | Prior to a deposit of Securities of the Company in any Securities Depository or Book-Entry System, the Company shall deliver to the Custodian a resolution of the Board, certified by an Officer, authorizing and instructing the Custodian on an ongoing basis to deposit in such Securities Depository or Book-Entry System all Securities eligible for deposit therein and to make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. |
(b) | Securities of the Company kept in a Book-Entry System or Securities Depository shall be kept in an account (Depository Account) of the Custodian in such Book-Entry System or Securities Depository, which includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. |
(c) | The records of the Custodian and the Custodians account on the books of the Book-Entry System and Securities Depository as the case may be, with respect to Securities of the Company maintained in a Book-Entry System or Securities Depository shall, by Book-Entry, or otherwise identify such Securities as belonging to such Fund. |
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(d) | If Securities purchased by the Company for a Fund are to be held in a Book-Entry System or Securities Depository, the Custodian shall pay for such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Company. If Securities sold by the Company are held in a Book-Entry System or Securities Depository, the Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Company. |
(e) | Upon request, the Custodian shall provide the Company with copies of any report (obtained by the Custodian from a Book-Entry System or Securities Depository in which Securities of any Fund is kept) on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. |
(f) | Notwithstanding any other provision in this Agreement, the Company hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon any delivery of a certificate or any giving of Oral Instructions, Instructions, or Written Instructions, as the case may be, that the Company or its investment adviser has determined that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of Rule 17f-7 under the 1940 Act. |
(g) | Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Company for any loss or damage to the Company resulting (i) from the use of a Book-Entry System or Securities Depository by reason of any negligence or willful misconduct on the part of the Custodian or any sub-custodian appointed pursuant to Section 3.3 or 3.4 above or any of its or their employees, or (ii) from failure of the Custodian or any such sub-custodian to enforce effectively such rights as it may have against a Book-Entry System or Securities Depository. At its election, the Company shall be subrogated to the rights of the Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person for any loss or damage to the Company arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Company has been made whole for any such loss or damage. |
3.7 Disbursement of Moneys from Custody Accounts. Upon receipt of Proper Instructions, the Custodian shall disburse moneys from the Custody Account but only in the following cases:
(a) | For the purchase of Securities for the Company but only upon compliance with Section 4.1 of this Agreement and only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to the Custodian (or any sub-custodian appointed pursuant to Section |
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3.3 or 3.4 above) of such Securities registered as provided in Section 3.10 below in proper form for transfer, or if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.6 above; (ii) in the case of options on Securities, against delivery to the Custodian (or such sub-custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to the Custodian (or such sub-custodian) of evidence of title thereto in favor of the Company or any nominee referred to in Section 3.10 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into between the Company and a bank, which is a member of the Federal Reserve System, or between the Company and a primary dealer in U.S. Government securities, against delivery of the purchased Securities either in certificate form or through an entry crediting the Custodians account at a Book-Entry System or Securities Depository for the account of the Company with such Securities;
(b) | In connection with the conversion, exchange or surrender, as set forth in Section 3.8(f) below, of Securities owned by the Company; |
(c) | For the payment of any dividends or capital gain distributions declared by the Company; |
(d) | In payment of the redemption price of Shares as provided in Article V below; |
(e) | For the payment of any expense or liability incurred by the Company, including but not limited to the following payments for the account of a Company: interest taxes administration, investment management, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Company; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; |
(f) | For transfer in accordance with the provisions of any agreement among the Company, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Company; |
(g) | For transfer in accordance with the provisions of any agreement among the Company, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Company; |
(h) | For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including the Custodian), which deposit or account has a term of one year or less; and |
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(i) | For any other proper purposes, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board, certified by an Officer, specifying the amount and purpose of such payment, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made. |
3.8 Delivery of Securities from Custody Accounts. Upon receipt of Proper Instructions, the Custodian shall release and deliver Securities from a Custody Account but only in the following cases:
(a) | Upon the sale of Securities for the account of a Fund but only against receipt of payment therefore in cash, by certified or cashiers check or bank credit; |
(b) | In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.6 above; |
(c) | To an Offerors depository agent in connection with tender or other similar offers for Securities of a Fund; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; |
(d) | To the issuer thereof or its agent (i) for transfer into the name of the Company, the Custodian or any sub-custodian appointed pursuant to Section 3.3 or 3.4 above, or of any nominee or nominees of any of the foregoing, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to the Custodian; |
(e) | To the broker selling Securities, for examination in accordance with the street delivery custom; |
(f) | For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
(g) | Upon receipt of payment therefore pursuant to any repurchase or reverse repurchase agreement entered into by a Fund; |
(h) | Upon the exercise of warrants, rights or similar Securities, provided, however, that in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
(i) | For delivery in connection with any loans of Securities of a Fund, but only against receipt of such collateral as the Company shall have specified to the Custodian in Proper Instructions; |
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(j) | For delivery as security in connection with any borrowings by the Company on behalf of a Fund requiring a pledge of assets by such Fund, but only against receipt by the Custodian of the amounts borrowed; |
(k) | Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Company or a Fund; |
(l) | For delivery in accordance with the provisions of any agreement among the Company, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Company on behalf of a Fund; |
(m) | For delivery in accordance with the provisions of any agreement among the Company (on behalf of a Fund), the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Company (on behalf of a Fund); or |
(n) | For any other proper corporate purposes, but only upon receipt, in addition to Proper Instructions, of a copy of a resolution of the Board, certified by an Officer, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such Securities shall be made. |
3.9 Actions Not Requiring Proper Instructions. Unless otherwise instructed by the Company, the Custodian shall with respect to all Securities held for a Fund;
(a) | Subject to Section 7.4 below, collect on a timely basis all income and other payments to which the Company is entitled either by law or pursuant to custom in the securities business; |
(b) | Present for payment and, subject to Section 7.4 below, collect on a timely basis the amount payable upon all Securities which may mature or be called, redeemed, or retired, or otherwise become payable; |
(c) | Endorse for collection, in the name of the Company, checks, drafts and other negotiable instruments; |
(d) | Surrender interim receipts or Securities in temporary form for Securities in definitive form; |
(e) | Execute, as Custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the Internal |
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Revenue Service (IRS) and to the Company at such time, in such manner and containing such information as is prescribed by the IRS;
(f) | Hold for a Fund, either directly or, with respect to Securities held therein, through a Book-Entry System or Securities Depository, all rights and similar securities issued with respect to Securities of the Fund; and |
(g) | In general, and except as otherwise directed in Proper Instructions, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and assets of the Company. |
3.10 Registration and Transfer of Securities. All Securities held for a Fund that are issued or issuable only in bearer form shall be held by the Custodian in that form, provided that any such Securities shall be held in a Book-Entry System for the account of the Company on behalf of a Fund, if eligible therefore. All other Securities held for the Company may be registered in the name of the Company on behalf of such Fund, the Custodian, or any sub-custodian appointed pursuant to Section 3.3 above, or in the name of any nominee of any of them, or in the name of a Book-Entry System, Securities Depository or any nominee of either thereof; provided, however, that such Securities are held specifically for the account of the Company on behalf of a Fund. The Company shall furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of any of the nominees hereinabove referred to or in the name of a Book-Entry System or Securities Depository, any Securities registered in the name of a Fund.
3.11 Records.
(a) | The Custodian shall maintain, by Company, complete and accurate records with respect to Securities, cash or other property held for the Company, including: |
i. | journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; |
ii. | ledgers (or other records) reflecting Securities in transfer, Securities in physical possession, monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), dividends and interest received, and dividends receivable and interest accrued; and |
iii. | canceled checks and bank records related thereto. |
(b) | The Custodian shall keep such other books and records of the Company as the Company shall reasonably request, or as may be required by the 1940 Act, including, but not limited to those necessary to comply with Section 31 and Rule 31a-1 and Rule 31a-2 promulgated thereunder. |
(c) | All such books and records maintained by the Custodian shall (i) be maintained in a form acceptable to the Company and in compliance with rules and regulations of the Securities and Exchange Commission, (ii) be the property of the Company and at all times during the regular business hours of the Custodian be made available |
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upon request for inspection by duly authorized Officers, employees or agents of the Company and employees or agents of the Securities and Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
(d) | The Custodian agrees to comply with all Company obligations requiring the examination of the Securities and investments held in the Account, which conduct of such examinations are the responsibility of the Company. The Company acknowledges and agrees that it must comply with all legal requirements for annual, semi-annual, and any other required examinations by an independent public accountant. |
3.12 Fund Reports by Custodian. The Custodian shall furnish the Company with a daily activity statement by Fund and a summary of all transfers to or from the Custody Account on the day following such transfers. At least monthly and from time to time, the Custodian shall furnish the Company with a detailed statement, by Fund, of the Securities and moneys held for the Company under this Agreement.
3.13 Other Reports by the Custodian. The Custodian shall provide the Company with such reports as the Company may reasonably request from time to time on the internal accounting controls and procedures for safeguarding Securities, which are employed by the Custodian or any sub-custodian appointed pursuant to Section 3.3 or 3.4 above.
3.14 Proxies. The Custodian, with respect to all Securities, however registered, shall cause the proxy voting rights to be exercised by the Company or its designee. With respect to securities issued outside of the United States, at the request of the Company, the Custodian or its agent will provide the Company or its designee with access of global proxy services (the cost of which will be paid by the Company). Other than providing access to such provider of global proxy services, the Custodian or its agent shall have no obligation with respect to voting such proxies.
3.15 Information on Corporate Actions.
(a) | The Custodian will promptly notify the Company of Corporate Actions limited to those Securities registered in nominee name and to those Securities held at a Depository or sub-custodian acting as agent for the Custodian. The Custodian will be responsible only if the notice of such Corporate Actions is published by Xcitek, DTC, or received by first class mail from the transfer agent. For market announcements not yet received and distributed by the Custodians services, the Company will inform its custody representative with appropriate instructions. The Custodian will, upon receipt of the Companys response within the required deadline, affect such action for receipt or payment for the Company. For those responses received after the deadline, the Custodian will affect such action for receipt or payment, subject to the limitations of the agent(s) affecting such actions. The Company shall review all Corporate Action Information made available to the Company by the Custodian via the CAD System. The Company may elect not to provide Voluntary Election Instructions in response to a Voluntary Corporate |
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Action. The Custodian has no duty to ensure that the Company provides a response or Voluntary Election Instructions in response to a Voluntary Corporate Action.
(b) | The Custodian will promptly notify the Company for put options only if the notice is received by first class mail from the agent. The Company will provide or cause to be provided to the Custodian with all relevant information contained in the prospectus for any security which has unique put/option provisions and provide the Custodian with specific tender instructions at least ten business days prior to the beginning date of the tender period. |
3.16 Securities Class Action Services. The Custodian will only provide notification of any class action to the Company. Custodians reporting will be based on its actual knowledge of securities that the Company has deposited with the Bank during the term of the current Custody Agreement. Securities held by the Company elsewhere or not in the account at the time the Bank began to provide custody services are deemed to be outside of the actual knowledge of Fifth Third. The Custodian will have no responsibility to file claims on behalf of the Company.
3.17 Lien or Charge. Except as explicitly agreed by the Company as set forth herein, no Securities or other investments held in the Account will be subject to any lien or charge in favor of the Custodian.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities for the Company, Written Instructions shall be delivered to the Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any) or other units purchased, (c) the date of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, and (f) the name of the person to whom such amount is payable. The Custodian shall upon receipt of such Securities purchased by a Fund pay out of the moneys held for the account of such Fund the total amount specified in such Written Instructions to the person named therein. The Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities for a Fund, if in the relevant Custody Account there is insufficient cash available to settle the purchase of Securities in the Fund.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased. In each and every case where payment for the purchase of Securities for a Fund is made by the Custodian in advance of receipt for the account of the Fund of the Securities purchased but in the absence of specific Proper Instructions to so pay in advance, the Custodian shall be liable to the Fund for such Securities to the same extent as if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a Fund, Written Instructions shall be delivered to the Custodian, specifying (a) the name of the issuer or writer of such Securities, and the title or other description thereof, (b) the number of shares, principal amount (and accrued interest, if any), or other units sold, (c) the date of sale and settlement (d) the sale price per unit, (e) the total amount payable upon such sale, and (f) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Company as specified in such Written Instructions, the Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, the
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Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any other provision of this Agreement, the Custodian, when instructed to deliver Securities against payment, shall be entitled, if in accordance with generally accepted market practices and procedures in the foreign or domestic jurisdiction in which the transaction occurs, to deliver such Securities prior to actual receipt of final payment therefor. In any such case, the Company shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and the Custodian shall have no liability for any of the foregoing.
4.5 Payment for Securities Sold, Etc. In its sole discretion and from time to time, the Custodian may credit the relevant Custody Account, prior to actual receipt of final payment thereof, with (i) proceeds from the sale of Securities which it has been instructed to deliver against payment, (ii) proceeds from the redemption of Securities or other assets of the Company, and (iii) income from cash, Securities or other assets of the Company. Any such credit shall be conditional upon actual receipt by the Custodian of final payment and may be reversed if final payment is not actually received in full. The Custodian may, in its sole discretion and from time to time, permit the Company to use funds so credited to its Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by the Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Custody Account.
4.6 Advances by the Custodian for Settlement. The Custodian may, in its sole discretion and from time to time, advance funds to the Company or its designee to facilitate the settlement of a Company transaction on behalf of a Fund in its Custody Account. In consideration of the services to be rendered pursuant to this agreement, the Company shall pay the Custodian in accordance with the Fee Schedule annexed hereto as Exhibit D. A compensating balance arrangement will be in place for each Custody Account for the Company. Cash balance credits will be calculated daily in the Custody Account for each Fund. The monthly aggregate cash balance credit will offset the monthly aggregate overdraft balances. The net aggregate credit or overdraft balance amount will be applied to the monthly custody fee invoice for each Fund. No more than one months custody fee can be offset by any months net cash balance credit.
4.7 Non-Advisory Role. In relation to this Agreement, the Custodian does not recommend any particular advisory service or products, nor does Custodian offer any such advice regarding the nature, potential value, or suitability of any particular security or investment strategy. The Company acknowledges that all purchases, sales, investments, Instructions and Transactions are initiated and performed independently by the Company at the Companys sole risk. The Company further acknowledges that, unless an investment consists of an insured deposit account maintained at Custodian, no such purchases, sales, investments, Instructions or Transactions will be insured or guaranteed by the Custodian or any governmental or regulatory agency. The Company agrees that the Custodian provides no service in relation to, and therefore has no duty or responsibility to, the following: (i) question Instructions or make any suggestions to the Company regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of cash and Securities; (iii) advise the Company regarding any default in the payment of principal or income of any Security; or (iv) evaluate or report to the Company regarding the financial condition of any broker, agent or other party to which the Custodian is instructed to deliver cash and Securities or cash. The Custodian is permitted to rely upon
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Instructions from an Investment Advisor, if such Investment Advisor is designated in writing by the Company, to provide Instructions to disburse cash from the Company if such Instructions are given in connection with or in accordance with Securities trading activity. Any other Instructions to disburse cash from the Companys account must come from an Authorized Person, but excluding any Investment Advisor designated by the Company. No Investment Advisor will have any authority to provide the Custodian with any instruction to disburse cash from the Companys account on behalf of the Company except as contemplated above.
ARTICLE V
REDEMPTION OF SHARES
From such funds as may be available for the purpose in the relevant Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares, the Custodian shall wire each amount specified in such Proper Instructions to or through such bank as the Company may designate with respect to such amount in such Proper Instructions. Upon effecting payment or distribution in accordance with proper Instruction, the Custodian shall not be under any obligation or have any responsibility thereafter with respect to any such paying bank.
ARTICLE VI
SEGREGATED ASSETS
Certain Fund Transactions (e.g., when-issued securities, delayed delivery transactions, and reverse repurchase agreements) require the Fund to segregate liquid assets sufficient to cover the future liability involved in these transactions. The Funds Investment Advisor will instruct the Custodian to segregate those assets on the Custodians books. The Custodian need not physically segregate the assets. The Custodian may note on its books that the selected assets are segregated. The Investment Advisor will review the value of the segregated assets and will instruct the Custodian to place additional sassets in the Segregated Asset status if the value of the assets falls below the commitment value of the Fund. The Custodian will provide internet report access to authorized representatives of the Investment Advisor. The Investment Advisor will review the Custodians report for compliance.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of reasonable care in carrying out its obligations under this Agreement, and shall be without liability to the Company for any loss, damage, cost, expense (including attorneys fees and disbursements), liability or claim unless such loss, damages, cost, expense, liability or claim arises from gross negligence, bad faith or willful misconduct on its part or on the part of any sub-custodian appointed pursuant to Section 3.3 above. The Custodian will not be liable for special incidental or punitive damages. The Custodian shall not be under any obligation at any time to ascertain whether the Company is in compliance with the 1940 Act, the regulations thereunder, the provisions of the Companys charter documents or by-laws, or its investment objectives and policies as then in effect.
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With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence.
(a) | to provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and |
(b) | to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Fund acknowledges and agrees that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from sub-custodians or through publicly available information otherwise obtained by the Custodian, and shall not include any evaluation of Country Risks. As used herein the term Country Risks shall mean with respect to any Foreign Depository: |
i. | the financial infrastructure of the country in which it is organized, |
ii. | such countrys prevailing settlement practices, |
iii. | nationalization, expropriation or other governmental actions, |
iv. | such countrys regulation of the banking or securities industry, |
v. | currency controls, restrictions, devaluations or fluctuations, and |
vi. | market conditions, which affect the order execution of securities transactions or affect the value of securities. |
7.2 Actual Collection Required. The Custodian shall not be liable for, or considered to be the custodian of, any cash belonging to the Company or any money represented by a check, draft or other instrument for the payment of money, until the Custodian or its agents actually receive such cash or collect on such instrument.
7.3 No Responsibility for Title, Etc. So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. The Custodian shall not be required to enforce collection, by legal means or otherwise, of any money or property due and payable with respect to Securities held for the Company if such Securities are in default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be entitled to rely upon Proper Instructions reasonably believed by it to be genuine. The Custodian shall be entitled to rely upon any Oral Instructions and/or any Written Instructions actually received by it pursuant to this Agreement, so long as the Custodian believes in good faith that such Instructions have been given by an Authorized Person or agent acting on behalf of the Company. The Custodian is further authorized to rely and act upon Instructions transmitted electronically through the Applications, the Institutional Delivery System (IDS) as may then be available through DTC, a customer data entry system acceptable to the Custodian, or any other similar electronic instruction system acceptable to the Custodian. The Custodian will not be liable for any failure to execute Instructions or failure to receive Securities due to incorrect, incomplete, conflicting or untimely instructions. The Custodian, in its discretion, is authorized to accept and act upon Instructions from the Company, whether given orally by
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telephone or otherwise (including the Custodians callback procedures where applicable), which the Custodian in good faith believes to be genuine. The Custodians records will be conclusive as to the content of any such Instruction, regardless of whether confirmation is received. The Custodian has established cut-off times for receipt of Instructions, which shall be made available to the Company. If the Custodian receives an Instruction after its established cut-off time, the Custodian shall attempt to act upon the Instruction on the day requested if the Custodian deems it practicable to do so or otherwise as soon as practicable after that day.
7.6 Confidential Records. The Custodian shall treat all records and information relating to the Company as confidential, except that it may disclose such information after prior approval of the Company, such approval not to be unreasonably withheld. The Custodian will be authorized to disclose any information regarding the Company that is required to be disclosed by any law, governmental regulation or court order in effect without having received the Companys prior approval. The Custodian acknowledges that the records and information relating to the Company and its accounts may include sensitive information, which may consist of information from the Company concerning its former, current or prospective clients. Such information may include but is not limited to non-public, personally identifiable information as defined in data protection laws or regulations, including without limitation Title V of the Gramm-Leach-Bliley Act (Pub. L. 106-102). The Custodian agrees to use commercially reasonable means including data security policies and procedures that are designed to assure the security and confidentiality of such information and to prevent unauthorized access to or disclosure thereof.
7.7 Express Duties Only. The Custodian shall have no duties or obligations whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Custodian.
7.8 Cooperation. The Custodian shall cooperate with and supply necessary information, by the Company, to the entity or entities appointed by the Company to keep the books of account of the Company and/or compute the value of the assets of the Company. The Custodian shall take all such reasonable actions as the Company may from time to time request to enable the Company to obtain, from year to year, favorable opinions from the Companys independent accountants with respect to the Custodians activities hereunder in connection with (a) the preparation of the Companys report on Form N-1A and Form N-SAR and any other reports required by the Securities and Exchange Commission, and (b) the fulfillment by the Company of any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Company shall indemnify and hold harmless the Custodian and any sub-custodian appointed pursuant to Section 3.3 or 3.4 above, and any nominee of the Custodian or of such sub-custodian from and against any loss, damage, cost, expense (including reasonable attorneys fees and disbursements), liability (including, without limitation, liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or banking laws) or claim arising directly or indirectly (a) from the fact that Securities are registered in the name of any such nominee, or (b) from any action or inaction by the Custodian or such sub-custodian (i) at the request or direction of or in reliance on the advice of the Company, or (ii) upon Proper Instructions, or (c) generally, from the performance of its obligations under this Agreement or any sub-custody agreement with a sub-custodian appointed pursuant to Section 3.3 or 3.4 above or, in the case of any such sub-custodian, from the
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performance of its obligations under such custody agreement, provided that neither the Custodian nor any such sub-custodian shall be indemnified and held harmless from and against any such loss, damage, cost, expense, liability or claim arising from the Custodians or such sub-custodians negligence, bad faith or willful misconduct.
8.2 Indemnity to be Provided. If the Company requests the Custodian to take any action with respect to Securities, which may, in the opinion of the Custodian, result in the Custodian or its nominee becoming liable for the payment of money or incurring liability of some other form, the Custodian shall not be required to take such action until the Company shall have provided indemnity thereto to the Custodian in an amount and form satisfactory to the Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Company shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; pandemics; epidemics; riots; power failures; computer failure; any quarantines or closures ordered by governmental entities or agencies; and any such circumstances beyond its reasonable control as may cause interruption; loss or malfunction of utility; transportation; computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation; provided, however, that the Custodian in the event of a failure or delay shall use its best efforts to ameliorate the effects of any such failure or delay. Notwithstanding the foregoing, the Custodian shall maintain sufficient disaster recovery procedures to minimize interruptions.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of the date first set forth above and shall continue in full force and effect until terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of the giving of such notice. If a successor custodian shall have been appointed by the Board, the Custodian shall, upon receipt of a notice of acceptance by the successor custodian, on such specified date of termination (a) deliver directly to the successor custodian all Securities (other than Securities held in a Book-Entry System or Securities Depository) and cash then owned by the Company and held by the Custodian as custodian, and (b) transfer any Securities held in a Book-Entry System or Securities Depository to an account of or for the benefit of the Company at the successor custodian, provided that the Company shall have paid to the Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. Upon such delivery and transfer, the Custodian shall be relieved of all obligations under this Agreement. The Company may at any time immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by regulatory authorities in the State of Ohio or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian is not designated by the Company on or before the date of termination specified pursuant to Section 10.2 above, then the
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Custodian shall have the right to deliver to a bank or trust company of its own selection, which is (a) a Bank as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided profits as shown on its then most recent published report of not less than $25 million, and (c) is doing business in New York, New York, all Securities, cash and other property held by the Custodian under this Agreement and to transfer to an account of or for the Company at such bank or trust company all Securities of the Company held in a Book-Entry System or Securities Depository. Upon such delivery and transfer, such bank or trust company shall be the successor custodian under this Agreement and the Custodian shall be relieved of all obligations under this Agreement. If, after reasonable inquiry, the Custodian cannot find a successor custodian as contemplated in this Section 10.3, then the Custodian shall have the right to deliver to the Company all Securities and cash then owned by the Company and to transfer any Securities held in a Book-Entry System or Securities Depository to an account of or for the Company. Thereafter, the Company shall be deemed to be its own custodian with respect to the Company and the Custodian shall be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF THE CUSTODIAN
In consideration of the services to be rendered pursuant to this Agreement, the Company shall pay the Custodian in accordance with the Fee Schedule annexed hereto as Exhibit D, which Fee Schedule may be amended by the Custodian from time to time upon thirty (30) days prior written notice to the Company.
In addition, the Company shall be responsible for and shall reimburse the Custodian for all costs and expenses incurred by the Custodian in connection with this Agreement, including (without limiting the generality of the foregoing) all brokerage fees and costs and transfer taxes incurred in connection with the purchase, sale or disposition of the Property, and all income taxes or other taxes of any kind whatsoever which may be levied or assessed under existing or future laws upon or in respect to the Property, and all other similar expenses related to the administration of the Accounts incurred by the Custodian in the performance of its duties hereunder (including reasonable attorneys fees and expenses).
Fees and reimbursement for costs and expenses shall be paid monthly. The Custodian will submit an itemized statement to the Company each month. In the event the Custodian does not receive such payment within sixty (60) days of the date of such statement, the Custodian is hereby authorized to debit the Cash Accounts for such fees, costs and expenses.
ARTICLE XII
WARRANTIES
12.1 The Custodian represents and warrants that (i) assuming execution and delivery of this Agreement by the Company, this Agreement is the Custodians legal, valid and binding obligation, and (ii) it has full power and authority to enter into and has taken all necessary Corporate Action to authorize the execution of this Agreement.
12.2 The Company represents and warrants that
(a) | it has full authority and power, and has obtained all necessary authorizations and consents, to deposit and control the cash and securities in the accounts, to use the Custodian as its custodian in accordance with the terms of this Agreement, and to borrow money (either short term or intraday borrowings in order to settle transactions prior to receipt of covering funds), grant a lien over cash and securities, and enter into foreign exchange transactions; |
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(b) | assuming execution and delivery of this Agreement by the Custodian, this Agreement is the Companys legal, valid and binding obligation, enforceable against the Company in accordance with its terms and it has full power and authority to enter into and has taken all necessary corporate action to authorize the execution of this Agreement; |
(c) | it has not relied on any written representation made by the Custodian or any person on its behalf, and acknowledges that this Agreement sets out to the fullest extent the duties of the Custodian; and |
(d) | the cash and securities deposited in the Companys accounts are not subject to any encumbrance or security interest whatsoever and the Company undertakes that, so long as liabilities are outstanding, it shall not create or permit to subsist any encumbrance or security interest over such cash and securities or cash. |
12.3 The Company is an entity organized under the laws of the state in which it was formed, and is in good standing and registered to do business therein and in all legally-required jurisdictions. The obligations of the Company entered into in the name of the Company or on behalf thereof by any member of the Board, Officers, employees or agents are made not individually, but in such capacities, and are not binding upon any member of the Board, Officer, employee, agent or shareholder of the Company or the funds personally, but bind only the assets of the Company, and all persons dealing with any of the funds of the Company must look solely to the assets of the Company belonging to such Fund for the enforcement of any claims against the Company.
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ARTICLE
XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions, and other communications to be given hereunder shall be in writing and shall be sent or delivered to the address set forth after its name herein below:
TO THE COMPANY: | Northern Lights Fund Trust II |
C/o Ultimus Fund Solutions, LLC | |
80 Arkay Drive, Suite 110 | |
Hauppauge, NY 11788 | |
Attn: Kevin Wolf | |
Telephone: 631-470-2635
Email: kwolf@ultimusfundsolutions.com |
TO THE CUSTODIAN: | Fifth Third Bank, National Association |
Global Securities Services | |
Mail Drop 1090CC | |
38 Fountain Square Plaza | |
Cincinnati, Ohio 45263 | |
Telephone : 513-534-4300 | |
Facsimile: 513-534-7264 |
or at such other address as either party shall have provided to the other by notice given in accordance with this Article XIII. Writing shall include transmission by or through tele type, facsimile, central processing unit connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement will be governed by and construed according to the laws of the State of Ohio. The parties hereby consent to service of process, personal jurisdiction, and venue in the state and federal courts located in Cincinnati, Hamilton County, Ohio, and select such courts as the exclusive forum with respect to any action or proceeding brought to enforce any liability or obligation under this Agreement provided, however, that the parties agree that all questions regarding the validity of electronic signatures, contracts, and other records and to electronic delivery of notices and records of transactions shall be governed by the E-Sign Act or, to the extent applicable, by the laws of the State of Ohio, including the Ohio Uniform Transactions Act, found at O.R.C. § 1306.01-23., et seq.
14.2 Electronic Signatures. The parties agree that this Agreement, including any amendments or corresponding documents related hereto, unless prohibited by law, may be electronically signed, which is defined as an electronic sound, symbol or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record. The parties agree that the electronic signatures appearing on this Agreement and any corresponding documents related hereto, are the same as handwritten signatures for purposes of validity, enforcement, and admissibility, and shall be deemed an original. Notwithstanding any other provision in this Agreement to the contrary, the parties hereby agree to the use of electronic signatures on contracts and other records, to electronic delivery of notices, and records of transactions, and that the E-Sign Act applies to the fullest extent possible to
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validate their ability to conduct business by electronic means. The parties represent, warrant and covenant that electronic signatures on contracts, and other records submitted by Company to Custodian are created using software and processes that create valid, enforceable, and effective E-Signatures in compliance with the E-Sign Act or to the extent applicable, by the laws of the State of Ohio, including the Ohio Uniform Transactions Act, found at ORC §1306.01-23, et seq.
14.3 Insurance. The Company acknowledges that the Custodian shall not be required to maintain any insurance coverage specifically for the benefit of the Company. The Custodian will, however, provide summary information regarding its own general insurance coverage to the Company upon written request.
14.4 USA Patriot Act Disclosure. Section 326 of the USA Patriot Act requires the Custodian to implement reasonable procedures to verify the identity of any person that opens a new account with it. Accordingly, the Company acknowledges that Section 326 of the USA Patriot Act and the Custodians identity verification procedures require the Custodian to obtain information which may be used to confirm the Companys identity including without limitation the Companys name, address and organizational documents. The Company may also be asked to provide information about its financial status such as its current audited and unaudited financial statements. The Company agrees to provide the Custodian with and consents to the Custodian obtaining from third parties any such identifying and financial information required as a condition of opening an account with or using any service provided by the Custodian.
14.5 Compliance With OFAC. The Company warrants that neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently the subject of any sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC); and the Company agrees that it will not directly or indirectly use the proceeds of the Account to lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person or entity currently the subject of any sanctions administered by OFAC.
14.6 FDIC Insurance for Beneficial Owners. The Custodian may determine that the Company has opened an Account holding Property which may include, in whole or in part, Deposits on behalf of the beneficial owner(s) of the funds in the Account (for example, as an agent, nominee, guardian, executor, custodian or funds held in some other capacity for the benefit of others), and that those beneficial owners may be eligible for pass-through insurance from the FDIC. This means the Deposits held in the Account could qualify for more than the standard maximum deposit insurance amount (currently $250,000 per depositor in the same ownership right and capacity). The Custodian may determine that this Account holding Deposits may have transactional features (such as accounts with check writing capability and/or the use of debit cards) as defined in § 370.2(j) of the FDICs Rules and Regulations at https://www.fdic.gov/regulations/laws/rules/2000-9200.html#fdic2000part370.2. In order to comply with § 370.5(a), the Company, as the Account holder must be able to provide a record of the interests of the beneficial owner(s) in accordance with the FDICs requirements as specified below. Following these procedures may minimize the delay that these depositors may face when accessing their FDIC-insured funds. The FDIC has published a guide that describes the process to follow and the information the Company will need to provide in the event the Custodian fails. In addition, the FDIC published an addendum to the guide, section VIII, which is a good resource to understand the FDICs alternative recordkeeping requirements for pass-through insurance. The addendum sets forth the expectations of the FDIC to demonstrate eligibility for pass-through insurance coverage of any deposit
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accounts or deposits, including those with transactional features. The addendum will provide information regarding the records the Company should keep on the beneficial owners of the funds, identifying information for those owners, and the format in which to provide the records to the FDIC upon the Custodians failure. That information can be accessed on the FDICs website at https://www.fdic.gov/deposit/deposits/brokers/part-370-appendix.html. The Company agrees to cooperate fully with Custodian and the FDIC in connection with determining the insured status of funds in such accounts at any time. In the event of the Custodians failure, the Company agrees to provide the FDIC with the information described above in the required format within 24 hours of the Custodian failure for all accounts with transactional features and any other accounts to which the Company will need rapid access. As soon as the FDIC is appointed, a hold may be placed on the Companys account so that the FDIC can conduct the deposit insurance determination; that hold will not be released until the FDIC obtains the necessary data to enable the FDIC to calculate the deposit insurance. The Company understands and agrees that the Companys failure to provide the necessary data to the FDIC may result in a delay in receipt of insured funds and legal claims against the Company from the beneficial owners of the funds in the account. If the Company does not provide the required data, the Companys Account may be held or frozen until the information is received, which could delay when the beneficial owners would receive funds. Notwithstanding other provisions in this Agreement, this Section survives after the FDIC is appointed as the Custodians receiver and the FDIC is considered a third party beneficiary of this Section.
14.7 Independent Contractor. This Agreement is not a contract of employment and nothing contained in this Agreement shall be construed to create the relationship of joint venture, partnership, or employment between the parties.
14.8 References to the Custodian. The Company shall not circulate any printed matter, which contains any reference to the Custodian without the prior written approval of the Custodian, excepting printed matter contained in the prospectus, or statement of additional information or its registration statement for the Company and such other printed matter as merely identifies the Custodian as custodian for the Company. The Company shall submit printed matter requiring approval to the Custodian in draft form, allowing sufficient time for review by the Custodian and its counsel prior to any deadline for printing.
14.9 No Waiver. No failure by either party hereto to exercise, and no delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity.
14.10 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements, understandings, and representations regarding the subject matter of this Agreement. No This Agreement may only be amended in writing with the consent of and duly executed by both parties. A change in Custodians interest rates or security or
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operating procedures does not constitute an amendment of this Agreement, and Custodian may effect such changes at any time without prior notice to the Company. Provided further, the Company may execute a new Customer Profile Schedule which will be effective upon the Companys delivery to Custodian and Custodians acceptance of the new Customer Profile Schedule. This Agreement is for the benefit of, and may be enforced only by, Custodian and Company and their respective successors and permitted transferees and assignees, and is not for the benefit, of and may not be enforced by, any third party.
14.11 Counterparts. This Agreement may be executed in one or more counterparts and by the parties hereto on separate counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
14.12 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby.
14.13 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party hereto without the written consent of the other party hereto.
14.14 Headings. The headings of sections in this Agreement are for convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered in its name and on its behalf by its representatives thereunto duly authorized, all as of the day and year first above written.
[Signature Page Follows]
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[Signature Page to Custody Agreement] | |||
The Company: | |||
NORTHERN LIGHTS FUND TRUST II | |||
By: | /s/ Kevin Wolf | ||
Kevin Wolf | |||
President | |||
The Custodian: | |||
FIFTH THIRD BANK, NATIONAL ASSOCIATION | |||
By: | /s/ Amber Gross | ||
Its: Officer |
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EXHIBIT A
TO THE CUSTODY AGREEMENT BETWEEN
AND FIFTH THIRD BANK
December 4, 2020
Certeza Convex Core Fund | December 4, 2020 |
NORTHERN LIGHTS FUND TRUST II | |||
By: | /s/ Kevin Wolf | ||
Kevin Wolf | |||
Its: President | |||
Dated: December 4, 2020 | |||
FIFTH THIRD BANK, NATIONAL ASSOCIATION | |||
By: | /s/ Amber Gross | ||
Its: Officer | |||
Dated: December 4, 2020 |
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EXHIBIT B
IMPORTANT INFORMATION ABOUT THIS RESOLUTION |
Fifth Third Bank, National Association (Fifth Third Bank, N.A.) has agreed to provide trust, agency, investment management, custodial services, retirement plan, or nonqualified plan services for your Entity (Company, Organization, and Governmental), trust and/or plan. The purpose of this CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A. is to identify the name(s) and title(s) of the individual(s) who is/are authorized to enter into agreements with Fifth Third Bank, N.A., and appoint others who can act on behalf of an Entity to provide direction to Fifth Third Bank, N.A. to perform the applicable services identified in the signed agreement.
The resolution should identify by name and title the individual(s) who is/are authorized to sign the applicable agreement(s) and/or document(s) that is/are being entered into between the Entity and Fifth Third Bank, N.A.. You may provide Fifth Third Bank, N.A. with other documentation to identify the individual(s) who is/are authorized to execute an agreement if it includes the relevant information. Examples include, but are not limited to, bylaws, limited liability operating agreements, corporate resolutions, incumbency certificates, board resolutions, applicable sections of board minutes signed by the Corporate Secretary, partnership agreements, and other documents that identify who can sign and execute agreements, etc. Adoption of these documents may be evidenced by a certificate signed by the Corporate Secretary or other officer or authorized individual(s), or by signature of all the members of the adopting Entity. Governmental entities may contain signing authority within their state code, verifiable through the internet.
You may in the future add or replace the individual(s) who is/are authorized to enter into agreements with Fifth Third Bank, N.A., and/or provide direction to Fifth Third Bank, N.A. by supplying a new CERTIFICATE OF RESOLUTION or other applicable documentation to supersede the most recent CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A..
NOTE: This CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A. is separate and distinct from the AUTHORIZED SIGNERS RESOLUTION. The AUTHORIZED SIGNERS RESOLUTION is required and it identifies the individual(s) who can take all actions necessary to perform day-to-day duties by providing Fifth Third Bank, N.A. with direction for the daily administration and operation of the Entity. |
Please retain a copy of the documentation that you supply to Fifth Third Bank, N.A. and this page for your files.
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CERTIFICATE OF RESOLUTION |
For Authorization to Sign Agreements with Fifth Third Bank, N.A. |
Effective , 20 , the following individual(s) is/are duly authorized representative(s) of [Name of Entity] to enter into and execute the applicable agreement(s) with Fifth Third Bank, N.A. to provide trust, agency, investment management, custodial services, qualified retirement plan and/or nonqualified plan services for the [Name of Entity, Trust or Plan]. In addition, individual(s) listed below is/are duly authorized to appoint other individuals to perform day-to-day duties with respect to Fifth Third Bank, N.A.s services. This Certificate supersedes any prior resolutions or other documentation with respect to providing authorization to sign agreements with Fifth Third Bank, N.A..
Number of signatures required on an Agreement based on the Entitys governing document (Unless otherwise noted, only one signature will be required.):
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
Print Name, Title | Signature | Date of Birth (mm/dd/yy) | |
I, (Name of Person), (Title of Person) of (Name of Entity), a (Company, Corporation, Organization, Trust or Plan) duly organized and existing under the laws of the State of , hereby certify that the above is a true copy of a resolution adopted by the governing body of this Entity at a meeting held on (Month/Day/Year) and that such resolution is now in full force and effect and is pursuant to the Entitys governing documents.
Signature: | |
Name: | |
Title: | |
Date (mm/dd/yy): | |
Note: The person providing the above certification cannot authorize themselves as the only authorized signer unless the Entity is a single member limited liability company or sole proprietorship.
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IMPORTANT INFORMATION ABOUT THE PURPOSE OF THIS DOCUMENT |
This AUTHORIZED SIGNERS RESOLUTION template is intended to identify the individual(s) authorized to take specific actions necessary for carrying out provisions of any such agreement which may include, but is not limited to, communicating, transacting, transferring, buying/selling, and assigning securities and transmitting instructions to Fifth Third Bank, N.A. regarding the investment and/or distribution of assets. The resolution should identify by name, title and signature, the individual(s) transacting on the account(s) with Fifth Third Bank, N.A.
The resolution should be authorized by an individual listed on the CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A. (or like document), stating who is authorized to enter into agreements and sign on behalf of the Entity. (Examples of CERTIFICATE OF RESOLUTION – like documents include, but are not limited to partnership agreement, by–laws, corporate resolution, board resolution, etc.)
You may in the future add, subtract, or replace the individual(s) who is/are authorized signers for day-to-day duties by supplying a new AUTHORIZED SIGNERS RESOLUTION or other applicable documentation to supersede the most recent AUTHORIZED SIGNERS RESOLUTION.
NOTE: This document is separate and distinct from the CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A.. The CERTIFICATE OF RESOLUTION FOR AUTHORIZATION TO SIGN AGREEMENTS WITH FIFTH THIRD BANK, N.A. is required and only identifies the individual(s) who can enter into and execute agreements with Fifth Third Bank,N.A., and appoint others to act on behalf of the Entity.
All contact information must be entered if a name appears in the Name, Signature textbox. |
For the purposes of this form, the following definitions apply:
● | Communication authorization (COM) – individual is authorized to communicate with the bank. Examples include individual can accept call backs to verify money movement instructions, obtain cash balances, obtain position information. |
● | Trade authorization (TRADE) – individual is authorized to purchase or sell securities into or out of the account(s). |
● | Cash/Asset movement (CASH) – individual is authorized to instruct the movement of cash and assets in the following manner: account to account transfer (if applicable), wire transfers, checks and ACH transfers and delivery of assets. |
● | Fifth Third Direct Channel Administrator (ADM) – individual is authorized to act as Channel Administrator with regard to Fifth Third Direct portal activities. |
Please retain a copy of the documentation that you supply to Fifth Third Bank, N.A. and this page for your files.
30
AUTHORIZED SIGNERS RESOLUTION |
Effective ______________________, 20___, the following individual(s) is/are duly authorized representative(s) of the _______________________________ [Name of Entity] to take all actions necessary to perform day-to-day duties by providing Fifth Third Bank National Association (Fifth Third Bank, N.A.) with direction for the daily administration and operation of the ________________________________ [Name of Entity, Trust or Plan]. The individual(s) listed below may provide information and direction, but not limited to, trust and/or plan, participants, accounts, contributions, investments, trust and/or plan assets, participant loans and distributions. The extent to authorize is further indicated beside each signature. This Resolution supersedes any prior Resolutions or other documentation with respect to providing authorization for day-to-day duties.
If this resolution is for a specific account(s) enter the account title(s) or 14-digit account number(s) on the following line(s). If this resolution is for all accounts within the relationship, leave the following line(s) blank.
Number of signatures required on an Instruction based on the Entitys governing document (Unless otherwise noted, only one signature will be required.): |
31
32
In accordance with the governing resolution for ___________________________________________ (Entity Name), I/We certify this document is true and correct and that all persons listed on this resolution are authorized to act according to the capacity(ies) identified beside their name, signature and title.
Print Name, Title | Signature | Date (MM/DD/YYYY) | ||
Print Name, Title | Signature | Date (MM/DD/YYYY |
33
EXHIBIT C
TO THE CUSTODY AGREEMENT BETWEEN
AND FIFTH THIRD BANK
, 20
The terms and conditions of this Exhibit C apply (to the extent they are applicable based upon the Companys election) to the Company electing to subscribe to the Applications as specified herein:
1. In consideration of the fees and charges paid by the Company in connection with using the services pursuant to this Agreement, Custodian hereby grants a nonexclusive and nontransferable license during the term of this Agreement to the Company to use the Applications subject to any separate agreements required by the Custodian, including but not limited to the Manuals or Online Channel Access Agreement. The Company acknowledges that the Custodian retains full exclusive ownership of the Applications and the Company shall not grant any license or right to use the Applications without the prior written consent of Custodian, which consent may be withheld in its discretion.
2. Use of the Applications requires the Company to obtain proper identification codes. The Company may request establishment on the applicable Application of the Company ID to be used by the Company and its employees when accessing the applicable Application via the applicable Interface. The Company ID setup and standard maintenance will be performed at Custodians convenience and in accordance with Custodians general timeframes and scheduling. The Company shall provide Custodian with prompt written notice of all the Company IDs that are no longer active should be deleted and/or should otherwise be changed. Although not obligated to, Custodian reserves the right at its option and without notice to suspend the password on a the Company ID or deactivate and/or delete any the Company ID if it has not successfully logged on to the applicable System in a sixty day period (or other interval determined from time to time by Custodian), if it has shown suspicious activity or if Custodian determines that there is or may be a violation of Custodians then current security procedures or standards involving the applicable System or the Companys access to the same. Custodian reserves the right (but shall not have any obligation) to request that the Company designate in writing those employees or agents of the Company who may authorize establishment of the Company IDs on the applicable System. However, the Company shall be solely responsible for any unauthorized access to the applicable System and the Companys data therein via the applicable Interface where such access includes but is not limited to theft, unauthorized the Company, employee or agent access, action taken on behalf of the Company or at the request of the Companys employees or agents (even if not authorized) and/or failure to notify Custodian in writing and independently verify suspension of a password on a the Company ID or inactivation and/or deletion of a the Company ID.
3. In addition to the covenants and obligations of the Company stated elsewhere in this Agreement, the Company further acknowledges and agrees:
a. | Upon the termination of this Agreement, the Company shall, at its own cost and expense, deliver any printed versions of any manuals, documentation or writings, |
34
along with any copies thereof, pertaining to the use of the Applications or the Interfaces to a location designated by Custodian.
b. | The Company will cause all persons utilizing the Interfaces to treat all applicable user and authentication codes and passwords with extreme care. |
c. | Custodian is hereby irrevocably authorized to act in accordance with and rely upon Instructions received by it through the Interfaces. The Company shall be solely responsible for the quality, accuracy, and adequacy of all information and Instructions supplied to Custodian via the Interfaces or otherwise provided to Custodian hereunder, and Custodian shall not be liable for any damage, loss or expense whatsoever resulting to the Company or its customers as a result of the lack of quality, inaccuracy or inadequacy of such information other than as may arise from a defect in the Interfaces or the Applications involving Custodians receipt of such information. The Company will establish and maintain adequate audit controls to monitor the quality and delivery of such data. |
d. | The Company shall comply with all federal, state and local laws and regulations applicable to its business operations or to the Company as a result of this Agreement and will acquire all the rights and licenses deemed necessary by Custodian for Custodian to interface with the Company, or vice versa, and for Custodian to provide the services contemplated under this Agreement. |
e. | The Company shall be solely responsible for all record keeping as may be required of it under any federal, state or local laws and regulations. Except as hereinafter provided or as may be required under any federal, state or local laws and regulations, Custodian shall not be obligated to retain any records of any services performed hereunder for a period beyond seven calendar days after delivery of the records to the Company. |
f. | The Company agrees to the following general provisions related to the Applications: |
g. | Except for the Applications themselves, the Company shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to its computer systems, communications services, Internet access accounts, dedicated line or direct dial-up equipment necessary for the Company to access and utilize the Applications via the Interfaces. Custodian shall not be responsible for the reliability or availability of any such equipment or services including but not limited to any third party access providers. The Company further agrees to obtain and utilize computer systems and communications equipment, which meet the minimum specifications for using the Interfaces and the Applications, set forth in this Agreement, the Manuals, or the Online Channel Access Agreement. |
h. | The Company acknowledges that neither the services pursuant to this Agreement nor any information provided to the Company by the Custodian through the Applications is intended to supply tax, investment or legal advice. Although the |
35
Applications may provide information that may lead to recommendations about how and where to invest and what to buy, none of these recommendations are developed or endorsed by Custodian.
i. | The Company agrees to pay all taxes of whatever nature including, but not limited to, any income, franchise, sale, use, property, transfer, excise and other taxes now or hereafter imposed by any governmental body or agency upon the Companys accessing the Applications via the Interfaces and the Companys use of the services pursuant to this Agreement, but excluding any taxes payable by Custodian on the receipt of fees under this Agreement. |
j. | The Company assumes full responsibility for the consequences of any and all use, misuse or unauthorized use of the Applications, the Interfaces, the Manuals, or the services pursuant to this Agreement whether by the Companys personnel or others who gain access as provided to the Company, lawfully or unlawfully, to the Applications, the Interfaces, the Manuals, or the services pursuant to this Agreement. |
k. | Custodian shall not be obligated to act upon, or be liable for failure to act upon, any Instruction, Transaction, or modification or cancellation thereof received by Custodian via the Interfaces that is not performed in accordance with the Manuals, the Online Channel Access Agreement and/or this Agreement. |
l. | The Company shall not copy or modify, or by its action or inaction permit to be copied or modified, the Applications or any other part of the Interfaces, whether in printed or computer data form. The Company agrees to abide by all copyright laws regarding the use and possession of the Applications and all other related software applications associated with the Interfaces. |
m. | The Company hereby represents, acknowledges and agrees that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to Custodian and that there may be more secure methods of transmitting Instructions to Custodian than the method(s) selected by the Company hereunder. The Company hereby agrees that the security procedures (if any) to be followed in connection with the Companys transmission of Instructions via the Interfaces provide to the Company a commercially reasonable degree of protection in light of the Companys particular needs and circumstances. |
n. | In the event the Interfaces are provided by or through one or more third parties (e.g., through the Internet access provider, a third party carrier, etc.), the Company acknowledges and agrees that Custodian shall have no responsibility or liability whatsoever for any actions or inactions of such third parties, including, but not limited to, inability to access the Applications, interruption in access to the Applications, or error or inaccuracies in data received by the Company. Not limiting the generality of the foregoing, Custodians only obligation will be to make available the Applications in accordance with Custodians usual and customary standards in effect from time to time. |
36
o. | services pursuant to this Agreement provided via the Applications shall be provided via the applicable CAD Interface or Channel Access Interface in accordance with the terms, conditions and procedures contained in this Agreement, in the of relevant Manuals, or in the Online Channel Access Agreement, as applicable and which, if applicable, are incorporated herein by reference. |
p. | The Company will seek to resolve errors, which may result from its use of the Systems, including errors as to its customers and will provide, promptly upon request, any information not otherwise restricted which is requested in connection with such errors. |
q. | Custodian and the Company shall maintain knowledgeable personnel and procedures to resolve disputes between and among any of the parties connected with the Applications. Such disputes would be those relating to the proper and timely receipt and delivery of Instructions, Account information, Corporate Action information or Voluntary Election Instructions, including but not limited to, disputes arising out of the failure of any of the parties in connection with the Companys use of the Applications or the Companys violation of the provisions contained in the Manuals, Online Channel Access Agreement, or any applicable law or regulation. The Company shall be solely responsible for compliance with all applicable federal, state and local statutes, rules and regulations relating to error resolution, if any. |
37
EXHIBIT D
FEE SCHEDULE
38
SCHEDULE A
FIFTH
THIRD BANK
GLOBAL CUSTODY NETWORK
COUNTRIES AND SUB-CUSTODIANS
FOR
_, 20
COUNTRY | SUB-CUSTODIAN |
Argentina | Banco Rio de la Plata, SA |
Australia | Commonwealth Bank of Australia, Ltd. |
Austria | Bank Austria AG |
Bangladesh | Standard Chartered Bank |
Belgium | Banque Bruxelles Lambert |
Bermuda | The Bank of Bermuda |
Botswana | SCMB (Stanbic Bank Botswana) |
Brazil | The Bank of Boston |
Bulgaria | ING Bank Sofia |
Canada | Royal Bank of Canada |
Chile | The Bank of Boston |
China | Standard Chartered Bank |
Colombia | Cititrust |
Croatia | Privredna Banka |
Cyprus | Bank of Cyprus |
Czech Republic | Ceskoslovenska Obchodni Bank |
Denmark | Den Danske Bank |
EASDAQ | Banque Bruxelles Lambert |
Ecuador | Citibank |
Egypt | Citibank |
Estonia | Hansabank |
Euromarkets | Euroclear |
Finland | Merita Bank, Ltd. |
France | Banque Paribas |
Germany | Dresdner Bank |
Ghana | SCMB (Merchant Bank of Ghana Ltd.) |
Greece | Paribas, Athens |
Hong Kong | Hongkong and Shanghai Banking Corp. |
Hungary | Citibank Budapest |
Iceland | Landsbanki |
India | State Bank of India |
39
COUNTRY | SUB-CUSTODIAN |
Indonesia | Hongkong and Shanghai Banking Corp. |
Ireland | Allied Irish Banks Plc. |
Israel | Bank Leumi LE- Israel B.M. |
Italy | Banca Commerciale Italiana |
Ivory Coast | Societe Generale de Banques en Cote d’Ivoire |
Japan | Bank of Tokyo Mitsubishi Ltd. |
Jordan | The British Bank of Middle East |
Kenya | SCMB (Stanbic Bank of Kenya Ltd) |
Latvia | Societe Generale |
Lebanon | The British Bank of the Middle East |
Lithuania | Vilniaus Bankas |
Luxembourg | Banque Internationale a Luxembourg |
Malaysia | Hongkong Bank Malaysia Berhad |
Mauritius | Hongkong and Shanghai Banking Corp. |
Mexico | Banco Nacional de Mexico |
Morocco | Banque Commerciale du Maroc |
Namibia | SCMB (Stanbic Bank Nambia Ltd.) |
Netherlands | Mees Pierson |
New Zealand | ANZ Banking Group Ltd. |
Nigeria | SCMB (Stanbic Bank Nigeria Ltd.) |
Norway | Den Norske Bank |
Oman | The British Bank of the Middle East) |
Pakistan | Standard Chartered Bank |
Peru | Citibank NA |
Philippines | Hongkong and Shanghai Banking Corp |
Poland | Bank Handlowy W Warszawie |
Portugal | Banco Comercial Portugues |
Romania | ING Bank- Bucharest Branch |
Russia (Min Fin only) | Bank for Foreign Trade |
Russia (Equities & Bonds) | Unexim Bank |
Russia (Equities) | Credit Suisse First Bonston Ltd- Moscow |
Singapore | Development Bank of Singapore |
Slovakia | Ceskoslovenska Obchodna Banka |
Slovenia | Banka |
South Africa | Standard Bank of South Africa |
South Korea | Standard Chartered Bank |
Spain | Banco Bilbao Vizcaya |
Sri Lanka | Standard Chartered Bank |
Swaziland | SCMB (Stanbic Bank Swaziland Ltd) |
Sweden | Skandinaviska Enskilda Banken |
Switzerland | Union Bank of Switzerland |
Taiwan | Hongkon and Shanghai Banking Corp. |
Thailand | Standard Chartered Bank |
40
COUNTRY | SUB-CUSTODIAN |
Tunisia | Banque Internationale Arabe de Tunisie |
Turkey | Ottoman Bank |
Ukraine | Bank Ukraina |
United Kingdom | The Bank of New York |
Uruguay | BankBoston |
Venezuela | Citibank NA |
Zambia | SCMB (Stanbic Bank Zambia LTd) |
Zimbabwe | SCMB (Stanbic Bank Zimbabwe Ltd) |
41
INVESTMENT ADVISORY AGREEMENT
Between
NORTHERN LIGHTS FUND TRUST II
and
EATON VANCE WATEROAK ADVISORS
AGREEMENT, made as of December 9, 2020 between Northern Lights Fund Trust II, a Delaware statutory trust (the "Trust"), and Eaton Vance WaterOak Advisors (formerly known as Eaton Vance Investment Counsel), a Massachusetts Busniess Trust (the "Adviser"), located at Two International Place, 14th Floor, Boston, MA 02110.
RECITALS:
WHEREAS, the Trust is an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is authorized to issue shares of beneficial interest in separate series, each having its own investment objective or objectives, policies and limitations;
WHEREAS, the Trust offers shares in the series named on Appendix A hereto (such series, together with all other series subsequently established by the Trust and made subject to this Agreement in accordance with Section 1.3, being herein referred to as a "Fund," and collectively as the "Funds");
WHEREAS, the Adviser is or soon will be registered as an investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment advisory services to the Trust with respect to the Fund in the manner and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Services of the Adviser.
1.1 Investment Advisory Services. The Adviser shall act as the investment adviser to theFund and, as such, shall (i) obtain and evaluate such information relating to the economy, industries, business, securities markets and securities as it may deem necessary or useful in discharging its responsibilities hereunder, (ii) formulate a continuing program for the investment of the assets of the Fund in a manner consistent with its investment objective(s), policies and restrictions, and (iii) determine from time to time securities to be purchased, sold, retained or lent by the Fund, and implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; provided, that the Adviser will place orders pursuant to its investment determinations either directly with the issuer or with a broker or dealer, and if with a broker or dealer, (a) will attempt to obtain the best price and execution of its orders, and (b) may nevertheless in its discretion purchase and sell portfolio securities from and to brokers who provide the Adviser with research, analysis, advice and similar services and pay such brokers in return a higher commission than may be charged by other brokers.
The Trust hereby authorizes any entity or person associated with the Adviser or any sub-adviser retained by the Adviser pursuant to Section 9 of this Agreement, which is a member of a
national securities exchange, to effect any transaction on the exchange for the account of the Trust which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
The Adviser shall carry out its duties with respect to the Fund's investments in accordance with applicable law and the investment objectives, policies and restrictions set forth in the Fund's then-current Prospectus and Statement of Additional Information, and subject to such further limitations as the Trust may from time to time impose by written notice to the Adviser.
1.2 Administrative Services. The Trust has engaged the services of an administrator. The Adviser shall provide such additional administrative services as reasonably requested by the Board of Trustees or officers of the Trust; provided, that the Adviser shall not have any obligation to provide under this Agreement any direct or indirect services to Trust shareholders, any services related to the distribution of Trust shares, or any other services which are the subject of a separate agreement or arrangement between the Trust and the Adviser. Subject to the foregoing, in providing administrative services hereunder, the Adviser shall:
1.2.1 Office Space, Equipment and Facilities. Provide such office space, office equipment and office facilities as are adequate to fulfill the Adviser’s obligations hereunder.
1.2.2 Personnel. Provide, without remuneration from or other cost to the Trust, the services of individuals competent to perform the administrative functions which are not performed by employees or other agents engaged by the Trust or by the Adviser acting in some other capacity pursuant to a separate agreement or arrangement with the Trust.
1.2.3 Agents. Assist the Trust in selecting and coordinating the activities of the other agents engaged by the Trust, including the Trust's shareholder servicing agent, custodian, administrator, independent auditors and legal counsel.
1.2.4 Trustees and Officers. Authorize and permit the Adviser's directors, officers and employees who may be elected or appointed as Trustees or officers of the Trust to serve in such capacities, without remuneration from or other cost to the Trust.
1.2.5 Books and Records. Assure that all financial, accounting and other records required to be maintained and preserved by the Adviser on behalf of the Trust are maintained and preserved by it in accordance with applicable laws and regulations.
1.2.6 Reports and Filings. Assist in the preparation of (but not pay for) all periodic reports by the Fund to its shareholders and all reports and filings required to maintain the registration and qualification of the Funds and Fund shares, or to meet other regulatory or tax requirements applicable to the Fund, under federal and state securities and tax laws.
1.3 Additional Series. In the event that the Trust establishes one or more series after the effectiveness of this Agreement ("Additional Series"), Appendix A to this Agreement may be amended to make such Additional Series subject to this Agreement upon the approval of the Board of Trustees of the Trust and the shareholder(s) of the Additional Series, in accordance with the provisions of the Act. The Trust or the Adviser may elect not to make any such series subject to this Agreement.
1.4 Change in Management or Control. The Adviser shall provide at least sixty (60) days' prior written notice to the Trust of any change in the ownership or management of the Adviser, or any event or action that may constitute a change in “control,” as that term is defined in Section 2 of the Act. The Adviser shall provide prompt notice of any change in the portfolio manager(s) responsible for the day-to-day management of the Funds.
2. Expenses of the Funds.
2.1 Expenses to be Paid by Adviser. The Adviser shall pay all salaries, expenses and fees of the officers, Trustees and employees of the Trust who are officers, directors, members or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or any similar expense in the future; provided, that nothing herein contained shall be deemed to relieve the Adviser of any obligation to the Funds under any separate agreement or arrangement between the parties.
2.2 Expenses to be Paid by the Fund. The Fund shall bear all expenses of its operation, except those specifically allocated to the Adviser under this Agreement or under any separate agreement between the Trust and the Adviser. Subject to any separate agreement or arrangement between the Trust and the Adviser, the expenses hereby allocated to the Fund, and not to the Adviser, include but are not limited to:
2.2.1 Custody. All charges of depositories, custodians, and other agents for the transfer, receipt, safekeeping, and servicing of the Fund's cash, securities, and other property.
2.2.2 Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including but not limited to the charges of any shareholder servicing agent, dividend disbursing agent, transfer agent or other agent engaged by the Trust to service shareholder accounts.
2.2.3 Shareholder Reports. All expenses of preparing, setting in type, printing and distributing reports and other communications to shareholders.
2.2.4 Prospectuses. All expenses of preparing, converting to EDGAR format, filing with the Securities and Exchange Commission or other appropriate regulatory body, setting in type, printing and mailing annual or more frequent revisions of the Fund's Prospectus and Statement of Additional Information and any supplements thereto and of supplying them to shareholders.
2.2.5 Pricing and Portfolio Valuation. All expenses of computing the Fund's net asset value per share, including any equipment or services obtained for the purpose of pricing shares or valuing the Fund's investment portfolio.
2.2.6 Communications. All charges for equipment or services used for communications between the Adviser or the Trust and any custodian, shareholder servicing agent, portfolio accounting services agent, or other agent engaged by the Trust.
2.2.7 Legal and Accounting Fees. All charges for services and expenses of the Trust's legal counsel and independent accountants.
2.2.8 Trustees' Fees and Expenses. All compensation of Trustees other than those affiliated with the Adviser, all expenses incurred in connection with such unaffiliated Trustees' services as Trustees, and all other expenses of meetings of the Trustees and committees of the Trustees.
2.2.9 Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy materials, and proxy solicitations therefor.
2.2.10 Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Fund under the Act and the registration of the Fund's shares under the Securities Act of 1933 (the "1933 Act"), including all fees and expenses incurred in connection with the preparation, converting to EDGAR format, setting in type, printing, and filing of any Registration Statement, Prospectus and Statement of Additional Information under the 1933 Act or the Act, and any amendments or supplements that may be made from time to time.
2.2.11 State Registration Fees. All fees and expenses of taking required action to permit the offer and sale of the Fund's shares under securities laws of various states or jurisdictions, and of registration and qualification of the Fund under all other laws applicable to the Trust or its business activities (including registering the Trust as a broker-dealer, or any officer of the Trust or any person as agent or salesperson of the Trust in any state).
2.2.12 Confirmations. All expenses incurred in connection with the issue and transfer of Fund shares, including the expenses of confirming all share transactions.
2.2.13 Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or regulation or deemed advisable by the Trustees of the Trust, including, without limitation, such bond, liability and other insurance expenses that may from time to time be allocated to the Fund in a manner approved by its Trustees.
2.2.14 Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale or lending of the Fund's portfolio securities.
2.2.15 Taxes. All taxes or governmental fees payable by or with respect to the Fund to federal, state or other governmental agencies, domestic or foreign, including stamp or other transfer taxes.
2.2.16 Trade Association Fees. All fees, dues and other expenses incurred in connection with the Trust's membership in any trade association or other investment organization.
2.2.18 Compliance Fees. All charges for services and expenses of the Trust's Chief Compliance Officer.
2.2.19 Nonrecurring and Extraordinary Expenses. Such nonrecurring and extraordinary expenses as may arise including the costs of actions, suits, or proceedings to which the Trust is a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its officers, Trustees and agents.
3. Advisory Fee.
As compensation for all services rendered, facilities provided and expenses paid or assumed by the Adviser under this Agreement, the Fund shall pay the Adviser on the last day of each month, or as promptly as possible thereafter, a fee calculated by applying a monthly rate, based
on an annual percentage rate, to the Fund's average daily net assets for the month. The annual percentage rate applicable to the Fund is set forth in Appendix A to this Agreement, as it may be amended from time to time in accordance with Section 1.3 of this Agreement. If this Agreement shall be effective for only a portion of a month with respect to a Fund, the aforesaid fee shall be prorated for the portion of such month during which this Agreement is in effect for the Fund.
4. Proxy Voting.
The Adviser will vote, or make arrangements to have voted, all proxies solicited by or with respect to the issuers of securities in which assets of a Fund may be invested from time to time. Such proxies will be voted in a manner that Adviser deem, in good faith, to be in the best interest of the Fund and in accordance with its proxy voting policy. The Adviser agrees to provide a copy of its proxy voting policy to the Trust prior to the execution of this Agreement, and any amendments thereto promptly.
5. Records.
5.1 Tax Treatment. Both the Adviser and the Trust shall maintain, or arrange for others to maintain, the books and records of the Trust in such a manner that treats the Fund as a separate entity for federal income tax purposes.
5.2 Ownership. All records required to be maintained and preserved by the Trust pursuant to the provisions or rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Adviser on behalf of the Trust are the property of the Trust and shall be surrendered by the Adviser promptly on request by the Trust; provided, that the Adviser may at its own expense make and retain copies of any such records.
6. Reports to Adviser.
The Trust shall furnish or otherwise make available to the Adviser such copies of the Fund's Prospectus, Statement of Additional Information, financial statements, proxy statements, reports and other information relating to its business and affairs as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
7. Reports to the Trust.
The Adviser shall prepare and furnish to the Trust such reports, statistical data and other information in such form and at such intervals as the Trust may reasonably request.
8. Code of Ethics.
The Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Act and will provide the Trust with a copy of the code and evidence of its adoption. Within 45 days of the last calendar quarter of each year while this Agreement is in effect, the Adviser will provide to the Board of Trustees of the Trust a written report that describes any issues arising under the code of ethics since the last report to the Board of Trustees, including, but not limited to, information about material violations of the code and sanctions imposed in response to the material violations; and which certifies that the Adviser has adopted procedures reasonably necessary to prevent "access persons" (as that term is defined in Rule 17j-1) from violating the code.
9. Retention of Sub-Adviser.
Subject to the Trust's obtaining the initial and periodic approvals required under Section 15 of the Act, the Adviser may retain one or more sub-advisers, at the Adviser's own cost and expense, for the purpose of managing the investments of the assets of one or more Funds of the Trust. Retention of one or more sub-advisers shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement and the Adviser shall, subject to Section 11 of this Agreement, be responsible to the Trust for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder.
10. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Adviser or any affiliated person of the Adviser to render investment management and administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities.
11. Limitation of Liability of Adviser and its Personnel.
Neither the Adviser nor any director, manager, officer or employee of the Adviser performing services for the Trust at the direction or request of the Adviser in connection with the Adviser's discharge of its obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with any matter to which this Agreement relates, and the Adviser shall not be responsible for any action of the Trustees of the Trust in following or declining to follow any advice or recommendation of the Adviser or any sub-adviser retained by the Adviser pursuant to Section 9 of this Agreement; PROVIDED, that nothing herein contained shall be construed (i) to protect the Adviser against any liability to the Trust or its shareholders to which the Adviser would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Adviser's duties, or by reason of the Adviser's reckless disregard of its obligations and duties under this Agreement, or (ii) to protect any director, manager, officer or employee of the Adviser who is or was a Trustee or officer of the Trust against any liability of the Trust or its shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Trust.
12. Effect of Agreement.
Nothing herein contained shall be deemed to require to the Trust to take any action contrary to its Declaration of Trust or its By-Laws or any applicable law, regulation or order to which it is subject or by which it is bound, or to relieve or deprive the Trustees of the Trust of their responsibility for and control of the conduct of the business and affairs of the Trust.
13. Term of Agreement.
The term of this Agreement shall begin as of the date and year upon which the Fund listed on Appendix A commences investment operations, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of two years. Thereafter, this Agreement shall continue in effect with respect to the Fund from year to year, subject to the termination provisions and all other terms and conditions hereof; PROVIDED, such continuance with respect to a Fund is approved at least annually by vote of the holders of a majority of the outstanding voting securities of the Fund or by the Trustees of the Trust; PROVIDED, that in
either event such continuance is also approved annually by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto. The Adviser shall furnish to the Trust, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.
14. Amendment or Assignment of Agreement.
Any amendment to this Agreement shall be in writing signed by the parties hereto; PROVIDED, that no such amendment shall be effective unless authorized (i) by resolution of the Trustees of the Trust, including the vote or written consent of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto, and (ii) by vote of a majority of the outstanding voting securities of the Fund affected by such amendment as required by applicable law. This Agreement shall terminate automatically and immediately in the event of its assignment.
15. Termination of Agreement.
This Agreement may be terminated as to any Fund at any time by either party hereto, without the payment of any penalty, upon sixty (60) days' prior written notice to the other party; PROVIDED, that in the case of termination by any Fund, such action shall have been authorized (i) by resolution of the Trust's Board of Trustees, including the vote or written consent of Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto, or (ii) by vote of majority of the outstanding voting securities of the Fund.
16. Use of Name.
The Trust is named the Northern Lights Fund Trust II and the Fund may be identified, in part, by the name "Northern Lights."
17. Declaration of Trust.
The Adviser is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Trust's Declaration of Trust and agrees that the obligations assumed by the Trust or a Fund, as the case may be, pursuant to this Agreement shall be limited in all cases to the Trust or a Fund, as the case may be, and its assets, and the Adviser shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Trust. In addition, the Adviser shall not seek satisfaction of any such obligations from the Trustees or any individual Trustee. The Adviser understands that the rights and obligations of any Fund under the Declaration of Trust are separate and distinct from those of any and all other Funds. The Adviser further understands and agrees that no Fund of the Trust shall be liable for any claims against any other Fund of the Trust and that the Adviser must look solely to the assets of the pertinent Fund of the Trust for the enforcement or satisfaction of any claims against the Trust with respect to that Fund.
18. Confidentiality.
The Adviser agrees to treat all records and other information relating to the Trust and the securities holdings of the Funds as confidential and shall not disclose any such records or information to any other person unless (i) the Board of Trustees of the Trust has approved the disclosure or (ii) such disclosure is compelled by law. In addition, the Adviser and the Adviser's officers, directors and employees are prohibited from receiving compensation or other
consideration, for themselves or on behalf of the Fund, as a result of disclosing the Fund's portfolio holdings. The Adviser agrees that, consistent with the Adviser's Code of Ethics, neither the Adviser nor the Adviser's officers, directors, members or employees may engage in personal securities transactions based on nonpublic information about a Fund's portfolio holdings.
19. This Agreement shall be governed and construed in accordance with the laws of the State of New York.
20. Interpretation and Definition of Terms.
Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretation thereof, if any, by the United States courts, or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested persons," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the Act. In addition, when the effect of a requirement of the Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
21. Captions.
The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
22. Execution in Counterparts.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date and year first above written.
NORTHERN LIGHTS FUND TRUST II
By: /s/ Kevin Wolf
Name: Kevin Wolf
Title: President
EATON VANCE WATEROAK ADVISORS
By: /s/ Daniel Puopolo
Name: Daniel Puopolo
Title: Chief Administrative Officer
NORTHERN LIGHTS FUND TRUST II
INVESTMENT ADVISORY AGREEMENT
APPENDIX A
FUNDS OF THE TRUST
NAME OF FUND |
ANNUAL ADVISORY FEE AS A % OF AVERAGE NET ASSETS OF THE FUND |
WOA All Asset I
|
1.00%
|
INVESTMENT ADVISORY AGREEMENT
Between
NORTHERN LIGHTS FUND TRUST II
and
CERTEZA FUND ADVISORS, LLC
AGREEMENT, made as of October 14, 2020, between Northern Lights Fund Trust II, a Delaware statutory trust (the "Trust"), and Certeza Fund Advisors, LLC, a Utah limited liability company (the "Adviser"), located at 1047 South 100 West, Suite 220, Logan, UT 84321.
RECITALS:
WHEREAS, the Trust is an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is authorized to issue shares of beneficial interest in separate series, each having its own investment objective or objectives, policies and limitations;
WHEREAS, the Trust offers shares in the series named on Appendix A hereto (such series, together with all other series subsequently established by the Trust and made subject to this Agreement in accordance with Section 1.3, being herein referred to as a "Fund," and collectively as the "Funds");
WHEREAS, the Adviser is or soon will be registered as an investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to render investment advisory services to the Trust with respect to each Fund in the manner and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Services of the Adviser.
1.1 Investment Advisory Services. The Adviser shall act as the investment adviser to each Fund and, as such, shall (i) obtain and evaluate such information relating to the economy, industries, business, securities markets and securities, including derivative instruments, such as futures and options on futures, as it may deem necessary or useful in discharging its responsibilities hereunder, (ii) formulate a continuing program for the investment of the assets of each Fund in a manner consistent with its investment objective(s), policies and restrictions, and (iii) determine from time to time securities, including derivative instruments, such as futures and options on futures, to be purchased, sold, retained or lent by the Fund, and implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; provided, that the Adviser will place orders pursuant to its investment determinations either directly with the issuer or with a broker or dealer, and if with a broker or dealer, (a) will attempt to obtain the best price and execution of its orders, and (b) may nevertheless in its discretion purchase and sell portfolio securities, including derivative instruments, such as futures and options on futures, from and to brokers who provide the Adviser with research, analysis, advice and similar services and pay such brokers in return a higher commission than may be charged by other brokers.
The Trust hereby authorizes any entity or person associated with the Adviser or any sub-adviser retained by the Adviser pursuant to Section 9 of this Agreement, which is a member of a national securities exchange, to effect any transaction on the exchange for the account of the Trust which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
The Adviser shall carry out its duties with respect to each Fund's investments in accordance with applicable law and the investment objectives, policies and restrictions set forth in each Fund's then-current Prospectus and Statement of Additional Information, and subject to such further limitations as the Trust may from time to time impose by written notice to the Adviser.
1.2 Administrative Services. The Trust has engaged the services of an administrator. The Adviser shall provide such additional administrative services as reasonably requested by the Board of Trustees or officers of the Trust; provided, that the Adviser shall not have any obligation to provide under this Agreement any direct or indirect services to Trust shareholders, any services related to the distribution of Trust shares, or any other services which are the subject of a separate agreement or arrangement between the Trust and the Adviser. Subject to the foregoing, in providing administrative services hereunder, the Adviser shall:
1.2.1 Office Space, Equipment and Facilities. Provide such office space, office equipment and office facilities as are adequate to fulfill the Adviser’s obligations hereunder.
1.2.2 Personnel. Provide, without remuneration from or other cost to the Trust, the services of individuals competent to perform the administrative functions which are not performed by employees or other agents engaged by the Trust or by the Adviser acting in some other capacity pursuant to a separate agreement or arrangement with the Trust.
1.2.3 Agents. Assist the Trust in selecting and coordinating the activities of the other agents engaged by the Trust, including the Trust's shareholder servicing agent, custodian, administrator, independent auditors and legal counsel.
1.2.4 Trustees and Officers. Authorize and permit the Adviser's directors, officers and employees who may be elected or appointed as Trustees or officers of the Trust to serve in such capacities, without remuneration from or other cost to the Trust.
1.2.5 Books and Records. Assure that all financial, accounting and other records required to be maintained and preserved by the Adviser on behalf of the Trust are maintained and preserved by it in accordance with applicable laws and regulations.
1.2.6 Reports and Filings. Assist in the preparation of (but not pay for) all periodic reports by the Fund to its shareholders and all reports and filings required to maintain the registration and qualification of the Funds and Fund shares, or to meet other regulatory or tax requirements applicable to the Fund, under federal and state securities and tax laws.
1.3 Additional Series. In the event that the Trust establishes one or more series after the effectiveness of this Agreement ("Additional Series"), Appendix A to this Agreement may be amended to make such Additional Series subject to this Agreement upon the approval of the Board of Trustees of the Trust and the shareholder(s) of the Additional Series, in accordance with the provisions of the Act. The Trust or the Adviser may elect not to make any such series subject to this Agreement.
1.4 Change in Management or Control. The Adviser shall provide at least sixty (60) days' prior written notice to the Trust of any change in the ownership or management of the Adviser, or any event or action that may constitute a change in “control,” as that term is defined in Section 2 of the Act. The Adviser shall provide prompt notice of any change in the portfolio manager(s) responsible for the day-to-day management of the Funds.
2. Expenses of the Funds.
2.1 Expenses to be Paid by Adviser. The Adviser shall pay all salaries, expenses and fees of the officers, Trustees and employees of the Trust who are officers, directors, members or employees of the Adviser.
In the event that the Adviser pays or assumes any expenses of the Trust not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or any similar expense in the future; provided, that nothing herein contained shall be deemed to relieve the Adviser of any obligation to the Funds under any separate agreement or arrangement between the parties.
2.2 Expenses to be Paid by the Fund. Each Fund shall bear all expenses of its operation, except those specifically allocated to the Adviser under this Agreement or under any separate agreement between the Trust and the Adviser. Subject to any separate agreement or arrangement between the Trust and the Adviser, the expenses hereby allocated to the Fund, and not to the Adviser, include but are not limited to:
2.2.1 Custody. All charges of depositories, custodians, and other agents for the transfer, receipt, safekeeping, and servicing of the Fund's cash, securities, including derivative instruments, such as futures and options on futures, and other property.
2.2.2 Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including but not limited to the charges of any shareholder servicing agent, dividend disbursing agent, transfer agent or other agent engaged by the Trust to service shareholder accounts.
2.2.3 Shareholder Reports. All expenses of preparing, setting in type, printing and distributing reports and other communications to shareholders.
2.2.4 Prospectuses. All expenses of preparing, converting to EDGAR format, filing with the Securities and Exchange Commission or other appropriate regulatory body, setting in type, printing and mailing annual or more frequent revisions of the Fund's Prospectus and Statement of Additional Information and any supplements thereto and of supplying them to shareholders.
2.2.5 Pricing and Portfolio Valuation. All expenses of computing the Fund's net asset value per share, including any equipment or services obtained for the purpose of pricing shares or valuing the Fund's investment portfolio.
2.2.6 Communications. All charges for equipment or services used for communications between the Adviser or the Trust and any custodian, shareholder servicing agent, portfolio accounting services agent, or other agent engaged by the Trust.
2.2.7 Legal and Accounting Fees. All charges for services and expenses of the Trust's legal counsel and independent accountants.
2.2.8 Trustees' Fees and Expenses. All compensation of Trustees other than those affiliated with the Adviser, all expenses incurred in connection with such unaffiliated Trustees' services as Trustees, and all other expenses of meetings of the Trustees and committees of the Trustees.
2.2.9 Shareholder Meetings. All expenses incidental to holding meetings of shareholders, including the printing of notices and proxy materials, and proxy solicitations therefor.
2.2.10 Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Fund under the Act and the registration of the Fund's shares under the Securities Act of 1933 (the "1933 Act"), including all fees and expenses incurred in connection with the preparation, converting to EDGAR format, setting in type, printing, and filing of any Registration Statement, Prospectus and Statement of Additional Information under the 1933 Act or the Act, and any amendments or supplements that may be made from time to time.
2.2.11 State Registration Fees. All fees and expenses of taking required action to permit the offer and sale of the Fund's shares under securities laws of various states or jurisdictions, and of registration and qualification of the Fund under all other laws applicable to the Trust or its business activities (including registering the Trust as a broker-dealer, or any officer of the Trust or any person as agent or salesperson of the Trust in any state).
2.2.12 Confirmations. All expenses incurred in connection with the issue and transfer of Fund shares, including the expenses of confirming all share transactions.
2.2.13 Bonding and Insurance. All expenses of bond, liability, and other insurance coverage required by law or regulation or deemed advisable by the Trustees of the Trust, including, without limitation, such bond, liability and other insurance expenses that may from time to time be allocated to the Fund in a manner approved by its Trustees.
2.2.14 Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale or lending of the Fund's portfolio securities.
2.2.15 Taxes. All taxes or governmental fees payable by or with respect to the Fund to federal, state or other governmental agencies, domestic or foreign, including stamp or other transfer taxes.
2.2.16 Trade Association Fees. All fees, dues and other expenses incurred in connection with the Trust's membership in any trade association or other investment organization.
2.2.18 Compliance Fees. All charges for services and expenses of the Trust's Chief Compliance Officer.
2.2.19 Nonrecurring and Extraordinary Expenses. Such nonrecurring and extraordinary expenses as may arise including the costs of actions, suits, or proceedings to which the Trust is a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its officers, Trustees and agents.
3. Advisory Fee.
As compensation for all services rendered, facilities provided and expenses paid or assumed by the Adviser under this Agreement, each Fund shall pay the Adviser on the last day of each
month, or as promptly as possible thereafter, a fee calculated by applying a monthly rate, based on an annual percentage rate, to the Fund's average daily net assets for the month. The annual percentage rate applicable to each Fund is set forth in Appendix A to this Agreement, as it may be amended from time to time in accordance with Section 1.3 of this Agreement. If this Agreement shall be effective for only a portion of a month with respect to a Fund, the aforesaid fee shall be prorated for the portion of such month during which this Agreement is in effect for the Fund.
4. Proxy Voting.
The Adviser will vote, or make arrangements to have voted, all proxies solicited by or with respect to the issuers of securities in which assets of a Fund may be invested from time to time. Such proxies will be voted in a manner that Adviser deem, in good faith, to be in the best interest of the Fund and in accordance with its proxy voting policy. The Adviser agrees to provide a copy of its proxy voting policy to the Trust prior to the execution of this Agreement, and any amendments thereto promptly.
5. Records.
5.1 Tax Treatment. Both the Adviser and the Trust shall maintain, or arrange for others to maintain, the books and records of the Trust in such a manner that treats each Fund as a separate entity for federal income tax purposes.
5.2 Ownership. All records required to be maintained and preserved by the Trust pursuant to the provisions or rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act and maintained and preserved by the Adviser on behalf of the Trust are the property of the Trust and shall be surrendered by the Adviser promptly on request by the Trust; provided, that the Adviser may at its own expense make and retain copies of any such records.
6. Reports to Adviser.
The Trust shall furnish or otherwise make available to the Adviser such copies of each Fund's Prospectus, Statement of Additional Information, financial statements, proxy statements, reports and other information relating to its business and affairs as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
7. Reports to the Trust.
The Adviser shall prepare and furnish to the Trust such reports, statistical data and other information in such form and at such intervals as the Trust may reasonably request.
8. Code of Ethics.
The Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Act and will provide the Trust with a copy of the code and evidence of its adoption. Within 45 days of the last calendar quarter of each year while this Agreement is in effect, the Adviser will provide to the Board of Trustees of the Trust a written report that describes any issues arising under the code of ethics since the last report to the Board of Trustees, including, but not limited to, information about material violations of the code and sanctions imposed in response to the material violations; and which certifies that the Adviser has adopted procedures reasonably necessary to prevent "access persons" (as that term is defined in Rule 17j-1) from violating the code.
9. Retention of Sub-Adviser.
Subject to the Trust's obtaining the initial and periodic approvals required under Section 15 of the Act, the Adviser may retain one or more sub-advisers, at the Adviser's own cost and expense, for the purpose of managing the investments of the assets of one or more Funds of the Trust. Retention of one or more sub-advisers shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement and the Adviser shall, subject to Section 11 of this Agreement, be responsible to the Trust for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder.
10. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Adviser or any affiliated person of the Adviser to render investment management and administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities.
11. Limitation of Liability of Adviser and its Personnel.
Neither the Adviser nor any director, manager, officer or employee of the Adviser performing services for the Trust at the direction or request of the Adviser in connection with the Adviser's discharge of its obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with any matter to which this Agreement relates, and the Adviser shall not be responsible for any action of the Trustees of the Trust in following or declining to follow any advice or recommendation of the Adviser or any sub-adviser retained by the Adviser pursuant to Section 9 of this Agreement; PROVIDED, that nothing herein contained shall be construed (i) to protect the Adviser against any liability to the Trust or its shareholders to which the Adviser would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Adviser's duties, or by reason of the Adviser's reckless disregard of its obligations and duties under this Agreement, or (ii) to protect any director, manager, officer or employee of the Adviser who is or was a Trustee or officer of the Trust against any liability of the Trust or its shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office with the Trust.
12. Effect of Agreement.
Nothing herein contained shall be deemed to require to the Trust to take any action contrary to its Declaration of Trust or its By-Laws or any applicable law, regulation or order to which it is subject or by which it is bound, or to relieve or deprive the Trustees of the Trust of their responsibility for and control of the conduct of the business and affairs of the Trust.
13. Term of Agreement.
The term of this Agreement shall begin as of the date and year upon which the Fund listed on Appendix A commences investment operations, and unless sooner terminated as hereinafter provided, this Agreement shall remain in effect for a period of two years. Thereafter, this
Agreement shall continue in effect with respect to each Fund from year to year, subject to the termination provisions and all other terms and conditions hereof; PROVIDED, such continuance with respect to a Fund is approved at least annually by vote of the holders of a majority of the outstanding voting securities of the Fund or by the Trustees of the Trust; PROVIDED, that in either event such continuance is also approved annually by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto. The Adviser shall furnish to the Trust, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal or amendment thereof.
14. Amendment or Assignment of Agreement.
Any amendment to this Agreement shall be in writing signed by the parties hereto; PROVIDED, that no such amendment shall be effective unless authorized (i) by resolution of the Trustees of the Trust, including the vote or written consent of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto, and (ii) by vote of a majority of the outstanding voting securities of the Fund affected by such amendment as required by applicable law. This Agreement shall terminate automatically and immediately in the event of its assignment.
15. Termination of Agreement.
This Agreement may be terminated as to any Fund at any time by either party hereto, without the payment of any penalty, upon sixty (60) days' prior written notice to the other party; PROVIDED, that in the case of termination by any Fund, such action shall have been authorized (i) by resolution of the Trust's Board of Trustees, including the vote or written consent of Trustees of the Trust who are not parties to this Agreement or interested persons of either party hereto, or (ii) by vote of majority of the outstanding voting securities of the Fund.
16. Use of Name.
The Trust is named the Northern Lights Fund Trust II and each Fund may be identified, in part, by the name "Northern Lights."
17. Declaration of Trust.
The Adviser is hereby expressly put on notice of the limitation of shareholder liability as set forth in the Trust's Declaration of Trust and agrees that the obligations assumed by the Trust or a Fund, as the case may be, pursuant to this Agreement shall be limited in all cases to the Trust or a Fund, as the case may be, and its assets, and the Adviser shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Trust. In addition, the Adviser shall not seek satisfaction of any such obligations from the Trustees or any individual Trustee. The Adviser understands that the rights and obligations of any Fund under the Declaration of Trust are separate and distinct from those of any and all other Funds. The Adviser further understands and agrees that no Fund of the Trust shall be liable for any claims against any other Fund of the Trust and that the Adviser must look solely to the assets of the pertinent Fund of the Trust for the enforcement or satisfaction of any claims against the Trust with respect to that Fund.
18. Confidentiality.
The Adviser agrees to treat all records and other information relating to the Trust and the securities holdings of the Funds as confidential and shall not disclose any such records or information to any other person unless (i) the Board of Trustees of the Trust has approved the disclosure or (ii) such disclosure is compelled by law. In addition, the Adviser and the Adviser's officers, directors and employees are prohibited from receiving compensation or other consideration, for themselves or on behalf of the Fund, as a result of disclosing the Fund's portfolio holdings. The Adviser agrees that, consistent with the Adviser's Code of Ethics, neither the Adviser nor the Adviser's officers, directors, members or employees may engage in personal securities transactions based on nonpublic information about a Fund's portfolio holdings.
19. This Agreement shall be governed and construed in accordance with the laws of the State of New York.
20. Interpretation and Definition of Terms.
Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretation thereof, if any, by the United States courts, or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission validly issued pursuant to the Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested persons," "assignment" and "affiliated person," as used in this Agreement shall have the meanings assigned to them by Section 2(a) of the Act. In addition, when the effect of a requirement of the Act reflected in any provision of this Agreement is modified, interpreted or relaxed by a rule, regulation or order of the Securities and Exchange Commission, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
21. Captions.
The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
22. Execution in Counterparts.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date and year first above written.
NORTHERN LIGHTS FUND TRUST II
By: _/s/ Kevin Wolf
Name: Kevin Wolf
Title: President
CERTEZA FUND ADVISORS, LLC
By: /s/ Jim Macfarlane
Name: Jim Macfarlane
Title: CEO
NORTHERN LIGHTS FUND TRUST II
INVESTMENT ADVISORY AGREEMENT
APPENDIX A
NAME OF FUND |
ANNUAL ADVISORY FEE AS A % OF AVERAGE NET ASSETS OF THE FUND |
Certeza Convex Core
Class A Class I
|
1.39% 1.39% |
APPENDIX IV-4
LIST OF FUNDS
SERVICES & FEES
This Appendix IV-4 is part of the Fund Services Agreement (the “Agreement”), dated May 17, 2011, as amended, between Northern Lights Fund Trust II (the “Trust”) and Gemini Fund Services, LLC (“GFS”). Set forth below are the Services elected by the Fund(s) identified on this Appendix IV-4 along with the associated Fees. Capitalized terms used herein that are not otherwise defined shall have the same meanings ascribed to them in the Agreement.
EFFECTIVE DATE
The Effective Date for the Fund(s) set forth on this Appendix IV-4 shall be upon commencement of operations.
COVERED FUNDS
The Fund(s) to be covered under this Agreement include:
Fund Name | Board Approval Date |
WOA All Asset I | August 11, 2011 |
*Funds with the same investment adviser are collectively referred to as the “Complex.”
SELECTED SERVICES and FEES
[REDACTED – schedule has been excluded because it is both (1) not material and (2) would likely cause competitive harm to the registrant if publicly disclosed]
Signature page follows
IN WITNESS WHEREOF, the parties hereto have executed this Appendix IV-4 to the Fund Services Agreement effective as of December 9, 2020.
NORTHERN LIGHTS FUND TRUST II | GEMINI FUND SERVICES, LLC | |
By: /s/ Kevin Wolf | By: /s/ Gary Tenkman | |
Kevin Wolf | Gary Tenkman | |
President | Chief Executive Officer |
The undersigned investment adviser (the “Adviser”) hereby acknowledges and agrees to the terms of The Agreement and further acknowledges and agrees that:
(1) GFS expends substantial time and money, on an ongoing basis, to recruit and train its employees; (2) GFS's business is highly competitive and is marketed throughout the United States, and (3) if the Adviser were to hire any GFS employees who are involved in the procurement of the Services under the Agreement then GFS may suffer lost sales and other opportunities and would incur substantial time and money in hiring and training replacement(s) for those employees. Accordingly, the Adviser agrees that it, including its respective affiliates and subsidiaries, shall not solicit, attempt to induce or otherwise hire an employee of GFS for so long as this Agreement is in effect and for a period of two (2) years after termination of this Agreement, unless expressly agreed upon in writing by both parties. In the event that this provision is breached by the Adviser, the Adviser agrees to pay damages to GFS in the amount of two times the current annual salary of such employee or former employee. For purposes of this provision, “hire” means to employ as an employee or to engage as an independent contractor, whether on a full-time, part-time or temporary basis.
Eaton Vance WaterOak Advisors
Two International Place, 14th Floor
Boston, MA 02110
By: /s/ Daniel Puopolo
Name: Daniel Puopolo
Title: Chief Administrative Officer
Shareholder Desktop Web Package
Proprietary Secure Web-Based Direct Interface With Transfer Agent Data
Supports Five Levels of Access
|
Fund Administrator |
|
Broker/Dealer |
|
Broker/Dealer Branch |
|
Registered Representative |
|
Shareholder |
Customizable Look And Feel (Logo And Color Scheme)
Account Inquiry
|
Portfolio Summary |
|
Account Position |
|
Transaction History |
|
General Account Information |
Online Transactions (Must have this reflected in the prospectus to offer this functionality)
|
Exchanges |
|
Purchases |
|
Redemptions |
|
Prospectus and SAI Access |
Account Maintenance
|
Change of Shareholder Information |
o | Address |
o | Phone Number |
o | Email Address |
Online Statement Access
|
Quarterly Statements and Confirms |
|
Electronic Delivery (Should have this reflected in the prospectus and application to offer this functionality) |
o | Statements |
o | Confirms |
o | Regulatory Mailings |
Shareholder Desktop Online New Accounts
|
Allows clients the ability to set up a new account online if they provide valid ACH information and agree to all disclaimers and agreements on site. |
|
E-Signature capability |
Fund Data Web Package
Performance Web Page
Holdings web page
Historical NAV web page
Fulfillment web page
GFS reporting utilizes the next generation secure web-based report delivery vehicle which allows for direct request or subscription based delivery reports available in multiple formats (PDF, Excel, XML, CSV)
This Appendix IV-34 is part of the Fund Services Agreement (the “Agreement”), dated May 17, 2011, as amended, between Northern Lights Fund Trust II (the “Trust”) and Gemini Fund Services, LLC (“GFS”). Set forth below are the Services elected by the Fund(s) identified on this Appendix IV-34 along with the associated Fees. Capitalized terms used herein that are not otherwise defined shall have the same meanings ascribed to them in the Agreement.
EFFECTIVE DATE
The Effective Date for the Fund(s) set forth on this Appendix IV-34 shall be the later of the date of this Agreement or upon commencement of operations.
COVERED FUNDS
The Fund(s) to be covered under this Agreement include:
Fund(s) |
Certeza Convex Core Fund |
Funds with the same investment adviser are collectively referred to as a “Fund Family.”
SELECTED SERVICES and FEES
[REDACTED – schedule has been excluded because it is both (1) not material and (2) would likely cause competitive harm to the registrant if publicly disclosed]
Signature Page Follows
IN WITNESS WHEREOF, the parties hereto have executed this Appendix IV-34 to the Fund Services Agreement effective as of October 15, 2020.
NORTHERN LIGHTS FUND TRUST II
By: /s/ Kevin Wolf Kevin Wolf President |
GEMINI FUND SERVICES, LLC
By: /s/ Gary Tenkman Gary Tenkman Chief Executive Officer |
The undersigned investment adviser (the “Adviser”) hereby acknowledges and agrees to the terms of the Agreement and further acknowledges and agrees that:
(1) GFS expends substantial time and money, on an ongoing basis, to recruit and train its employees; (2) GFS's business is highly competitive and is marketed throughout the United States, and (3) if the Adviser were to hire any GFS employees who are involved in the procurement of the Services under the Agreement then GFS may suffer lost sales and other opportunities and would incur substantial expense in hiring and training replacement(s) for those employees. Accordingly, the Adviser agrees that it, including its respective affiliates and subsidiaries, shall not solicit, attempt to induce or otherwise hire an employee of GFS for so long as this Agreement is in effect and for a period of two (2) years after termination of this Agreement, unless expressly agreed upon in writing by both parties. In the event that this provision is breached by the Adviser, the Adviser agrees to pay damages to GFS in the amount of two times the current annual salary of such employee or former employee. For purposes of this provision, “hire” means to employ as an employee or to engage as an independent contractor, whether on a full-time, part-time or temporary basis.
Certeza Fund Advisors LLC
565 W. 465 N., Suite 150
Providence, UT 84332
By: /s/ Jim Macfarlane
Name: Jim Macfarlane
Title: CEO
NORTHERN LIGHTS FUND TRUST II
OPERATING EXPENSES LIMITATION
AND SECURITY AGREEMENT
WOA ALL ASSET I
THIS OPERATING EXPENSES LIMITATION AND SECURITY AGREEMENT (the “Agreement”) is effective as of December 9, 2020, by
and between NORTHERN LIGHTS FUND TRUST II, a Delaware statutory trust (the “Trust”), on behalf of WOA All Asset I,
(the “Fund”) a series of the Trust, and the advisor of such Fund, EATON VANCE WATEROAK ADVISORS (FORMERLY KNOW AS EATON
VANCE INVESTMENT COUNSEL) (the “Advisor”).
RECITALS:
WHEREAS, the Advisor renders advice and services to the Fund pursuant to the terms and provisions of an Investment Advisory
Agreement between the Trust and the Advisor dated as of December 9, 2020 (the “Investment Advisory Agreement”); and
WHEREAS, the Fund is responsible for, and has assumed the obligation for, payment of certain expenses pursuant to the Investment
Advisory Agreement that have not been assumed by the Advisor; and
WHEREAS, the Advisor desires to limit the Fund’s Operating Expenses (as that term is defined in Paragraph 2 of this
Agreement) pursuant to the terms and provisions of this Agreement, and the Trust (on behalf of the Fund) desires to allow the Advisor
to implement those limits; and
WHEREAS, as a condition to the continuation of its contractual relationship with the Advisor, the Trust has required that Advisor grant to the Trust a continuing security interest in and to a designated account established with Gemini Fund Services, LLC, Transfer Agent to the Fund, or its successor and assigns (the “Securities Intermediary”);
NOW THEREFORE, in consideration of the covenants and the mutual promises hereinafter set forth, the parties, intending to
be legally bound hereby, mutually agree as follows:
1. Limit on Operating Expenses. The Advisor hereby agrees to limit the Fund’s current Operating Expenses to
an annual rate, expressed as a percentage of the Fund’s average annual net assets, to the amounts listed in Appendix
A (the “Annual Limit”). In the event that the current Operating Expenses of the Fund, as accrued each month,
exceed its Annual Limit, the Advisor will pay to the Fund, on a monthly basis, the excess expense within the first ten days of
the month following the month in which such Operating Expenses were incurred (each payment, a “Fund Reimbursement Payment”).
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2. Definition. For purposes of this Agreement, the term “Operating Expenses” with respect to the Fund
is defined to include all expenses necessary or appropriate for the operation of the Fund and including the Advisor’s investment
advisory or management fee detailed in the Investment Advisory Agreement, any Rule 12b-l fees and other expenses described in the
Investment Advisory Agreement, but does not include any front-end or contingent deferred loads, brokerage fees and commissions,
acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary
expenses such as litigation.
3. Reimbursement of Fees and Expenses. The Advisor retains its right to receive reimbursement of any excess expense
payments paid by it pursuant to this Agreement in future years on a rolling three-year basis, if such reimbursement can be achieved
within the Operating Expense Limitations listed in Appendix A.
4. Security Interest. The Advisor, for value received, hereby pledges, assigns, sets over and grants to the Trust a continuing security interest in and to an account to be established by the Advisor with the Securities Intermediary and designated as a collateral account (the “Collateral Account”), including any replacement account established with any successor, together with all dividends, interest, stock-splits, distributions, profits and all cash and non-cash proceeds thereof and any and all other rights as may now or hereafter derive or accrue therefrom (collectively, the “Collateral”) to secure the payment of any required Fund Reimbursement Payment or Liquidation Expenses (as defined in Paragraph 5 of this Agreement). For so long as this Agreement is in effect, any redemptions of Collateral shall require the approval of the Board of Trustees of the Trust (the “Board”).
5. Collateral Event. In the event that either (a) the Advisor does not make the Fund Reimbursement Payment due in connection with a particular calendar month by the tenth day of the following calendar month or (b) the Board enacts a resolution calling for the liquidation of the Fund (either (a) or (b), a “Collateral Event”), then, in either event, the Board shall have absolute discretion to redeem any shares or other Collateral held in the Collateral Account and utilize the proceeds from such redemptions or such other Collateral to make any required Fund Reimbursement Payment, or to cover any costs or expenses which the Board, in its sole and absolute discretion, estimates will be required in connection with the liquidation of the Fund (the “Liquidation Expenses”). Pursuant to the terms of Paragraph 6 of this Agreement, upon authorization from the Board, no further instructions shall be required from the Advisor for the Securities Intermediary to transfer any Collateral from the Collateral Account to the Fund. The Advisor acknowledges that in the event the Collateral available in the Collateral Account is insufficient to cover the full cost of any Fund Reimbursement Payment or Liquidation Expenses, the Fund shall retain the right to receive from the Advisor any costs in excess of the value of the Collateral.
6. Control Agreement; Appointment of Attorney-in-Fact. The Advisor agrees to execute and deliver to the Board, in form and substance satisfactory to the Board, a Control Agreement by, between and among the Trust, the Advisor and the Securities Intermediary pursuant to and
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consistent with Section 8-106(c) of the New York Uniform Commercial Code. Without limiting the foregoing, the Advisor hereby irrevocably constitutes and appoints the Trust, through any officer thereof, with full power of substitution, as Advisor's true and lawful Attorney-in-Fact, with full irrevocable power and authority in place and stead of the Advisor and in the name of the Advisor or in the Trust's own name, from time to time, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate actions and to execute and deliver any and all documents and instruments which the Board deems necessary to accomplish the purpose of this Agreement, which power of attorney is coupled with an interest and shall be irrevocable. Without limiting the generality of the foregoing, the Trust shall have the right and power following any Collateral Event to receive, endorse and collect all checks and other orders for the payment of money made payable to the Advisor representing any interest payment, dividend, or other distribution payable in respect of/to the Collateral, or any part thereof, and to give full discharge for the same. Upon such Collateral Event, the Board, in its discretion, may direct the Advisor or Advisor's agent to transfer the Collateral in certificated or uncertificated form into the name and account of the Trust or its designee.
7. Covenants. So long as this Agreement shall remain in effect, the Advisor represents and covenants as follows:
(a) No later than 120 days after the Fund becomes operational, the Advisor shall invest at least $30,000 in the Collateral Account, unless Fund assets have reached $15 million (in which case no Collateral Account is required).
(b) To the fullest extent permitted by law, the Advisor agrees not to challenge any action taken by the Board or the Trust in executing the terms of this Agreement.
8. Term. This Agreement shall become effective on the date first above written and shall remain in effect until at
least October 31, 2022, unless sooner terminated as provided in Paragraph 9 of this Agreement, and shall continue in effect for
successive twelve-month periods provided that such continuance is specifically approved at least annually by a majority of the
Trustees of the Trust.
9. Termination. This Agreement may be terminated at any time, and without payment of any penalty, by the Board, on
behalf of the Fund, upon sixty (60) days’ written notice to the Advisor. This Agreement may not be terminated by the Advisor
without the consent of the Board. This Agreement will automatically terminate, with respect to the Fund listed in Appendix
A if the Investment Advisory Agreement for the Fund is terminated and the Fund continues to operate under the management
of a new investment adviser, with such termination effective upon the effective date of the Investment Advisory Agreement’s
termination for the Fund.
10. Assignment. This Agreement and all rights and obligations hereunder may not be assigned without the written consent
of the other party.
11. Severability. If any provision of this Agreement shall be held or made invalid by a court
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decision, statute or rule, or shall be otherwise rendered invalid, the remainder of this Agreement shall not be affected thereby.
12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of
New York without giving effect to the conflict of laws principles thereof; provided that nothing herein shall be construed to preempt,
or to be inconsistent with, any federal law, regulation or rule, including the Investment Company Act of 1940 and the Investment
Advisers Act of 1940 and any rules and regulations promulgated thereunder.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested by their duly authorized officers, all on the day and year first above written.
NORTHERN LIGHTS FUND TRUST II, | EATON VANCE WATEROAK ADVISORS |
on behalf of WOA All Asset I
|
|
By: /s/ Kevin Wolf | By: /s/ Daniel Puoplo |
Name: Kevin Wolf | Name: Daniel Puopolo |
Title: President | Title: Chief Administrative Officer |
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Appendix A
Fund | Operating Expense Limit |
WOA All Asset I
Class I
|
1.50% |
NORTHERN LIGHTS FUND TRUST II
OPERATING EXPENSES LIMITATION
AND SECURITY AGREEMENT
CERTEZA CONVEX CORE FUND
THIS OPERATING EXPENSES LIMITATION AND SECURITY AGREEMENT (the “Agreement”) is effective as of October 14, 2020, by
and between NORTHERN LIGHTS FUND TRUST II, a Delaware business trust (the “Trust”), on behalf of CERTEZA CONVEX CORE
FUND, (the “Fund”) a series of the Trust, and the advisor of such Fund, CERTEZA FUND
ADVISORS, LLC, (the “Advisor”).
RECITALS:
WHEREAS, the Advisor renders advice and services to the Fund pursuant to the terms and provisions of an Investment Advisory
Agreement between the Trust and the Advisor dated as of October 14, 2020 (the “Investment Advisory Agreement”); and
WHEREAS, the Fund is responsible for, and has assumed the obligation for, payment of certain expenses pursuant to the Investment
Advisory Agreement that have not been assumed by the Advisor; and
WHEREAS, the Advisor desires to limit the Fund’s Operating Expenses (as that term is defined in Paragraph 2 of this
Agreement) pursuant to the terms and provisions of this Agreement, and the Trust (on behalf of the Fund) desires to allow the Advisor
to implement those limits; and
WHEREAS, as a condition to the continuation of its contractual relationship with the Advisor, the Trust has required that Advisor grant to the Trust a continuing security interest in and to a designated account established with Gemini Fund Services, LLC, Transfer Agent to the Fund, or its successor and assigns (the “Securities Intermediary”);
NOW THEREFORE, in consideration of the covenants and the mutual promises hereinafter set forth, the parties, intending to
be legally bound hereby, mutually agree as follows:
1. Limit on Operating Expenses. The Advisor hereby agrees to limit the Fund’s current Operating Expenses to
an annual rate, expressed as a percentage of the Fund’s average annual net assets, to the amounts listed in Appendix
A (the “Annual Limit”). In the event that the current Operating Expenses of the Fund, as accrued each month,
exceed its Annual Limit, the Advisor will pay to the Fund, on a monthly basis, the excess expense within the first ten days of
the month following the month in which such Operating Expenses were incurred (each payment, a “Fund Reimbursement Payment”).
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2. Definition. For purposes of this Agreement, the term “Operating Expenses” with respect to the Fund
is defined to include all expenses necessary or appropriate for the operation of the Fund and including the Advisor’s investment
advisory or management fee detailed in the Investment Advisory Agreement, any Rule 12b-l fees and other expenses described in the
Investment Advisory Agreement, but does not include any front-end or contingent deferred loads, brokerage fees and commissions,
acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary
expenses such as litigation.
3. Reimbursement of Fees and Expenses. The Advisor retains its right to receive reimbursement of any excess expense
payments paid by it pursuant to this Agreement in future years on a rolling three year basis, if such reimbursement can be achieved
within the Operating Expense Limitations listed in Appendix A.
4. Security Interest. The Advisor, for value received, hereby pledges, assigns, sets over and grants to the Trust a continuing security interest in and to an account to be established by the Advisor with the Securities Intermediary and designated as a collateral account (the “Collateral Account”), including any replacement account established with any successor, together with all dividends, interest, stock-splits, distributions, profits and all cash and non-cash proceeds thereof and any and all other rights as may now or hereafter derive or accrue therefrom (collectively, the “Collateral”) to secure the payment of any required Fund Reimbursement Payment or Liquidation Expenses (as defined in Paragraph 5 of this Agreement). For so long as this Agreement is in effect, any redemptions of Collateral shall require the approval of the Board of Trustees of the Trust (the “Board”).
5. Collateral Event. In the event that either (a) the Advisor does not make the Fund Reimbursement Payment due in connection with a particular calendar month by the tenth day of the following calendar month or (b) the Board enacts a resolution calling for the liquidation of the Fund (either (a) or (b), a “Collateral Event”), then, in either event, the Board shall have absolute discretion to redeem any shares or other Collateral held in the Collateral Account and utilize the proceeds from such redemptions or such other Collateral to make any required Fund Reimbursement Payment, or to cover any costs or expenses which the Board, in its sole and absolute discretion, estimates will be required in connection with the liquidation of the Fund (the “Liquidation Expenses”). Pursuant to the terms of Paragraph 6 of this Agreement, upon authorization from the Board, no further instructions shall be required from the Advisor for the Securities Intermediary to transfer any Collateral from the Collateral Account to the Fund. The Advisor acknowledges that in the event the Collateral available in the Collateral Account is insufficient to cover the full cost of any Fund Reimbursement Payment or Liquidation Expenses, the Fund shall retain the right to receive from the Advisor any costs in excess of the value of the Collateral.
6. Control Agreement; Appointment of Attorney-in-Fact. The Advisor agrees to execute and deliver to the Board, in form and substance satisfactory to the Board, a Control Agreement by, between and among the Trust, the Advisor and the Securities Intermediary pursuant to and
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consistent with Section 8-106(c) of the New York Uniform Commercial Code. Without limiting the foregoing, the Advisor hereby irrevocably constitutes and appoints the Trust, through any officer thereof, with full power of substitution, as Advisor's true and lawful Attorney-in-Fact, with full irrevocable power and authority in place and stead of the Advisor and in the name of the Advisor or in the Trust's own name, from time to time, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate actions and to execute and deliver any and all documents and instruments which the Board deems necessary to accomplish the purpose of this Agreement, which power of attorney is coupled with an interest and shall be irrevocable. Without limiting the generality of the foregoing, the Trust shall have the right and power following any Collateral Event to receive, endorse and collect all checks and other orders for the payment of money made payable to the Advisor representing any interest payment, dividend, or other distribution payable in respect of/to the Collateral, or any part thereof, and to give full discharge for the same. Upon such Collateral Event, the Board, in its discretion, may direct the Advisor or Advisor's agent to transfer the Collateral in certificated or uncertificated form into the name and account of the Trust or its designee.
7. Covenants. So long as this Agreement shall remain in effect, the Advisor represents and covenants as follows:
(a) No later than 120 days after the Fund becomes operational, the Advisor shall invest at least $30,000 in the Collateral Account, unless Fund assets have reached $15 million (in which case no Collateral Account is required).
(b) To the fullest extent permitted by law, the Advisor agrees not to challenge any action taken by the Board or the Trust in executing the terms of this Agreement.
8. Term. This Agreement shall become effective on the date first above written and shall remain in effect until at
least March 31, 2022, unless sooner terminated as provided in Paragraph 9 of this Agreement, and shall continue in effect for successive
twelve-month periods provided that such continuance is specifically approved at least annually by a majority of the Trustees of
the Trust.
9. Termination. This Agreement may be terminated at any time, and without payment of any penalty, by the Board, on
behalf of the Fund, upon sixty (60) days’ written notice to the Advisor. This Agreement may not be terminated by the Advisor
without the consent of the Board. This Agreement will automatically terminate, with respect to the Fund listed in Appendix
A if the Investment Advisory Agreement for the Fund is terminated and the Fund continues to operate under the management
of a new investment adviser, with such termination effective upon the effective date of the Investment Advisory Agreement’s
termination for the Fund.
10. Assignment. This Agreement and all rights and obligations hereunder may not be assigned without the written consent
of the other party.
11. Severability. If any provision of this Agreement shall be held or made invalid by a court
3 |
decision, statute or rule, or shall be otherwise rendered invalid, the remainder of this Agreement shall not be affected thereby.
12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of
New York without giving effect to the conflict of laws principles thereof; provided that nothing herein shall be construed to preempt,
or to be inconsistent with, any federal law, regulation or rule, including the Investment Company Act of 1940 and the Investment
Advisers Act of 1940 and any rules and regulations promulgated thereunder.
[Signature Page Follows]
4 |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested by their duly authorized officers, all on the day and year first above written.
NORTHERN LIGHTS FUND TRUST II, | CERTEZA FUND ADVISORS LLC |
on behalf of the Certeza Convex Core
|
|
By: /s/ Kevin Wolf | By: /s/ Jim Macfarlane |
Name: Kevin Wolf | Name: Jim Macfarlane |
Title: President | Title: CEO |
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Appendix A
Fund | Operating Expense Limit |
Certeza Convex Core Fund
Class A Class I
|
1.99% 1.74% |
Alston&Bird llp
The Atlantic Building
950 F Street, NW
Washington, DC 20004-1404
202-756-3300
Fax:202-756-3333
www.alston.com
David J. Baum | Direct Dial: 202-239-3346 | E-mail: david.baum@alston.com |
December 23, 2020
Northern Lights Fund Trust II
4221 North 203rd Street, Suite 100
Elkhorn, NE 68022
Re: | Opinion of Counsel regarding Post-Effective Amendment No. 482 to Northern Lights Fund Trust II’s Registration Statement Filed on Form N-1A under the Securities Act of 1933 (File No. 333-174926) |
We have acted as counsel to Northern Lights Fund Trust II, a Delaware statutory trust (the “Trust”), in connection with the filing of Post-Effective Amendment No. 482 to the Trust’s Registration Statement (“Post-Effective Amendment No. 482”) with the U.S. Securities and Exchange Commission (“SEC”) pursuant to Rule 485(b) under the Securities Act of 1933, as amended (the “1933 Act”), registering an indefinite number of units of beneficial interest (“Shares”) of Class A and Class I shares of the Certeza Convex Core Fund (the “Fund”).
You have requested our opinion as to the matters set forth below in connection with the filing of the Post-Effective Amendment No. 482. In connection with rendering that opinion, we have examined the Post-Effective Amendment No. 482, the Declaration of Trust and any amendments thereto, the Certificate of Trust of the Trust, the Trust’s Bylaws, the actions of the Trustees of the Trust that authorize the approval of the foregoing documents, securities matters and the issuance of the Shares, and such other documents as we, in our professional opinion, have deemed necessary or appropriate as a basis for the opinion set forth below. In examining the documents referred to above, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of documents purporting to be originals and the conformity to originals of all documents submitted to us as copies. As to questions of fact material to our opinion, we have relied (without investigation or independent confirmation) upon the representations contained in the above-described documents.
Our opinion, as set forth herein, is based on the facts in existence and the laws in effect on the date hereof and is limited to the federal laws of the United States of America and the Delaware Statutory Trust Act. We express no opinion with respect to any other laws.
Atlanta • Brussels • Charlotte • Dallas • Los Angeles • New York • Research Triangle • Silicon Valley • Ventura County • Washington, D.C.
Page 2
Based upon and subject to the foregoing and the qualifications set forth below, we are of the opinion that:
1. | The Shares of the Fund to be issued pursuant to the Post-Effective Amendment No. 482 have been duly authorized for issuance by the Trust. |
2. | When issued and paid for upon the terms provided in the Post-Effective Amendment No. 482, subject to compliance with the 1933 Act, the Investment Company Act of 1940, as amended, and all other laws relating to the sale of securities, the Shares of the Fund to be issued pursuant to the Post-Effective Amendment No. 482 will be validly issued, fully paid and non-assessable. |
This opinion is rendered solely for your use in connection with the filing of the Post-Effective Amendment No. 482. We hereby consent to the filing of this opinion with the SEC in connection with Post-Effective Amendment No. 482.
Sincerely,
ALSTON & BIRD LLP
By:_ /s/David J. Baum____
A Partner
CONSENT OF ALSTON & BIRD, LLP, COUNSEL FOR THE REGISTRANT
We hereby consent to the use of our name and the references to our firm under the caption “Legal Counsel” included in or made a part of Post-Effective Amendment No. 482 to the Registration Statement of Northern Lights Fund Trust II on Form N-1A under the Securities Act of 1933, as amended.
Alston & Bird LLP
By: /s/ David J. Baum
A Partner
Washington, DC
December 23, 2020
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the references to our firm in this Registration Statement on Form N-1A of Certeza Convex Core Fund, a series of Northern Lights Fund Trust II, under the headings “Independent Registered Public Accounting Firm” and “Portfolio Holdings Information” in the Statement of Additional Information.
Cohen & Company, Ltd. Cleveland, Ohio December 23, 2020
C O H E N & C O M P A N Y , L T D .
800.229.1099 | 866.818.4535 fax | cohencpa.com
Registered with the Public Company Accounting Oversight Board
NORTHERN LIGHTS FUND TRUST II
RULE 18f-3 MULTIPLE CLASS PLAN
This Multiple Class Plan (the “Plan”) is adopted in accordance with Rule 18f-3 (the “Rule”) under the Investment Company Act of 1940, as amended (the “Act”), by Northern Lights Fund Trust II (the “Trust”) on behalf of each series of the Trust that has multiple classes of shares (each a “Fund”). A majority of the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the Act), having determined that the Plan is in the best interests of the shareholders of each class of each Fund and the shareholders of the Trust as a whole, have approved the Plan.
The provisions of the Plan are:
1. | General Description of Classes. Each class of shares of a Fund shall represent interests in the same portfolio of investments of such Fund, shall have no exchange privileges or conversion features within that Fund unless an exchange or conversion feature is described in the Fund’s Prospectus, and shall be identical in all respects, except that, as provided for in such Fund’s Prospectus, each class shall differ with respect to: (i) Rule 12b-1 Plans that may be adopted with respect to the class; (ii) distribution and related services and expenses; (iii) differences relating to sales loads, purchase minimums, eligible investors and exchange privileges; and (iv) the designation of each class of shares. The classes of shares designated by each Fund are set forth in Exhibit A. |
2. | Allocation of Income and Class Expenses. |
a. | Each class of shares shall have the same rights, preferences, voting powers, restrictions and limitations, except as follows: |
(i) | expenses related to the distribution of a class of shares or to the services provided to shareholders of a class of shares shall be borne solely by such class; |
(ii) | the following expenses attributable to the shares of a particular class will be borne solely by the class to which they are attributable: |
(a) | asset-based distribution, account maintenance and shareholder service fees; |
(b) | extraordinary non-recurring expenses including litigation and other legal expenses relating to a particular class; and |
(c) | such other expenses as the Trustees determine were incurred by a specific class and are appropriately paid by that class. |
(iii) | Income, realized and unrealized capital gains and losses, and expenses that are not allocated to a specific class pursuant to this Section 2, shall be allocated to each class of a Fund on the basis of the net asset value of that class in relation to the net asset value of the Fund. |
b. | Investment advisory fees, custodial fees, and other expenses relating to the management of a Fund’s assets shall not be allocated on a class-specific basis. |
3. | Voting Rights. Each class of shares will have exclusive voting rights with respect to matters that exclusively affect such class and separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. |
4. | Exchanges. Shares of a Fund may be exchanged without payment of any exchange fee for shares of another Fund of the same class at their respective net asset values, provided said Funds are advised by the same adviser. |
5. | Class Designation. Subject to the approval by the Trustees of the Trust, each Fund may alter the nomenclature for the designations of one or more of its classes of shares. |
6. | Additional Information. This Plan is qualified by and subject to the terms of each Fund’s then current Prospectus for the applicable class of shares of the Fund; provided, however, that none of the terms set forth in any such Prospectus shall be inconsistent with the terms of this Plan. Each Fund’s Prospectus contains additional information about each class of shares of such Fund and any multiple class structure of such Fund. |
7. | Effective Date. This Plan is effective on May 17, 2011, provided that this Plan shall not become effective with respect to a Fund or a class of shares of a Fund unless first approved by a majority of the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the Act). This Plan may be terminated or amended at any time with respect to a Fund or a class of shares thereof by a majority of the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the Act). |
8. | Miscellaneous. Any reference in this Plan to information in a Fund’s Prospectus shall mean information in such Fund’s Prospectus, as the same may be amended or supplemented from time to time, or in such Fund’s Statement of Additional Information, as the same may be amended or supplemented from time to time. |
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IN WITNESS WHEREOF, the Trust has executed this Multi-Class Plan as of the 17th day of May 2011.
NORTHERN LIGHTS FUND TRUST II
By: /s/ Andrew Rogers
Andrew Rogers, President
3 |
NORTHERN LIGHTS FUND TRUST II
RULE 18f-3 MULTIPLE CLASS PLAN
APPENDIX A
Funds and Classes as of October 15, 2020
Acclivity Mid Cap Multi-Style Fund – Class N and Class I
*Acclivity Small Cap Growth Fund – Class N and Class I
Acclivity Small Cap Value Fund – Class N and Class I
*Acclivity Broad Equity Multi-Style Fund – Class N and Class I
Al Frank Fund - Advisor and Investor Shares
*Certeza Convex Core Fund – Class A and Class I
*Dynamic Global Diversified Fund – Class N and Class I
Dynamic International Opportunity Fund - Class N and Class I
Dynamic U.S. Opportunity Fund - Class N and Class I
Essential 40 Stock Fund - Class I
F/m Investments European L/S Small Cap Fund - Institutional Class and Investor Class
FomulaFolios U.S. Equity Fund - Institutional Class and Investor Class
Invenomic Fund - Institutional Class, Investor Class, Super Institutional Class
Longboard Managed Futures Strategy Fund - Class A, Class I and Class N
Longboard Alternative Growth Fund – Class A, Class I and Class N
North Star Opportunity Fund - Class A, Class I and Class R
North Star Dividend Fund – Class A, Class I and Class R
North Star Micro Cap Fund – Class A, Class I and Class R
North Star Bond Fund - Class A, Class I and Class R
PCS Commodity Strategy Fund - Class A, Class C, Class I, Class N and Class R
Two Oaks Diversified Growth and Income Fund - Class A
WOA All Asset I - Class I
* Not operational
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Effective: January 1, 2020
CODE OF ETHICS OVERVIEW
You are subject to this Code of Ethics (the “Code”) if you are an Employee of the Firm.1 The Code contains the rules that govern your conduct and personal trading.
You have the following fundamental responsibilities under the Code:
· | You have a duty to place the interests of Clients first. |
· | You must avoid any actual or potential conflict of interest. |
· | You must not take inappropriate advantage of your position at the Firm. |
· | You must comply with all applicable Securities and Commodities Laws. |
Your Personal Securities Transactions are subject to the following requirements and restrictions:
Types of Securities. Your Personal Securities Transactions are typically limited to buying and selling the following publicly traded Securities (with certain limited exceptions):
· | common stock | · unit investment trusts |
· | exchange traded funds (ETFs) | · municipal bonds |
· | open-end funds | · corporate bonds |
· | closed-end funds | · preferred securities bonds |
· | NextSharesTM | · | asset backed securities |
You may not enter into Personal Securities Transactions in Derivatives (including options and Futures).
Preclearance Requirements. You must preclear and receive approval for your Personal Securities Transactions, unless an exemption is available. Before seeking preclearance and approval for a Personal Securities Transaction, you must ensure the transaction is consistent with the fundamental responsibilities listed above and with the rules contained in
1 Capitalized terms not defined in the text are defined in Appendix I to the Code.
the Code. In general, when making personal investments you must exercise extreme care to ensure that you do not violate the Code and your fundamental responsibilities. You may not take inappropriate advantage of your position at -the Firm in connection with your personal investments.
Restrictions. Your Personal Securities Transactions may be restricted by the following:
· | Blackout periods for EVC stock |
· | Blackout periods for Eaton Vance Closed-End Funds |
· | Blackout periods triggered by Client orders or pending orders in the same Security or a Related Financial Instrument |
· | Blackout periods triggered by an internal analyst recommendation or ratings change in the same Security or a Related Financial Instrument |
· | Blackout periods related to the reconstitution or rebalancing of a Calvert index |
· | Securities on the -the Firm’s restricted securities list |
· | Section 16 holding periods |
If you are a Portfolio Person and/or a Research Analyst, your Personal Securities Transactions are also subject to the restrictions in Sections III.C. and III.D., respectively.
The Code covers the personal investments of all Employees and their Immediate Family Members. Therefore, you and your Immediate Family Members must conduct all your personal investments consistent with the Code.
The Code has other requirements that may restrict your Personal Securities Transactions in addition to those summarized above. You are required to carefully review the entire Code. Remember that the Firm may take disciplinary action against you, including disgorgement of profits, restricting personal trading and possibly suspension and/or dismissal, if you violate the Code. In addition, any such violation may be considered during your year-end performance and discretionary compensation review. You are encouraged to consult with a Compliance Officer if you have any question as to the status of any personal investments under the Code.
CODE OF ETHICS
I. | INTRODUCTION |
This Code of Ethics (this “Code”) sets out standards of conduct to help the Firm’s officers and employees (referred to as “Employees”) avoid potential and actual conflicts that may arise from their actions and their Personal Securities Transactions.2 You must read and understand this Code. A Compliance Officer can assist you with any questions you may have.
If you are an Affiliate Office Employee, you are subject to Section IV., the applicable definitions in Appendix I, and Appendix II to this Code, and are not subject to the other Sections, except as specifically indicated.
II. | YOUR FUNDAMENTAL RESPONSIBILITIES |
The Firm seeks to ensure a culture that promotes honesty and high ethical standards. This Code is intended to assist Employees in meeting the high ethical standards the Firm follows in conducting its business. The following general fiduciary principles must govern your activities:
· | You have a duty to place the interests of Clients first. |
· | You must avoid any actual or potential conflict of interest. |
· | You must not take inappropriate advantage of your position at the Firm. |
· | You must comply with all applicable Securities and Commodities Laws of any relevant jurisdiction(s). |
If you violate this Code or its associated policies and procedures, the Firm may take disciplinary action against you, including disgorgement of profits, restricting personal trading and possibly suspension and/or dismissal. In addition, any such violation may be considered during your year-end performance and discretionary compensation review.
III. | PERSONAL INVESTMENTS |
In general, when making personal investments you must exercise extreme care to ensure that you do not violate this Code and your fundamental responsibilities. You may not take inappropriate advantage of your position at the Firm in connection with your personal investments. This Code covers the personal investments of all Employees and their Immediate Family Members (which term is limited to individuals who share the same household as the Employee). Therefore, you and your Immediate Family Members must conduct all your personal investments consistent with this Code.
Sections III.A. and III.B. below relate to all Employees. Employees who are Portfolio Persons or Research Analysts are also subject to Section III.C. and III.D., respectively.
2 Capitalized terms used without definition are defined in Appendix I.
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A. | Permitted Personal Securities Transactions |
The ONLY Financial Instruments you may purchase and sell in a Personal Securities Transactions are publicly offered:
· | common stock · unit investment trusts |
· | exchange traded funds (ETFs) · municipal bonds |
· | open-end funds · corporate bonds |
· | closed-end funds |
· | NextSharesTM |
· | preferred securities |
· | asset backed securities |
You may NOT enter into Personal Securities Transactions in Derivatives (including options and Futures).
See Sections III.E., IV.A., IV.B. and IV.C. of this Code for other restrictions that may affect your Personal Securities Transactions.
B. | Preclearance Requirements for All Personal Securities Transactions |
You must preclear and receive prior approval for all your Personal Securities Transactions (including in EVC stock, Eaton Vance Closed-End Funds and ETFs) unless your Personal Securities Transaction is subject to an exemption under this Code.
Exemptions available to Employees are listed in Sections III.B.2. and III.B.3. Preclearance and approval of Personal Securities Transactions helps the Firm prevent certain investments that may conflict with Client trading activities or raise other potential or actual conflicts.
Preclearance and approval of Personal Securities Transactions in EVC Securities helps EVC prevent trading activity when there might be material information about the company that EVC has not yet made public.
The preclearance and approval process is outlined below.
1. | Preclearance and Approval Process for All Personal Securities Transactions. Unless one of the exemptions in Sections III.B.2. or III.B.3. below is available, you must preclear and receive prior approval for all Personal Securities Transactions by following the preclearance and approval process outlined below: |
a. | You must input the details of the proposed trade into the StarCompliance System and follow the instructions.3 |
3 | The preclearance request you submit on the StarCompliance System must accurately reflect the Security name, Security type and transaction type. The StarCompliance System will request the |
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b. | You will receive notification as to whether your proposed trade is approved or denied. |
2. | Personal Securities Transactions Excluded from the Preclearance and Approval Requirement (but still subject to the Reporting Requirements). Except as otherwise provided below, Employees are not required to preclear and receive prior approval for the following Personal Securities Transactions, although Employees are still responsible for complying with the reporting requirements of Section V. of this Code for these transactions (each, an “Exempt Reportable Transaction”): |
a. | the acquisition or disposition of a Security or other Financial Instrument as the result of a stock split, reverse stock split, merger, consolidation, spin-off or other similar corporate distribution or reorganization; |
b. | the receipt of a Security or other Financial Instrument as a bona fide gift that you receive; |
c. | the disposition of a Security as a bona fide gift that you make to a Nonprofit Organization; |
d. | transactions in open-end Funds or Sub--advised Fund (including those held through a variable insurance product account) (i.e., transactions in shares of Funds do not need to be precleared but must be reported, including those in an Eaton Vance pension/retirement savings account, such as your Eaton Vance Profit Sharing and Retirement Plan account); |
e. | transactions in NextSharesTM |
quantity of shares involved in the transaction. If the quantity on the StarCompliance System does not correspond to the information in the transaction confirmation received by the Compliance department, you may be required to provide a Compliance Officer with additional information about the transaction.
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f. | transactions in funds that are recognized by an European Union member state as an Undertaking for Collective Investment in Transferable Securities (commonly referred to as an “UCITS”) (i.e., transactions in shares of an UCITS fund do not need to be precleared but must be reported, including those in an Eaton Vance pension/retirement savings account, such as your Eaton Vance Profit Sharing and Retirement Plan account);4 |
g. | transactions in any Managed Account over which neither you nor an Immediate Family Member (i) exercises investment discretion; (ii) have notice of specific transactions prior to execution; or (iii) otherwise have direct or indirect influence or control. You must still report the account, including the name of any broker, dealer or bank with which you have an account. You must contact a Compliance Officer if you have this type of account and complete certain certifications before trading in the account commences; |
h. | transactions pursuant to an Automatic Investment Plan, except that transactions overriding the Automatic Investment Plan’s predetermined schedule and allocation must be precleared and approved. You must contact a Compliance Officer if you have this type of account; |
i. | transactions in accounts held on automated asset allocation platforms over which neither you nor an Immediate Family Member exercises any investment discretion, including with respect to the Financial Instruments involved in such transactions and the allocation percentages utilized within the asset allocation platform. You must contact a Compliance Officer if you have this type of account and complete certain certifications before trading commences; and |
j. | the following Personal Securities Transactions in EVC securities: |
i. | purchases pursuant to the EVC Employee Stock Purchase Plan or to the exercise of any EVC stock option agreement; |
ii. | bona fide gifts of EVC Securities that you receive; |
iii. | bona fide gifts of EVC Securities that you make to Nonprofit Organizations, provided it is not a EVC Securities blackout period; |
iv. | the acquisition or disposition of EVC Securities as the result of non- voluntary transactions such as dividends, stock splits, or automatic dividend reinvestments; or |
v. | non-voluntary transactions initiated by a broker, dealer or bank with respect to EVC Securities deposited in a margin account. |
4 | A Personal Securities Transaction in regulated collective investment schemes, or units or shares of an UCITS that is an U.K.-authorized unit trust (commonly referred to as an “AUT”) or an open-ended investment company (commonly referred to as an “OEIC”) that is governed by the Open-Ended Companies Regulations 2001 under the U.K.’s Financial Services and Market Act 2000 and under control by the Financial Conduct Authority (or any successor) are Exempt Transactions under Section III.B.3. of this Code and exempt from the reporting requirements in Section V.B. of this Code provided that such AUT or OEIC is not (i) distributed by an Eaton Vance Distributor Entity and administered and/or advised by an Eaton Vance Affiliated Entity or (ii) sub-advised by an Eaton Vance Affiliated Entity). |
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Important information about your obligations under this Code related to Personal Securities Transactions in:
Ø | Managed Accounts |
Ø | Automatic Investments Plans |
Ø | Automated asset allocation platforms |
You must contact a Compliance Officer if you have this type of account or plan and complete certain certifications before trading commences in the account.
3. | Personal Securities Transactions Excluded from the Preclearance and Approval Requirement and Reporting Requirements. In addition to preclearing and receiving prior approval, Employees are required by Section V.B. below to report all Personal Securities Transactions under the Code subject to a few limited exceptions set forth below. The following Personal Securities Transactions are exempt from the preclearance and prior approval requirements in this Section III., as well as the reporting requirements provided in Section V.B. of the Code (each, an “Exempt Transaction”): |
a. | Purchases or sales of direct obligations of the U.S. Government or any other national government;5 |
b. | Purchases or sales of bank certificates of deposit (“CDs”), bankers acceptances, commercial paper and other high quality short-term debt instruments (with a maturity of less than one year), including repurchase agreements; |
c. | Purchases which are made by reinvesting dividends (cash or in-kind) on a Financial Instrument including reinvestments pursuant to an Automatic Investment Plan; |
d. | Purchases or sales of open-end mutual funds that are investment companies registered with the Securities and Exchange Commission (including those held through a variable insurance product direct account) that are not (i) distributed by Eaton Vance Distributors, Inc. and administered and/or advised by an Eaton Vance Affiliated Entity or (ii) sub-advised by an Eaton Vance Affiliated Entity; |
e. | Purchases or sales of regulated collective investment schemes, or an AUT or an OEIC that is governed by the U.K. Financial Services and Market Act 2000 and subject to regulation by the Financial Conduct Authority (or any successor) unless the AUT or OEIC is (i) distributed by an Eaton Vance Distributor Entity and administered and/or advised by an Eaton Vance Affiliated Entity or (ii) sub- advised by an Eaton Vance Affiliated Entity; and |
f. | Purchases or sales of money market funds (including those held through a |
5 | Personal Securities Transaction in premium bonds, indexed-linked savings certificates, fixed income savings certificates, guaranteed equity bonds, capital bonds, children’s bonus bonds, fixed rate savings bonds, income bonds and pensioner’s guaranteed income bonds issued and sold directly to the public through the National Savings and Investments agency of the United Kingdom’s Chancellor of the Exchequer are also Exempt Transactions. |
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variable insurance product direct account).
C. | Additional Requirements - Portfolio Persons |
If you are an Employee who is a Portfolio Person with respect to a Client, you are subject to the blackout periods listed below. The blackout periods are intended to allow Clients the opportunity to trade before you do for yourself. Transactions that do not require preclearance under Sections III.B.2. and III.B.3. of this Code are not subject to these blackout periods. Regardless of whether you are required to preclear your trade, you must not take inappropriate advantage of your position as a Portfolio Person in violation of this Code.
1. | Personal Securities Transactions within Five Calendar Days prior to or after a Client Trade. A Portfolio Person may not enter into a Personal Securities Transaction in a Security prior to, and including, 5 calendar days before or after transacting in the same Security or a Related Financial Instrument for that Client. Similarly, a Portfolio Person may not enter into a Personal Securities Transaction in a Security prior to, and including, 5 calendar days before or after a Client if the Portfolio Person knows of another Portfolio Person’s intention to transact in the same Security or a Related Financial Instrument for that Client. Thus, if you personally transact in a Security within 5 calendar days before or after (inclusive) of a Client trade in the same Security or a Related Financial Instrument, your Personal Securities Transaction will be considered a violation of this Code unless the client |
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trade was directed by someone else without your knowledge or you obtained prior approval from a Compliance Officer.
2. | Portfolio Person Required Representation. If you are a Portfolio Person, prior to entering into a Personal Securities Transaction, you must represent in your preclearance request that you are not aware of any pending trades or proposed trades in the same Security or a Related Financial Instrument for any Client in the next 5 calendar days. Please consider the timing of your personal trades carefully. |
D. | Additional Requirements - Research Analysts |
If you are a Research Analyst, you are subject to the requirements and restrictions listed below. Note that you may be both a Research Analyst and a Portfolio Person. If you are both, you must comply with the requirements of Section III.C. and Section III.D. of this Code.
The blackout periods described below are intended to allow Clients the opportunity to act upon your recommendations and research conclusions regarding a Financial Instrument before you do for yourself. Transactions that do not require preclearance under Sections
III.B.2. and III.B.3. of this Code are not subject to these blackout periods. Regardless of whether you are required to preclear your trade, you must not take inappropriate advantage of your position as a Research Analyst in violation of this Code.
1. | Restrictions on Personal Securities Transactions for Securities in Your Coverage Area. If you are a Research Analyst, you may not enter into a Personal Securities Transaction in any Security for which you have coverage responsibility: |
· | if you are in the process of making a new or changed recommendation or conclusion for the Security or a Related Financial Instrument, but you have not yet broadly communicated your new or changed recommendation or conclusion to the Portfolio Persons in your department; |
· | until the 5th calendar day after you have broadly communicated your new or changed recommendation or research conclusion throughout the relevant investment group; or |
· | you have first determined, with the prior concurrence of a Compliance Officer, that investment in that Security or a Related Financial Instrument is not suitable for any Client. |
If you have any questions about the scope of your coverage responsibilities for purposes of this Code, contact a Compliance Officer.
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2. | Disclose Beneficial Interests. If you are a Research Analyst, before you make a recommendation that a Financial Instrument be purchased, sold or held by a Client, you must disclose to any Portfolio Person to whom you make the recommendation any direct or indirect Beneficial Interest you may have in that Financial Instrument. |
3. | Research Analyst Required Representations. If you are a Research Analyst, prior to entering into a Personal Securities Transaction, you must represent in your preclearance request that you are not aware of any pending trades or proposed trades in the same Financial Instrument or a Related Financial Instrument for any Client to occur in the next 5 calendar days. Please consider the timing of your personal trades carefully. |
E. | Provisions Applicable to All Employees that May Restrict Personal Securities Transactions |
If your Personal Securities Transaction is required to be precleared pursuant to Section III.B. of this Code and falls within one of the following categories, your preclearance request will generally be denied by the Compliance Officer. It is your responsibility to initially determine if any of the following categories apply to your situation or transaction.
1. | Client Orders and Pending Orders. If on the day you seek preclearance and approval to enter into a Personal Securities Transaction for a Security, (a) the Security or a Related Financial Instrument has been purchased or sold by that Client; or (b) there is a pending Client order in the Security or a Related Financial Instrument, then you CANNOT trade the Security and your preclearance request will be denied. This prohibition is in addition to any other requirements or prohibitions in this Code that may be applicable. |
2. | Research Recommendations or Conclusions. If within the 5 calendar days prior to and including the day you seek preclearance and approval to enter into a Personal Securities Transaction for a Security, (a) that Security or a Related Financial Instrument has been added to or removed from the Analyst Select Portfolio or Counselors Focus Portfolio, or an existing position in the Analyst Select Portfolio or Counselors Focus Portfolio has been increased or decreased, (b) the WPP of that Security or a Related Financial Instrument has been changed on Code Red/FactSet RMS,6 or (c) for purposes of the CRM, that Security (or its issuer) has been designed as “eligible” or “ineligible” or its designation as a “eligible” or “ineligible” has changed, then you CANNOT trade the Security and your preclearance request will be denied. This prohibition is in addition to any other requirements or prohibitions in this Code that may be applicable. |
3. | Restricted Securities List. The Legal and Compliance department maintains and periodically updates various restricted securities lists that contain certain securities that may not be traded by certain Employees. Requests to purchase or sell any security on a restricted securities list applicable to that Employee will be denied. |
6 | The WPP is the “weighted price potential” of the security as determined by a Research Analyst in the Eaton Vance Management or Eaton Vance Advisers International Ltd. Equity Department. The amount the WPP must change in order to trigger the restriction in Section III.E.2. of this Code will be determined from time to time by the Eaton Vance Chief Equity Investment Officer. |
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4. | Blackout Period related to the Reconstitution of a Calvert Index. If you are an Employee with knowledge of the decisions of the CRM Research, Review and Recommendation Committee or the CRM Index Committee (or any new or successor committees that CRM may form to perform similar functions) as determined by the CRM Chief Compliance Officer or her designee, for the 5 calendar days prior to and including the day that the relevant Calvert Index is reconstituted, you may NOT enter into a Personal Securities Transaction in your personal account. A Compliance Officer will notify you if you are subject to this blackout period. |
5. | Limitations on Certain Types of Investment Instruments and Transactions. |
You may NOT enter into Personal Securities Transactions in Derivatives (including options and Futures). If you or any of your Immediate Family Members (a) holds any of these instruments for investment purposes as of September 30, 2018, or (b) receives any of these instruments as a bona fide gift or as the result of a dividend, merger, consolidation, spin-off or other similar corporate distribution or reorganization, you may continue to hold the instrument for investment purposes but you may not add to the holding. When you wish to sell the holding, you must contact a Compliance Officer to preclear the sale and obtain prior approval.
6. | Limitations on Short Sales. You may not sell any Security short. |
7. | Short-Term Trading. You are strongly discouraged from engaging in excessive short-term trading of Securities. The purchase and sale, or sale and purchase, of the same or equivalent Securities within 60 calendar days are generally regarded as short-term trading. Such transactions are subject to preclearance and prior approval. |
8. | Initial Public Offerings, Private Placements and Investments in Hedge Funds. As a general matter, you should expect that most preclearance requests involving initial public offerings will be denied. If your proposed transaction is an initial public offering, a private placement, or an investment in a hedge fund, the Compliance Officer will determine whether the investment opportunity should be reserved for Clients.7 |
9. | Additional Restrictions Related to Designated Issuers and Limited Persons. If you are an Employee who: |
· | has been designated as a Limited Person under the Non-Public Information and Ethical Wall Policy (the “Ethical Wall Policy”) with respect to a Designated Issuer (as defined in the Ethical Wall Policy); or |
· | has otherwise been permitted access to the investment portfolio records relating to a Designated Issuer pursuant to the Ethical Wall Policy, |
7 | This restriction also applies to a one-time offering of a Security to the public by the issuer which is not the initial public offering of such Security. |
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you may NOT enter into a Personal Securities Transaction for a Security or a Related Financial Instrument issued by such Designated Issuer until the ethical wall concerning such Designated Issuer has been lifted in accordance with the Ethical Wall Policy.
10. | Section 16 Holding Periods. Pursuant to U.S. federal securities laws, trustees, directors and officers of Eaton Vance Closed-End Funds, and certain Employees involved in managing such Funds may not benefit from purchasing and selling, or selling and purchasing, shares of these Funds within 6 months of each other, and must file SEC Forms 4 regarding their transactions in shares of these Funds. If you are in this category, a Compliance Officer will notify you and assist you in filing these Forms, and you will not receive pre-clearance for any purchase or sale that would violate the six-month restriction. Therefore, if you are in this category, you should expect to hold the shares you purchase for at least 6 months. |
11. | Investment Clubs. You may not be a member of an investment club that trades in and owns Financial Instruments in which members have an interest. Such an investment club is regarded by this Code as your personal account, and it is usually impracticable for you to comply with the rules of this Code, such as preclearance of transactions, with respect to that investment club. |
IV. | Your Ongoing Responsibilities Under This Code |
This Code imposes ongoing responsibilities on you as outlined below. These ongoing responsibilities apply to all Employees, including Affiliate Office Employees. If you have questions about those responsibilities please contact a Compliance Officer.
A. Market Abuse and Insider Trading
The fiduciary principles of this Code and the Securities and Commodities Laws prohibit you from interfering or attempting to interfere with the free and fair operation of the financial market or creating or attempting to create artificial, false or misleading appearances with respect to the price of, or market for, any Financial Instrument. Trading based on material, non-public information (“MNPI”) relating to a Financial Instrument, its underlying Security (if applicable) or the issuer of the Financial Instrument or its underlying Security (if applicable) received from any source and/or communicating MNPI to others is one form of market abuse.8 If you are aware of any instance of suspected market abuse, please consult a Compliance Officer and the relevant Firm policy in prevention of insider trading.
B. | Excessive Trading and Market Timing of Mutual Fund Shares |
You are subject to the terms and restrictions of an open-end Fund’s prospectus, including restrictions such Fund may impose on excessive trading. You may not engage in trading of shares of an open-end Fund that is inconsistent with the prospectus of that Fund.
8 | Employees located in the United States should consult the Policies and Procedures in Prevention of Insider Trading for additional information about MNPI. Affiliate Office Employees should consult the Insider Trading Policy of Parametric Portfolio Associates LLC. The insider trading prohibition described above also applies to MNPI received with respect to Funds or Sub-advised Funds. Non- public information regarding an open-end mutual Fund or Sub-advised Fund is MNPI if such information could materially impact that Fund’s net asset value. |
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C. | Compliance with Securities Laws |
You must comply with all applicable Securities and Commodities Laws of any relevant jurisdiction(s).
D. | Duty to Report Violations of this Code |
You are required to promptly report any violation of this Code of which you become aware, whether your own or that of another Employee. Reports of violations other than your own may be made anonymously and confidentially to the Chief Compliance Officer. Affiliate Office Employees may report violations to the Chief Compliance Officer of Parametric Portfolio Associates (the “Parametric CCO”) or a designee.
E. | Right to Communicate Directly with Governmental, Regulatory or Self-Regulatory Bodies |
Nothing in this Code restricts or prohibits you from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including without limitation, the U.S. Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the U.S. Commodities Futures Trading Commission, the Financial Industry Regulatory Authority, the Occupational Safety and Health Administration, the U.S. Congress, any other federal, state or local governmental agency or commission, and any agency Inspector General (collectively, the "Regulators"), or from making other disclosures that are protected under the whistleblower provisions of federal, state or local law or regulation. This Code does not limit your right to receive an award from any Regulator that provides awards for information relating to a potential violation of law. You do not need prior authorization to engage in conduct protected by this paragraph, and do not need to notify the Chief Compliance Officer that you have engaged in such conduct. You recognize and agree that, in connection with any such activity outlined above, you must inform the Regulators, your attorney, a court or a government official that the information you are providing is confidential. Despite the foregoing, you are not permitted to reveal to any third-party, including any governmental, law enforcement, or regulatory authority, information you came to learn during the course of your employment that is protected from disclosure by any applicable privilege, including but not limited to the attorney-client privilege and/or attorney work product doctrine. Eaton Vance does not waive any applicable privileges or the right to continue to protect privileged attorney-client information, attorney work product, and other privileged information.
Please take notice that federal law provides criminal and civil immunity from federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.
F. | Your Actions are Subject to Review by a Compliance Officer and Your Supervisor |
A Compliance Officer may undertake any investigation he or she considers necessary to determine if any of your Personal Securities Transactions violate this Code, including
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conducting both pre- and post-trade monitoring. A Compliance Officer may impose measures intended to avoid potential conflicts of interest or to address any trading that requires additional scrutiny, which may include restrictions and/or requirements in addition to those explicitly set forth in this Code. In addition to a Compliance Officer, your department head and/or supervisor may, unless restricted by relevant regulations, review your personal trading activity on a periodic or more frequent basis. This individual will work with a Compliance Officer on any such reviews. For Affiliate Office Employees, any such investigation or review will be conducted by the Parametric CCO or a designee.
Eaton Vance has engaged the services of an independent employee surveillance program specialist to research its database for any accounts opened by an Employee (other than a Affiliate Office Employee) to determine whether or not such account is (1) maintained with one or more Approved Brokers, and (2) properly reported pursuant to the Code. On a periodic basis, Eaton Vance may also request information pursuant to FINRA Rule 3210(c) from selected brokerage firms not covered by the services of the independent employee surveillance program specialist.
G. | Consequences for Violations of this Code |
If determined appropriate by a Compliance Officer, you may be subject to remedial actions:
· | if you violate this Code; or |
· | to protect the integrity and reputation of Eaton Vance even in the absence of a proven violation. |
Such remedial actions may include, but are not limited to, full or partial disgorgement of the profits you earned on an investment transaction, restricting personal trading, consideration of such violation during your year-end performance and discretionary compensation review, censure, demotion, suspension or dismissal, or any other sanction or remedial action required or permitted by law, rule or regulation. As part of any remedial action, you may be required to reverse an investment transaction and forfeit any profit or absorb any loss from the transaction.
A Compliance Officer shall have the authority to determine whether you have violated this Code and, if so, to impose the remedial actions they consider appropriate or required by law, rule or regulation. In making a determination, a Compliance Officer may consider, among other factors, the gravity of your violation, the frequency of your violations, whether any violation caused harm or the potential of harm to a Client or to the Firm or its reputation, your efforts to cooperate with the Compliance Officer’s investigation, and your efforts to correct any conduct that led to a violation. For Affiliate Office Employees decisions related to violation determinations and remedial actions will be made by the Parametric CCO or a designee.
V. | YOUR REPORTING REQUIREMENTS |
A. | On-Line Certification of Receipt and Quarterly Compliance Certification |
All Employees are required to certify their receipt and review of this Code and any amendments to this Code in writing. On a quarterly basis, among other certifications you will be required to make, you must certify in writing that any personal investments effected during the quarter were done in compliance with this Code. You will also be required to
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certify in writing your ongoing compliance with this Code on a quarterly basis. Required certifications must be completed within 30 calendar days following the end of the quarter.
B. | Reports of Securities Accounts, Transactions and Holdings |
You must report all your Personal Brokerage Accounts, and the Personal Brokerage Accounts of your Immediate Family Members, and all the Personal Securities Transactions you and/or your Immediate Family Members enter into in those accounts or otherwise unless the transaction is an Exempt Transaction. You must agree to allow your broker- dealer to provide the Compliance department with reports (preferably electronic) of your Personal Brokerage Accounts and your Personal Securities Transactions and those of your Immediate Family Members and to allow the Compliance department to access all Personal Brokerage Account information. You will also be required to certify that you have reported all of your Personal Brokerage Accounts and Personal Securities Transactions, including those of your Immediate Family Members, to the Compliance department on a quarterly basis.
Required certifications must be completed within 30 calendar days following the end of the quarter.
1. | Approved Brokers. You and your Immediate Family Members must maintain your Personal Brokerage Accounts with an Approved Broker. The list of Approved Brokers is accessible through the StarCompliance System. If you maintain a Personal Brokerage Account at a broker-dealer other than at an Approved Broker, you will need to close those accounts or transfer them to an Approved Broker within 90 calendar days of notice by a Compliance Officer. Upon opening a Personal Brokerage Account at an Approved Broker, Employees (other than Employees who are EVD Reporting Persons and subject to Section V.B.1.a. of this Code) are required to disclose the Personal Brokerage Account to a Compliance Officer. By maintaining your Personal Brokerage Account with one or more of the Approved Brokers, you and your Immediate Family Member’s quarterly and annual trade summaries will be sent directly to the Compliance department for review. If you are a EVD Reporting Person you must comply with the requirements of Section V.B.1.a. of this Code below. |
a. | Additional Requirements - EVD Reporting Persons. If you are an Employee who is also a EVD Reporting Person, you are required to submit a written notice to a Compliance Officer prior to establishing any new Personal Brokerage Account or placing an order for the purchase or sale of any Security with any broker, dealer or bank (which must be an Approved Broker) on such Account. The notice must identify the Approved Broker on such account. |
For purposes of FINRA Rule 3210, this Code constitutes the prior written consent of the Chief Compliance Officer of Eaton Vance Distributors, Inc. (“EVD”) for any account opened or otherwise established by a EVD Reporting Person with an Approved Broker. If a EVD Reporting Person maintains a Personal Brokerage
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Account with an entity other than an Approved Broker, that EVD Reporting Person must obtain the written consent of the EVD Chief Compliance Officer or his designee.9
b. | Non-Approved Brokers. If you maintain Personal Brokerage Accounts with broker-dealers who are not on the list of Approved Brokers, please contact the Compliance Officer to arrange for providing quarterly and annual reports. |
2. | Initial Holdings Report. Within 10 calendar days of becoming an Employee, you must submit to a Compliance Officer an Initial Report of Personal Brokerage Accounts and all holdings in Securities (except Non-Reportable Securities), current within 45 calendar days of the date the report is submitted. |
3. | Annual Holdings Report. Between January 1st and January 30th (or the last business day preceding January 31st in any year when January 31st falls on a weekend) of each year, you must submit to a Compliance Officer an Annual Report of Personal Brokerage Accounts and all holdings in Securities (except Non-Reportable Securities), current within 45 calendar days of the date the report is submitted. |
4. | Quarterly Transaction Report. Within 30 calendar days after the end of each calendar quarter, you must submit to a Compliance Officer a report of your transactions in Securities (except Exempt Transactions) during that quarter. The form of report is available from a Compliance Officer. You do not have to submit a quarterly transaction report if copies of all of your transaction confirmations and account statements are provided to a Compliance Officer for that quarter by the broker(s) and those confirmations and statements contain all the information required in a quarterly transaction report. |
5. | Changes in Your Immediate Family Members. You must notify a Compliance Officer of any change to your Immediate Family Members (e.g., as a result of a marriage, divorce, legal separation, death, adoption, movement from your household or change in dependence status) that may affect the Personal Brokerage Accounts for which you have reporting or other responsibilities. |
VI. | COMPLIANCE DEPARTMENT RESPONSIBILITIES |
A. | Authority to Grant Exemptions from the Requirements of this Code. |
A Compliance Officer, in consultation with Eaton Vance Management’s Chief Compliance Officer or EVC’s Chief Legal Officer, has the authority to exempt any Employee or any personal investment transaction from any or all of the provisions of this Code if the Compliance Officer determines that such exemption would not be against the interests of any Client and is consistent with applicable laws and regulations, including Rule 204A-1 under the Advisers Act and Rule 17j-1 under the Investment Company Act. The Compliance Officer will prepare and file a written memorandum of any exemption granted, describing the circumstances and reasons for the exemption.
9 | If the account (1) includes only shares of Funds or Sub-advised Funds and is held with such Fund’s transfer agent or (2) includes only shares of Funds purchased through the Eaton Vance retirement plan, this Code constitutes the prior written consent of the EVD Chief Compliance Officer for such an account. |
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B. | Annual Report to Boards of Funds and Sub-advised Funds that an Eaton Vance Affiliated Entity Advises or Subadvisers. |
The Chief Compliance Officer of the relevant Eaton Vance Affiliated Entity will furnish a written report at least annually to the directors or trustees of each Fund or Sub-advised Fund. Each report will describe any issues arising under this Code, or under procedures implemented by Eaton Vance to prevent violations of this Code, since the last report, including, but not limited to, information about material violations of this Code, procedures and sanctions imposed in response to such material violations, and certify that Eaton Vance has adopted procedures reasonably necessary to prevent its Employees from violating this Code.
C. | Maintenance of Records |
The Compliance Officer will keep all records maintained at Eaton Vance’s primary office for at least two years and will otherwise keep in an easily accessible place for at least 5 years from the end of either the fiscal year in which the document was created or the last fiscal year during which the document was effective or in force, whichever is later. Such records include: copies of this Code and any amendments hereto, all Personal Brokerage Account statements and reports of Employees, a list of all Employees and persons responsible for reviewing Employees reports, copies of all preclearance forms, records of violations and actions taken as a result of violations, and acknowledgments, certifications and other memoranda relating to the administration of this Code.
VII. | TEMPORARY EMPLOYEES |
Temporary Employees that are classified as Contingent Workforce are considered “Employees” for purposes of this Code. The Compliance Officer may exempt such persons from any requirement hereunder if the Compliance Officer determines that such exemption would not have a material adverse effect on any Client account.
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APPENDIX I
Glossary
The following definitions apply to the capitalized terms used in the Code:
ACM - refers to Atlanta Capital Management Company, LLC, a subsidiary of EVC and an Eaton Vance Affiliated Entity.
Affiliate Office – means the Seattle, WA, Minneapolis, MN, Westport, CT, and Sydney, Australia offices of Parametric.
Affiliate Office Employee – means each Employee (including a temporary employee that is deemed to be part of a Contingent Workforce) of EVM’s Information Technology, Finance and Accounting, and Risk Management departments or CRM that works in an Affiliate Office, excluding any individuals who are also employees of EVD. Affiliate Office Employees are subject the provisions of Section II, Section III.B.2., Section IV. and Appendix II. to the Code, and are not subject to the other Sections, except as specifically indicated.
Approved Broker – means a broker-dealer approved by a Compliance Officer. The list of Approved Brokers is accessible through the StarCompliance System or can be obtained from a Compliance Officer.
Automatic Investment Plan – means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
Beneficial Interest – means when a person has or shares direct or indirect pecuniary interest in accounts or in reportable Financial Instruments. Pecuniary interest means that a person has the ability to profit, directly or indirectly, or share in any profit from a transaction. Indirect pecuniary interest extends to, unless specifically excepted by a Compliance Officer, an interest in a Financial Instrument held by: (1) a joint account to which you are a party; (2) a partnership in which you are a general partner; (3) a partnership in which you or an Immediate Family Member holds a controlling interest and with respect to which Financial Instrument you or an Immediate Family Member has investment discretion; (4) a limited liability company in which you are a managing member; (5) a limited liability company in which you or an Immediate Family Member holds a controlling interest and with respect to which Financial Instrument you or an Immediate Family Member has investment discretion; (6) a trust in which you or an Immediate Family Member has a vested interest or serves as a trustee with investment discretion; (7) a closely-held corporation in which you or an Immediate Family Member holds a controlling interest and with respect to which Financial Instrument you or an Immediate Family Member has investment discretion; or (8) any account (including retirement, pension, deferred compensation or similar account) in which you or an Immediate Family has a substantial economic interest.
Chief Compliance Officer – means the Chief Compliance Officer of Eaton Vance Management unless otherwise indicated.
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Client – means the specific person or entity that has an investment advisory or sub-advisory services agreement (or supervised investment delegation affiliate arrangement) with the specific EVC subsidiary adopting this Code. The personal trading restrictions outlined within the Code triggered by Client activity only apply to the relevant Firm Employees indicated below:10
Employees of | Clients of |
ACM | ACM |
EVIC | All Firm entities other than ACM |
All other Employees | All Firm entities other than ACM and EVIC |
Compliance Officer – means each person in the Compliance department who is responsible for administering the Code.
Contingent Workforce – means individuals subject to provisional work agreements which may include temporary contract workers, independent contractors or independent consultants.
CRM - means Calvert Research and Management, a subsidiary of EVC and an Eaton Vance Affiliated Entity.
Cryptocurrency – means any virtual or digital representation of value, token or other asset in which encryption techniques are used to regulate the generation of such assets and to verify the transfer of assets, which is not a Security or otherwise characterized as a security under the relevant law.
Derivative – means (1) any Futures (as defined below); and (2) a forward contract, a “swap”, a “cap”, a “collar”, a “floor” and an over-the-counter option. Questions regarding whether a particular instrument or transaction is a Derivative for purposes of the Code should be directed to a Compliance Officer or a designee. For avoidance of doubt, a derivative on a Cryptocurrency is considered to be a “Derivative” for purposes of the Code.
Eaton Vance Affiliated Entity - means each of the following EVC subsidiaries: ACM; Boston Management and Research; CRM; Eaton Vance Advisers International Ltd.; Eaton Vance Global Advisors Limited; and Eaton Vance Management.
Eaton Vance Closed-End Fund – means any closed-end Fund advised by an Eaton Vance Affiliated Entity. See www.eatonvance.com for a list of Eaton Vance Closed-End Funds.
Eaton Vance Distributor Entity - means Eaton Vance Distributors, Inc. and Eaton Vance Management (International) Limited.
EVIC – means Eaton Vance Investment Counsel, a subsidiary of EVC.
Employee – means any officer or employee of the Firm.
EVC – means Eaton Vance Corp.
EVD Reporting Person - means each Employee who is a registered representative or registered principal of Eaton Vance Distributors, Inc.
10 Affiliate Office Employees are subject to the personal trading restrictions in Appendix II.
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Exempt Transaction – means the Personal Securities Transactions in any Security listed in Part III, Section B.5. of this Code (each a Non-Reportable Security).
Financial Instrument – means a Security, Derivative, securities index, commodity or currency as an investment, but does not include Cryptocurrencies. For the avoidance of doubt, futures contracts on Cryptocurrencies are “Financial Instruments” for purposes of the Code.
Firm – means EVC and its wholly or majority owned subsidiaries (other than Parametric Portfolio Associates LLC).
Fund – means any investment company registered with the Securities and Exchange Commission that is (1) an open-end fund administered and/or advised by an Eaton Vance Affiliated Entity and distributed by Eaton Vance Distributors, Inc., including the funds in the Eaton Vance/Parametric family of funds, Calvert family of funds, (2) a NextSharesTM or unit investment trust advised by an Eaton Vance Affiliated Entity, or (3) an Eaton Vance Closed-End Fund.
Futures – means a futures contract and an option on a futures contract traded on a U.S. or non-
U.S. board of trade, such as the Chicago Board of Trade or the London International Financial Futures Exchange.
Immediate Family Member of an Employee – means any of the following persons sharing the same household with the Employee (which does not include temporary house guests): a person’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother- in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, legal guardian, adoptive relative, or significant other.
Initial Public Offering – means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
Managed Account – means any account managed or held by a broker dealer, or trustee as to which neither the Employee nor an Immediate Family Member: (1) exercises investment discretion; (2) receives notice of specific transactions prior to execution; or (3) has direct or indirect influence or control over the account.
Nonprofit Organization – means an organization (generally tax-exempt) that serves the public interest. In general, the purpose of this type of organization must be charitable, educational, scientific, religious or literary. A nonprofit organization is often dedicated to furthering a particular social cause or advocating for a particular point of view.
Non-Reportable Security – means each Security listed in Part III, Section III.B.3. of this Code.
Personal Brokerage Account – means (1) any account (including any custody account, safekeeping account, retirement account such as an IRA or 401(k) plan, and any account maintained by an entity that may act as a broker or principal) in which an Employee or an Immediate Family Member has any direct or indirect Beneficial Interest, including Personal Brokerage Accounts and trusts for the benefit of such persons; and (2) any account maintained for a financial dependent. Thus, the term “Personal Brokerage Accounts” also includes, among others:
· | Trusts for which the Employee or an Immediate Family Member acts as trustee, |
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executor or custodian;
· | Accounts of or for the benefit of a person who receives financial support from the Employee; |
· | Accounts of or for the benefit of an Immediate Family Member; and |
· | Accounts in which the Employee or an Immediate Family Member is a joint owner or has trading authority |
Personal Securities Transaction – means Employee transactions in Financial Instruments.
Portfolio Person – means an Employee who, with respect to a Client: (1) provides information or advice with respect to the purchase or sale of a Financial Instrument for the Client, such as a portfolio manager, an investment counselor or, in some cases, a Research Analyst; or (2) helps execute the investment decisions of a portfolio manager, investment counselor or, where applicable, Research Analyst on behalf of a Client.
Private Placement – means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or pursuant to SEC Rules 504, 505 or 506 under the Securities Act of 1933, or similar laws of non-U.S. jurisdictions, including hedge funds or private equity funds.
Related Financial Instrument – means any Derivative directly tied to an underlying Financial Instrument, including, but not limited to, any swap, option or warrant to purchase or sell that underlying Financial Instrument, and any Derivative convertible into or exchangeable for that same underlying Financial Instrument.
Research Analyst - means any person that: (1) performs financial, qualitative and/or quantitative analysis of Financial Instruments or their issuers that result in a recommendation or conclusion to a portfolio manager or investment counselor regarding investments for a Client; or
(2) | is involved in the construction or rebalancing of any Calvert Index. |
Securities and Commodities Laws – means the securities and/or commodities laws of any jurisdiction applicable to any Employee, including but not limited to the following: United States laws such as the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes- Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the U.S. Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to funds, broker- dealers and investment advisers, and any rules adopted thereunder by the U.S. Securities and Exchange Commission or the U.S. Department of the Treasury, the Commodity Exchange Act, any rules adopted by the U.S. Commodity Futures Trading Commission under this statute, applicable rules adopted by the National Futures Association; and European Union laws such as the Markets in Financial Instruments Directive and the Market Abuse Regulation, and the applicable rules adopted by the Central Bank of Ireland, the United Kingdom’s Financial Conduct Authority or the German BaFin Federal Financial Supervisory Authority in relation thereto.
Security – means any note, stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any
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group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any interest of instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing. For avoidance of doubt, a Cryptocurrency is not considered to be a “Security” for purposes of the Code
StarCompliance System – means Eaton Vance’s electronic system for administering this Code, including Personal Securities Transactions approval and monitoring.
Sub-advised Funds - means any open-end mutual fund sponsored by a third party (i.e. an entity other than the Firm) and sub-advised by an Eaton Vance Affiliated Entity.
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APPENDIX II
Rules Applicable to Affiliate Office Employees What Accounts are Covered
Unless the Parametric CCO determines otherwise based on your specific facts and circumstances, this Policy applies to Securities Transactions and holdings in: (i) all accounts in which you or members of your Immediate Family have a direct or indirect Beneficial Interest; and (ii) all accounts that are directly or indirectly under your Control or the Control of a member of your Immediate Family.
Accounts that are generally covered by this Policy are referred to hereafter as Securities Accounts and include accounts that are:
· | in your name; |
· | in the name of a member of your Immediate Family; |
· | of a partnership in which you or a member of your Immediate Family have a Beneficial Interest, or are a partner with direct or indirect investment discretion; |
· | a trust of which you or a member of your Immediate Family are a beneficiary and/or a trustee with direct or indirect investment discretion (on a sole or joint basis); |
· | of a closely held corporation, limited liability company or similar legal entity in which you or a member of your Immediate Family are a Controlling shareholder and have direct or indirect investment discretion over Securities held by such entity; |
· | an account or trust holding Securities where you or a member of your Immediate Family have sole or shared investment discretion, or are otherwise deemed to have Control over the account; and |
· | Schwab One brokerage accounts established for you upon hire for the purpose of receiving Eaton Vance Corp. (“EVC”) equity award shares and/or Eaton Vance Employee Stock Purchase Plan shares. |
Accounts that are not covered by this Policy include:
· | Accounts that may only hold Mutual Funds, other than Affiliated Funds; |
· | Qualified tuition program accounts established pursuant to Section 529 of the Internal Revenue Code of 1986 (“529 Plans”); and |
· | Eaton Vance Employee Retirement Plan accounts. |
A. |
|
11 Reminder: When this Policy refers to “you” or your transactions, it includes your Immediate Family and Securities Accounts in which you and/or they have a direct or indirect Beneficial Interest.
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The following rules will be enforced for all Access Persons unless otherwise individually exempted or pre-approved in writing by the Parametric CCO.
1. | Appendix II Rules Applicable to Use of a Designated Broker |
All Securities Accounts must be maintained with a Designated Broker, unless:
· | the account is a Managed Account and has been approved as such by the Parametric CCO; |
· | the account is subject to a code of ethics or similar policy applicable to a member of your Immediate Family requiring an account be held at an entity other than a Designated Broker, in which case you must provide Securities Transactions and holdings information for such account to Compliance no less than quarterly and within 30 calendar days after the end of each calendar quarter; or |
· | you are located in Parametric’s Australia office, in which case you must provide Securities Transactions and holdings information for each Securities Account to Compliance no less than quarterly and within 30 calendar days after the end of each calendar quarter. |
You must initiate movement of all pre-established Securities Accounts to a Designated Broker within 30 calendar days after your employment date or the date you become an Access Person.12
2. | Prohibited Practices |
You are prohibited from engaging in the following transactions and practices.
a) | Front Running |
Front Running is the practice of effecting the purchase or sale of a Security for personal benefit based on the knowledge of one or more impending Client transaction(s) in the same or equivalent Security. (Example: A Portfolio Manager mentions that Parametric is selling all of its holdings of Company X and you know that the large trade will negatively affect the stock, so you put in a personal order to sell your shares of Company X before the Parametric order is sent to the market.)
b) | Market Manipulation |
Transactions intended to raise, lower or maintain the price of any security or to create a false appearance of active trading are prohibited.
c) | Derivatives and Options Trading |
Derivatives transactions, including options, futures and swaps are prohibited.
12 Additional brokers, dealers or banks may be considered. You may maintain an existing account you established with a broker, dealer or bank that is not a Designated Broker if you were an Access Person of Parametric prior to January 1, 2013 and the account was established with such broker, dealer or bank prior to January 1, 2013.
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d) | Short-Term Trading |
You may not sell a Security until at least 60 calendar days after the most recent purchase trade date of the same or equivalent Security. You may not repurchase a Security until at least 60 calendar days after the most recent sale trade date of the same or equivalent Security. You may not trade partial positions or use FIFO principles to enter into or trade out of positions of the same Security. (NOTE: Exempt Transactions below are not subject to this prohibition.)
e) | Public Company Ownership Limit |
You may not own more than 0.5% of the outstanding shares of any one public company without written approval from the Parametric CCO.
3. | Pre-Clearance Requirements |
You are prohibited from engaging in the following transactions without written pre- approval as indicated. Preclearance requests for the following transactions must be submitted via StarCompliance.
a) | Eaton Vance Corp. Securities |
You must pre-clear all transactions in publicly-traded Securities issued by EVC with the Treasury Department of EVC, except that you do not have to pre-clear
(i) purchases pursuant to the EVC Employee Stock Purchase Plan or to the exercise of any EVC stock option agreement, (ii) bona fide gifts of such EVC Securities that you may receive, or (iii) automatic, non- voluntary transactions involving such EVC Securities, such as stock dividends, stock splits, or automatic dividend reinvestments, or certain non-voluntary transactions initiated by a broker, dealer or bank with respect to such EVC Securities deposited in a margin account. Once obtained, approval is valid only for the day on which it is granted. (NOTE: The purchase or sale of publicly traded options on EVC Securities is prohibited.)
There are times when transactions in EVC Securities are routinely prohibited, such as prior to releases of EVC earnings information. You will normally be notified of these blackout periods, during which time trading in EVC Securities is prohibited.
Failure to preclear transactions in EVC Securities may result in the imposition of a fine to be donated to an acceptable charitable organization, as well as
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additional sanctions as outlined below in the Violations and Sanctions section of this Appendix II.
b) | Initial Public Offerings |
You may not purchase or otherwise acquire any Security in an Initial Public Offering, except with prior written approval from the Parametric CCO. Requests to purchase Securities in an Initial Public Offering will generally be denied by the Parametric CCO. Approval may be granted only in rare cases that involve extraordinary circumstances. Accordingly, Parametric discourages such applications. You may be given approval to purchase a Security in an Initial Public Offering, for example, pursuant to the exercise of rights you have as an existing bank depositor or insurance policyholder to acquire the Security in connection with the bank’s conversion from mutual or cooperative form to stock form, or the insurance company’s conversion from mutual to stock form.
Participation in an initial or secondary offering of a Cryptocurrency (sometimes referred to as an initial coin offering (ICO) or a secondary coin offering (SCO)) requires preclearance and approval by the CCO under this Code.
c) | Private Placements |
You may not purchase or otherwise acquire any Security in a Private Placement, except with prior written approval from the Parametric CCO. (Note that a Private Placement includes virtually any Security that is not a publicly traded/listed Security.) Such approval will only be granted where you establish that there is no conflict or appearance of conflict with any Client or other possible impropriety (such as where the Security in the Private Placement is appropriate for purchase by a Client, or when your participation in the Private Placement is suggested by a person who has a business relationship with Parametric or its affiliates or expects to establish such a relationship). Examples where approval may be granted, subject to the particular facts and circumstances, are a personal investment in a private fund or limited partnership in which you would have no involvement in making recommendations or decisions, or your investment in a closely held corporation or partnership started by a family member or friend.
4. | Exempt Transactions |
The following transactions are exempt from the Restricted Transactions and Reporting Requirements sections and the Short-Term Trading prohibition of this Appendix II, unless noted otherwise:
· | The purchase of Securities effected pursuant to an Automatic Investment Plan (the sale of Securities acquired under an automated investment plan is exempt from the Short- Term Trading prohibition but is subject to all other rules herein); |
· | Transactions effected by exercise of rights issued to the holders of a class of Securities pro rata, to the extent they are issued with respect to Securities of which you have Beneficial Interest; |
· | Acquisitions or dispositions of Securities as the result of a stock dividend, stock split, reverse stock split, merger, consolidation, spin-off or other similar corporate |
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distribution or reorganization applicable to all holders of a class of Securities of which you have Beneficial Interest;
· | Purchases or sales of Securities issued in qualified tuition programs established pursuant to Section 529 of the Internal Revenue Code; |
· | Transactions that are non-volitional by the Access Person or his/her Immediate Family, including purchases or sales of Securities in which such Access Person has no advance knowledge of the transaction (e.g., the required liquidation of a Security when rolling over a 401(k) plan); |
· | Transactions effected in an approved Managed Account (note that there are reporting requirements and other restrictions related to Managed Accounts, as outlined below in the Managed Accounts section of this Appendix II); and |
· | The acquisition of Securities, such as stock grants and employee stock options, received as compensation from an employer or the purchase of stock through an employer’s stock purchase plan (“ESPP”). (NOTE: The sale of Securities received from an employer or purchased via an ESPP is exempt from the Short-Term Trading prohibition but is subject to all other provisions of this Appendix II.) This provision does not apply to EVC Securities, which you are required to pre-clear. |
5. | Restricted Transactions |
The following Securities Transactions are restricted as indicated, but do not require pre- clearance. These restrictions do not apply to Exempt Transactions of this Appendix II, unless specified otherwise.
a) |
|
· | For fixed income securities, you may purchase or sell up to $100,000 per day per issuer. |
· | For Exchange Traded Notes, you may purchase or sell up to $100,000 per day per issuer. |
· | For Exchange Traded Funds, you may purchase or sell up to $100,000 per day per Exchange Traded Fund. |
· | For Closed-End Funds, you may purchase or sell up to $10,000 per day per Closed-End Fund. |
· | For equities and REITs, you may purchase or sell up to $50,000 per day per Mid/Large Cap Issuer and up to $10,000 per day per Small Cap Issuer (as defined at time of transaction). |
b) | Short Sales |
You may not sell short any Security, except that you may sell short a Security if you own at least the same amount of the Security you sell short (i.e., selling short “against the box”).
c) | Same-Day Model Transactions |
You may not transact in a Security when you have actual knowledge that a same-
13 The daily transaction value limits are based on your local currency and apply across all of your reportable Securities Accounts.
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day proprietary model and/or third-party investment manager model trade will occur in the same or equivalent Security and in the same direction (i.e., purchase or sale).
Blackout Periods and Restricted Securities
At the discretion of the Parametric CCO, you may from time to time be temporarily restricted from all personal Securities trading (a “blackout period”). You may also be temporarily or indefinitely restricted from transacting in certain specific Securities or types of Securities based on your job responsibilities and access to certain information. You will be notified of all such personal Securities trading blackout periods and restricted Securities transactions in writing by the Parametric CCO.
d) | Trade Orders |
All Securities trade orders must be same-day orders. Securities trade orders that are open for longer than one trading day (i.e., good-till-cancelled (GTC) and other carry-over orders) are prohibited.
6. | Reporting Requirements |
a) | Initial Holdings Report |
Within 10 calendar days of your employment date and/or initial designation as an Access Person, you must submit to Compliance a report of your Securities holdings, including the title, type, exchange ticker or CUSIP number (if applicable), number of shares and principal amount of each Security held as of a date not more than 45 calendar days before you became an Access Person.
Your report must also include the name of any broker, dealer or bank with which you maintain an account for trading or holding any type of Securities, whether stocks, bonds, funds, or other types and the date on which you submit the report to Compliance. The Initial Holdings Report is administered and submitted in StarCompliance.
b) | Annual Holdings Report |
Within 30 calendar days after each calendar year end, you must submit to Compliance a report of your Securities holdings, including the same Security information required for the Initial Holdings Report. The Annual Holdings Report is combined with the Q4 Transactions Rerpot and is administered and submitted in StarCompliance.
c) | Quarterly Transactions Report |
Within 30 calendar days after each calendar quarter end, you must submit to Compliance a report of your Securities Transactions during the prior calendar quarter, including the date of the transaction, the title, type, exchange ticker or CUSIP number (if applicable), the interest rate and maturity date (if applicable), and the number of shares and principal amount of each Security in the transaction, the nature of the transaction (whether a purchase, sale or other type of acquisition or disposition,
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including a gift), the price of the Security at which the transaction was effected, and the name of the broker, dealer or bank with whom the transaction was effected. The Quarterly Transactions Report is administered and submitted in StarCompliance.
d) | New Accounts |
You must report new Securities Accounts to Compliance within 10 calendar days of establishing the account. You may do so by entering the account in StarCompliance or notifying Compliance in writing. You may not purchase or sell Securities in the new account until the electronic data feed for the account has been established in StarCompliance.
New Securities Accounts (not including Managed Accounts) of Access Persons registered with FINRA through Eaton Vance Distributors, Inc. (“EVD”) are automatically approved for purposes of FINRA Rule 3210, if they are established with a Designated Broker. Any exception, whereby an Access Person registered with FINRA maintains a Securities Account with a broker, dealer or bank other than a Designated Broker, requires written consent of the EVD Chief Compliance Officer or designee.
7. | Managed Accounts14 |
Managed Accounts must be approved as such in writing by the Parametric CCO. The Parametric CCO’s approval of a Managed Account is contingent upon the provision of a signed letter from the broker, financial advisor, trustee or other control person other than you or your Immediate Family member (the “Discretionary Manager”) on the Discretionary Manager’s letterhead containing the following representations:15
· | Neither you nor your Immediate Family member have investment discretion or any direct or indirect influence or control over the account, and in particular you do not: |
o | Director or suggest the purchase or sale of Securities to the Discretionary Manager; or |
o | Consult with the Discretionary Manager as to the particular allocation of specific Securities investments to be made in the account (including situations where the Discretionary Manager requests input and/or permission from you or your Immediate Family member prior to transacting). |
· | The relationship between the Discretionary Manager and you and your Immediate Family member is limited to a professional, client-adviser relationship (i.e., the Discretionary Manager is not a family member or close personal friend, and no Immediate Family member of yours is employed by the Discretionary Manager). |
· | All transactions in EVC Securities will either be restricted from being purchased or sold in the Managed Account or will be pre-cleared pursuant to this Appendix II. |
14 See the Definitions section of this Appendix II.
15 If the letter from the Discretionary Manager does not include all of the above representations above, the Parametric CCO may determine via other means at his or her discretion, including via a signed certification and acknowledgement from the employee, that the account qualifies as a Managed Account.
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You must also acknowledge the above representations in writing to the Parametric CCO and agree to immediately notify the Parametric CCO if any of the above representations are no longer accurate.
Securities Transactions in approved Managed Accounts are exempt from the Short- Term Trading prohibition and Restricted Transactions sections of this Appendix II, but are still subject to the Pre-Clearance Requirements section of this Appendix II (Initial Public Offerings, Private Placements and EVC securities transactions in approved Managed Accounts still require written preapproval). However, you must ensure the Discretionary Manager provides account holdings and transactions information to Compliance either electronically via StarCompliance, if possible, or via annual account statements within 30 calendar days after the end of the calendar year. Securities Transactions in Managed Accounts will be subject to review from time to time by the Parametric CCO to determine if any purchase or sale of a Security would have been prohibited pursuant to this Appendix II, absent relying on the exemption provided herein.
Annually, within 30 calendar days of each calendar year end, you must re-certify in writing to the Parametric CCO the above representations regarding each Managed Account.
Failure to do so will result in the account no longer qualifying as a Managed Account under this Appendix II. The Annual Managed Account Certification is administered via StarCompliance.
NOTE: There is no exemption from pre-clearance for Initial Public Offerings or Private Placements, even when such transactions are effected through a Managed Account. You should ensure the Discretionary Manager of your Managed Account(s) is aware of this restriction.
B. |
|
1. | Requirement to Pre-Notify Parametric CCO of Personal Securities Transactions |
Seattle Investment Personnel are required to pre-notify the Parametric CCO of intended personal Securities Transactions (including those of Immediate Family members) one business day prior to transacting via StarCompliance.
2. | Blackout Periods and Restricted Securities Lists |
Seattle Investment Personnel may be temporarily restricted from all Personal Securities trading by the Parametric CCO during significant model portfolio rebalance and index reconstitution events. Seattle Investment Personnel may also be temporarily restricted from transacting in specific Securities during significant model portfolio rebalance or index reconstitution events as determined by the Parametric CCO. Seattle Investment Personnel will be notified of all such personal trading blackout periods and restricted securities lists in writing by the Parametric CCO.
C. | Violations and Sanctions |
16 Seattle Investment Personnel is defined in the section below - Defined Terms used in the Appendix II.
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Any employee or Access Person working in an Affiliate Office who violates any provision of this Appendix II may be subject to sanction, including, but not limited to, censure, a temporary or permanent ban on personal securities trading, disgorgement of any profit or taking of any loss, fines, consideration of such violation during the year-end performance and discretionary compensation review process, and suspension or termination of employment. Each sanction shall be approved by the Parametric CCO.
D. | Defined Terms used in the Appendix II |
Access Person includes (i) all directors, officers, employees and interns of Parametric; and
(ii) any supervised person, such as a consultant, contractor and temporary employee, who has access to nonpublic information regarding the purchase or sale of securities in Client portfolios or is involved in making securities recommendations, as determined at the discretion of the Parametric CCO.
Affiliated Fund includes each investment company registered under the Investment Company Act of 1940 for which Parametric acts as the investment adviser or sub-adviser. Parametric’s list of Affiliated Funds is maintained in StarCompliance. Please consult StarCompliance for the most current list of Affiliated Funds.
Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
Beneficial Interest with respect to Securities or a Securities Account generally means an interest where you or a member of your Immediate Family, directly or indirectly, (i) have investment discretion or the ability (including joint ability or discretion) to purchase or sell Securities or direct the disposition of Securities; (ii) have voting power over Securities, or the right to direct the voting of Securities; or (iii) have a direct or indirect financial interest in Securities (or other benefit substantially equivalent to ownership of Securities). For purposes of this Appendix II, “beneficial ownership” shall be interpreted in the same manner as it would be under Section 16 of the Securities and Exchange Act, as amended, and the rules and regulations thereunder.
Client is any person or entity for which Parametric provides investment advisory services.
Closed-End Fund means any fund with a fixed number of shares and which does not issue and redeem shares on a continuous basis. While Closed-End Funds are often listed and trade on stock exchanges, they are not “Exchange Traded Funds” as defined below.
Control means with respect to (i) an entity, the power to exercise a controlling influence over the management or policies of the entity, unless such power is solely the result of an official position of such entity, (ii) an account, having investment discretion over the account, and (iii)
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an issuer (including an Affiliated Fund), a Beneficial Interest in more than 25% of the voting securities of the issuer.
Cryptocurrency means any virtual or digital representation of value, token or other asset in which encryption techniques are used to regulate the generation of such assets and to verify the transfer of assets, which is not a Security or otherwise characterized as a security under the relevant law. Cryptocurrencies that have been deemed by the U.S. Securities and Exchange Commission to be a Security are reportable under this Appendix II and must be held with a Designated Broker.
Designated Broker means any one of the following broker-dealer firms that provide electronic data feeds to StarCompliance: Ameriprise Financial; Betterment; Charles Schwab; Citigroup; E*Trade; Edward Jones; Fidelity; Interactive Brokers; JP Morgan Chase; Merrill Lynch; Morgan Stanley; Raymond James; RBC Wealth Management; Stifel Financial; TD Ameritrade; UBS; USAA; Vanguard; and Wells Fargo. Additional broker-dealers may be added or removed from this list over time. The current list of Designated Brokers may be found in StarCompliance and on the Parametric Intranet.
Exchange Traded Fund is a registered open-end investment company or unit investment trust that can be traded on an exchange throughout the day like a stock. Examples of Exchange Traded Funds include SPDR S&P 500 ETF (ticker: SPY), iShares MSCI Emerging Markets ETF (ticker: EEM), and PowerShares QQQ (ticker: QQQ).
Exchange Traded Note is a debt security traded on a national securities exchange that is not an investment company registered under the Investment Company Act of 1940.
Examples of Exchange Traded Notes include SPDR Gold Shares (ticker: GLD) or iShares Silver Trust (ticker: SLV), grantor trusts, or exchange-traded limited partnerships.
Immediate Family means: (1) any of the following persons sharing the same household with the Employee (which does not include temporary house guests): a person’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son- in-law, daughter-in-law, brother-in-law, sister-in-law, legal guardian, adoptive relative, or significant other.
Initial Public Offering means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities and Exchange Act of 1934. As used in this Appendix II, the term “Initial Public Offering” shall also mean a one-time offering of stock to the public by the issuer of such stock which is not an initial public offering.
Managed Account is an investment account in which you and your Immediate Family have no investment discretion or direct or indirect influence or control. No direct or indirect influence or control exists over an account where, for example, (a) you or your Immediate Family member is a grantor or beneficiary of a trust managed by a third-party trustee and he or she has limited involvement in trust affairs, or (b) the third-party manager (or other financial intermediary) acting as a third-party manager has discretionary investment authority over the account. However, direct or indirect influence or control will be deemed to exist where you or your Immediate Family member has discussions with the trustee or third-party manager that
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go beyond a summary, description or explanation of account positioning and/or activity. For example, any of the following actions by you or your Immediate Family member would qualify as direct or indirect influence or control over the account: (i) suggesting purchases or sales of investments to the trustee or third-party manager; directing the purchase or sale of Securities; or (iii) consulting with the trustee or third-party manager as to the purchase or sale of investments to be made in the account (including situations where the trustee or third-party manager requests input and/or permission from you or your Immediate Family member before entering into a transaction). Managed Accounts must be approved as such by the Parametric CCO (see the Managed Accounts section of this Appendix II).
Mid/Large Cap Issuer is an issuer of Securities with an equity market capitalization of $3 billion or more.
Mutual Fund means open-end investment company registered under the Investment Company Act of 1940 (and does not include closed-end investment companies). For the avoidance of doubt, Exchange Traded Funds and Closed-End Funds are not considered to be Mutual Funds under this Appendix II.
Parametric CCO means the Chief Compliance Officer of Parametric or another person designated to perform the functions of the Chief Compliance Officer under various provisions of this Appendix II.
Private Placement means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(5) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act of 1933. A Private Placement thus includes any offer to you to purchase any securities, whether stock, debt securities, or partnership interests from any entity, unless those securities are registered under the Securities Act of 1933 or the Investment Company Act of 1940 (that is, are publicly offered/publicly traded securities).
Seattle Investment Personnel includes all employees in the Portfolio Management, Trading and Research departments in Parametric’s Seattle office. Seattle office employees in other departments who may have access to pre-execution model portfolio transaction information may also be deemed Seattle Investment Personnel by the Parametric CCO for purposes of this Appendix. All Seattle Investment Personnel will be notified of such designation by the Parametric CCO.
Securities shall include anything that is considered a “security” as defined in Section 2(a)(36) of the Investment Company Act of 1940, including most kinds of investment instruments, including:
· | Stocks & bonds |
· | Shares of Exchange Traded Funds |
· | Shares of Closed-End Funds |
· | Shares of Affiliated Funds |
· | Exchange Traded Notes |
· | Options on securities, on indexes and on currencies |
· | Investments in all kinds of limited partnerships |
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· | Investments in unit investment trusts |
· | Investments in real estate investment trusts (REITs) |
· | Investments in private investment funds, hedge funds, private equity funds and venture capital funds |
· | Units and shares of non-U.S. unit trusts and non-U.S. funds |
· | Cryptocurrencies that have been deemed to be a Security by the U.S. Securities and Exchange Commission |
For purposes of this Appendix II, the term “Securities” does not include:
· | Direct obligations of the U.S. government |
· | Money-market instruments, including bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt obligations, including repurchase agreements |
· | Shares of money-market funds |
· | Shares of Mutual Funds, other than shares of Affiliated Funds |
· | Currencies and currency forwards |
· | Physical commodities |
Securities Account means, with respect to any Access Person, an account with a broker, dealer or bank in which Securities are held and traded and the Access Person or a member of his or her Immediate Family has a Beneficial Interest and/or Control.
Securities Transaction means a transaction (whether a purchase, sale or other type of acquisition or disposition, including a gift) in a Security in which the Access Person or a member of his or her Immediate Family has or acquires a Beneficial Interest and/or Control.
Small Cap Issuer is an issuer of Securities with an equity market capitalization of less than $3 billion.
StarCompliance shall mean the online application utilized by Compliance for administering the Code of Ethics and monitoring personal securities trading by Access Persons.
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CODE OF ETHICS / INSIDER TRADING
This Code of Ethics (the “Code”) is adopted in compliance with the requirements of Rule 204A-1 under the Investment Advisers Act of 1940. In addition, this Code is adopted to ensure compliance by Certeza Fund Advisors, LLC (“Certeza”) with the requirements of Rule 17j-1 under the Investment Adviser Act of 1940 (the “1940 Act”).
1) STANDARDS OF CONDUCT
This Code seeks to ensure compliance with fiduciary standards required of Certeza and its personnel and is based on the principles that (i) Access Persons owe a fiduciary duty to, among others, all clients of Certeza, to conduct their personal transactions in Reportable Securities in a manner which neither interferes with client portfolio transactions nor otherwise takes unfair or inappropriate advantage of an Access Person’s knowledge of non-public information about and relationship to any clients; (ii) as a fiduciary, Certeza and its Supervised Persons owe clients the highest duty of trust and fair dealing; and (iii) Supervised Persons must, in all instances, place the interests of clients ahead of the Supervised Person’s own personal interests or the interests of others.
Supervised Persons must adhere to these general fiduciary principles and comply with the specific provisions and associated procedures of this Code. Accordingly, Supervised Persons must not:
• employ any device, scheme or artifice to defraud a client;
• make any untrue statements of material fact or omit to state a material fact necessary to make statements not misleading;
• engage in any act, practice or course of conduct which operates or would operate as a fraud or deceit upon clients;
• engage in any manipulative practice with respect to its clients; or
• engage in any manipulative practice with respect to securities including price manipulation.
Furthermore, all Supervised Persons are required to comply will all applicable Federal securities laws, as well as the terms and provisions of this Code, the Manual and any other applicable laws, rules, regulations, policies and procedures.
This Code does not attempt to identify all possible conflicts of interest, and literal compliance with the terms of this Code and the associated procedures will not automatically insulate an Access Person from scrutiny and liability in instances where the personal transactions in a Reportable Security undertaken by such Access Person shows a pattern of abuse of such Access Person’s fiduciary duty to clients or a failure by a Supervised Person to adhere to these general fiduciary principles.
2) PROVISION OF THE CODE & ACKNOWLEDGEMENT OF RECEIPT
a) Initial Provision – Acknowledgment of Receipt
Within 10 days of becoming a Supervised Person, colleagues are required to certify on the Initial Acknowledgment of the Policy and Procedure Manual to be submitted through the
ComplySci System, that they have: (i) received a copy of the Code; (ii) read and understand all provisions of the Code; and (iii) agreed to comply with the provisions set forth in the Code. The Chief Compliance Officer or their designee (the “CCO”) is responsible for delivery of the Code and the receipt of the required acknowledgments.
b) Annual Certification of Compliance
Each year, all Supervised Persons are required to certify and provide the Annual Acknowledgment of the Policy and Procedure Manual to be submitted through ComplySci System that they have received and read the provisions of the Code. Such certification shall also include a statement that the Supervised Person has complied with the requirements of the Code and applicable laws, rules statutes and regulations. The CCO is responsible for delivery of the annual certification and the receipt of the executed annual certification.
c) Amendments
The CCO shall provide all Supervised Persons with any amendments to the Code. All Supervised Persons shall certify receipt of the amendment and provide to the CCO the Acknowledgment of Amendment to the Policy and Procedure Manual to be submitted through ComplySci System of the amended Code within 10 days of being provided with an amendment.
3) REPORTING VIOLATIONS
All personnel of Certeza must promptly report improper or suspicious activities, including any suspected violations of the Code and/or the Manual. Issues can be reported to the CCO in person, or by telephone, email or written letter. Any reports of potential violations will be thoroughly investigated by the CCO, who will report directly to the Chief Executive Officer (“CEO”) on the matter.
4) DEFINITIONS
a) Access Person
Access Person means:
• Any of Certeza’s Supervised Persons who (i) have access to nonpublic information regarding any of Certeza clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Fund, (ii) is involved in making securities recommendations to Certeza clients, or (iii) has access to the securities recommendations made to Certeza clients that are nonpublic; or
• All of Certeza’s directors and officers.
The CCO has the responsibility for determining those Supervised Persons of Certeza that are Access Persons, and for maintaining the current list of Access Persons. Each Access Person will be informed by the CCO of their status as an Access Person, not less than annually, and upon the immediate determination that they have been deemed an Access Person.
b) Beneficial Ownership
Beneficial Ownership means an Access Person having or sharing a direct or indirect pecuniary interest (i.e. the opportunity, directly or indirectly, to profit or share in any profit) in Reportable Securities, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise. As a general matter, Beneficial Ownership will be attributed to an Access Person in all instances where the Access Person (i) possesses the ability to purchase or sell the Reportable Securities (or the ability to direct the disposition of the Reportable Securities); (ii) possesses voting power (including the power to vote or to direct the voting) over such Reportable Securities; or (iii) receives any benefits substantially equivalent to those of ownership. An individual’s Beneficial Ownership shall include, but not be limited to, Reportable Securities held by members of that individual’s immediate family sharing the same household. Any questions and issues regarding the definition of Beneficial Ownership should be directed to the CCO.
c) Reportable Security
Reportable Security means a security as defined in Section 202(a)(18) of the Act (generally, all securities of every kind and nature), except that it does not include:
• Direct obligations of the Government of the United States;
• Bankers’ acceptances, bank certificates of deposit, commercial paper and high-quality short-term debt instruments, including repurchase agreements;
• Shares issued by any money market funds;
• Shares issued by open-end mutual funds, other than the Convex Core Fund (the “Fund”); and
• Shares issued by unit investment trusts that are invested exclusively in one or more open-end mutual funds, none of which are Reportable Funds.
d) Initial Public Offering (“IPO)
Initial Public Offering means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of section 13 or 15(d) of the Exchange Act.
e) Limited Offering
Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(5) or pursuant to rules 504, 505 or 506 under the Securities Act of 1933.
f) Purchase or Sale of a Reportable Security
The purchase or sale of a Reportable Security includes, among other things, the writing, buying, selling or exercise of an option to purchase or sell a Reportable Security.
g) Reportable Fund
Reportable Fund means any fund for which Certeza serves as an investment adviser as defined in section 2(a)(2) of the 1940 Act. Pursuant to this definition, the Fund is a Reportable Fund.
h) Supervised Person
Supervised Person means any partner, officer, director (or other person occupying a similar status or performing similar functions), or personnel of Certeza, or other person who provides investment advice on behalf of Certeza and is subject to the supervision and control of Certeza. All Supervised Persons of Certeza are deemed also to be Access Persons.
5) PROHIBITED TRANSACTIONS – (See also the section of the Code entitled “Pre-Clearance Exemptions”)
a) Conflicts of Interest
No Access Person shall induce or cause any Certeza client to act or to fail to act, for the purpose of achieving a personal benefit, rather than for the benefit of the client. Examples of this would include causing a client account to purchase a Reportable Security owned by the Access Person for the purpose of supporting or driving up the price of the Reportable Security, and causing the client to refrain from selling a Reportable Security in an attempt to protect the value of the Access Person’s investment.
No Access Person shall purchase or sell, directly or indirectly, any Reportable Security in which he or she has, or by reason of such transaction acquires, a direct or indirect Beneficial Ownership interest and which he or she knows, or should have known, at the time of such purchase or sale: (i) is being considered for purchase or sale by a client or (ii) is being purchased or sold by a client.
b) Competing with Client Trade
No Access Person shall use knowledge of the portfolio transactions of any client to profit by the market effect of such transactions. One test which will be applied in determining whether this prohibition has been violated will be to review the Reportable Securities transactions of Access Persons for patterns. However, it is important to note that a violation could result from a single transaction if the circumstances warranted a finding that the provisions of this Code have been violated.
c) Initial Public Offerings
All Access Persons are prohibited from acquiring Beneficial Ownership in any security distributed in an Initial Public Offering, without obtaining the prior written approval of the CCO. Any request for pre-clearance is to be submitted to the CCO utilizing the Securities Transaction Pre-Clearance Form to be submitted through ComplySci System. The transaction must be executed on the same business day as approved. If the transaction is delayed, a new Securities Transaction Pre-Clearance Form must be submitted.
d) Limited Offering Restrictions
All Access Persons are prohibited from acquiring Beneficial Ownership in Reportable Securities for their personal accounts distributed in a Limited Offering, without the express prior written approval of the CCO. Any request for pre-clearance is to be submitted to the CCO utilizing the Securities Transaction Pre-Clearance Form to be submitted through ComplySci System. The transaction must be executed on the same business day as approved. If the transaction is delayed, a new Securities Transaction Pre-Clearance Form must be submitted. In instances where Access Persons, after receiving prior approval, acquire a Reportable Security in a Limited Offering, Access Persons have an affirmative obligation to disclose this investment to the CEO, copying the CCO if the Access Person participates in any subsequent consideration of any potential investment by any client of Certeza in the issuer of those Reportable Securities. A decision by Certeza to purchase for a client Reportable Securities of such an issuer (following a purchase by an Access Person in an approved personal transaction) will be subject to an independent review by the CEO so long as the person conducting such review has no personal interest in the issuer.
e) Index Options / Futures
All Access Persons are prohibited from acquiring Index Options and Future Contracts.
f) Blacklisted Securities
All Access Persons are prohibited from acquiring securities appearing on the Blacklist. Blacklisted securities include any securities held by a Reportable Fund. The Blacklist is updated periodically and is located on the Compliance Monitoring System.
g) Personal Trading Restrictions
All Access Persons are prohibited from executing a personal transaction in any Reportable Security (including transactions in pension or profit-sharing plans where the Access Person retains investment discretion), without express prior written approval of the CCO.
Reportable securities include the Fund. Any request for pre-clearance is to be submitted to the CCO utilizing the Securities Transaction Pre-Clearance Form to be submitted through ComplySci System. The transaction must be executed on the same business day as approved. If the transaction is delayed, a new Securities Transaction Pre-Clearance Form must be submitted. Notwithstanding the receipt of express prior approval, any purchases or sales by Access Persons undertaken in reliance on this provision remain subject to the other prohibitions and requirements enumerated in this Code.
6) REPORTING
a) Initial Holdings Report
Each Access Person must provide the CCO with a written report of the Access Person’s current securities holdings within 10 days after the person becomes an Access Person, which information must be current as of a date no more than 45 days prior to the date the
person becomes an Access Person. Each securities holdings report must provide, at a minimum, the following information:
• the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership;
• the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and
• the date the Access Person submits the report.
The initial holdings report need not provide information with respect to Reportable Securities, which includes the Fund, over which the Access Person had no direct or indirect influence or control at the time he or she became an Access Person. Access Persons are to utilize the Initial and Annual Holdings Report to be submitted through ComplySci System.
b) Annual Holdings Report
All Access Persons shall, no later than forty-five (45) calendar days after the end of the calendar year, submit a report to the CCO containing the following information current as of the end of the calendar year:
• the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Access Person has any direct or indirect Beneficial Ownership;
• the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and
• the date the Access Person submits the report.
The annual holdings report need not provide information with respect to Reportable Securities, which includes the Funds, over which the Access Person had no direct or indirect influence or control at the time he or she became an Access Person. Access Persons are to utilize the Initial and Annual Holdings Report to be submitted through ComplySci System.
c) Quarterly Transaction Report
Each Access Person must provide the CCO with a written record of his/her personal securities transactions no later than thirty (30) days after the end of each calendar quarter, which report must cover all transactions in Reportable Securities during the quarter. The report must provide, at a minimum, the following information about each transaction involving a Reportable Security in which the Access Person had, or as a result of the transaction acquired, any direct or indirect Beneficial Ownership:
• The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;
• The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
• The price of the security at which the transaction was effected;
• The name of the broker, dealer or bank with or through which the transaction was effected; and
• The date the Access Person submits the report.
Access Persons are to utilize the Quarterly Transaction Report Form to be submitted through the ComplySci System to make the required reporting.
d) Brokerage Accounts
Access Persons must disclose all brokerage accounts for which they have Beneficial Ownership to the CCO by disclosing the account on ComplySci.
7) PRE-CLEARANCE EXEMPTIONS
The following Reportable Securities’ transactions are exempt from the pre-clearance requirement listed elsewhere in this Code but NOT from quarterly and annual reporting requirements.
• Purchases or sales pursuant to an automatic investment plan authorized by the CCO or their designee;
• Purchases effected upon exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuers, and sales of rights so acquired;
• Accounts managed with discretion by other investment advisers (“Third-party Accounts”) where Certeza has no trading or decision making authority and the Access Person has no direct or indirect influence or control (see Section 7.a below for more information related to accounts deemed to be third-party accounts);
• Acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, and other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities;
• Securities transactions where neither the Access Person nor an immediate family member is aware of the transaction before it is completed (e.g. securities transactions effected by a trustee or blind trust or discretionary trades involving an investment partnership or investment club in which the Access Person is neither consulted nor advised of the trade before it is executed).
a) Third-party Managed Accounts
Employee accounts that are managed by an independent, third-party adviser / investment manager are not subject to the pre-clearance or quarterly reporting requirements. To be considered a third-party account, the following criteria must be met:
• The account must be managed by a third-party adviser / investment manager with no affiliation to Certeza;
• The account must be managed on a discretionary basis;
• The employee must have no ability to direct purchases or sales of investments or consult with the third-party adviser or manager as to the allocation of investments to be made in the account.
• Initially, if an employee wishes to classify their account as a Third-party Managed Account, they must present the CCO or their designee with a copy of their Management Agreement signed by the third-party manager and the employee. This agreement must state that the account is managed on a discretionary basis.
8) SANCTIONS
The CCO will review all reports submitted according to this Code. Upon discovering a violation of this Code, the CCO will report such violations to the CEO, who may impose such sanctions as they deem appropriate upon the person committing the violation. The filing of any false, incomplete or untimely reports, as required by this Code, may (depending on the circumstances) be considered a violation of this Code. Retaliation against an individual who reports a violation or suspected violation is prohibited and may constitute a further violation of the Code.
9) RECORDS
This Code, records of any violations of this Code and any actions taken as a result of such violations, a copy of each Report of Securities Holdings Form and Quarterly Transaction Report Form submitted under this Code (including any information provided in lieu of such reports) and a list of all persons required to submit reports under this Code shall be preserved in accordance with the requirements of the Act. The CCO has responsibility for the maintenance of these required records.
10) INSIDER TRADING POLICY
Section 204A of the Act requires investment advisers to maintain and enforce written policies reasonably designed to prevent the misuse of material nonpublic information by the investment adviser or any person associated with the investment adviser.
a) Policy Statement
Certeza forbids any officer or personnel from trading, either personally or on behalf of others, including client accounts, while in possession of material non-public information in violation of the law. Any questions regarding Certeza’s policies and procedures regarding insider trading should be referred to the CCO.
Generally, it is illegal for a person in the possession of material non-public information about securities that might affect the value of those securities to: (i) trade in those securities; or (ii) transmit that information to others who trade in those securities. Because the law dealing with insider trading involves a number of complex legal interpretations, Certeza requires all personnel, inclusive of directors, to confer with the CCO and obtain clearance in writing, before entering into any securities transaction for which believes he or she may have material non-public information. The CCO will determine whether proceeding with the proposed transaction would involve substantial risks that the transactions would violate the law governing such matters. All personnel of Certeza, inclusive of directors, must follow the procedures described below or risk serious sanctions,
including dismissal, substantial personal liability and criminal penalties, including jail sentences.
b) Procedures to be Followed by Personnel/Officers
i. Identifying Inside Information
Before Certeza personnel trade for themselves in the securities of a company about which he or she may have material non-public, or “inside information,” they should ask themselves the following questions:
• Is the information “material?” As a guideline, information about a company, or the market for its securities, is “material” if disclosure would be likely to affect the market price of the company’s securities or be considered important by the reasonable investor in deciding whether to purchase or sell those securities. Examples of information about a company which should be presumed to be “material” include, but are not limited to, matters such as (i) dividend increases or decreases, (ii) earnings estimates, (iii) changes in previously released earnings estimates, (iv) significant new products or discoveries, (v) developments regarding major litigation by or against the company, (vi) liquidity or solvency problems, (vii) significant merger or acquisition proposals, or (viii) similar major events which would be viewed as having materially altered the information available to the public regarding a company or the market for any of its securities.
• Is the information non-public? To whom has this information been provided? Has the information been effectively communicated to the marketplace by, for example, being published in Reuters, The Wall Street Journal or other publications of general circulation?
If, after consideration of the above, you believe that the information is material and non-public, or if you have questions as to whether the information is material and non-public, you should take the following steps:
• report the matter immediately to the CCO;
• do not purchase or sell the securities on behalf of yourself or others, including clients of Certeza; and
• do not communicate the information inside or outside Certeza, other than to the CCO.
After the CCO has reviewed the issue, you will be notified in writing whether you should continue the prohibitions against trading and communication, or whether you may trade and communicate the information.
If after consideration of the items set forth above you have any doubt as to whether information is material or non-public, or if there is any unresolved question as to the applicability or interpretation of the foregoing procedures, or as to the propriety of any action, you must discuss it with the CCO before trading or communicating the information to anyone.
ii. Personal Securities Trading – Clearance and Reporting
Pursuant to the Code, all Access Persons of Certeza shall submit to the CCO written reports of transactions in Reportable Securities.
iii. Restricting Access to Material Non-Public Information
Information in your possession that you identify as potentially material and non-public may not be communicated to anyone, including persons within Certeza, except as provided otherwise herein. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed and access to computer files containing material non-public information should be restricted.
c) Implementation
Certeza has adopted various procedures to implement Certeza’s Insider Trading Policy, which may be summarized as follows.
i. As part of the Manual, the Insider Trading Policy is distributed to all personnel and new personnel upon hire, and requires a written acknowledgement by all personnel, and must be reaffirmed in writing annually pursuant to this Manual.
ii. Pursuant to the provisions of the Code, Access Persons must disclose personal securities accounts and report at least quarterly any reportable transactions in their personal accounts.
iii. Pursuant to the section of this Manual regarding approval of Outside Employment, all personnel must report outside business activities to the CCO that may result in access to material, non-public information.
iv. The CCO reviews Access Person activity over the accounts for which they have Beneficial Ownership pursuant to the provisions of the Code.
v. The CCO provides guidance to personnel on any possible insider trading situations or questions.
vi. As part of the review requirements applicable to the Manual under the Act, Certeza’s Insider Trading Policy is reviewed and evaluated on a periodic basis and updated as may be appropriate.
vii. The CCO prepares a written report to management of any possible violation of Certeza’s Insider Trading Policy and is also responsible for implementing corrective and/or disciplinary action.
11) GIFTS & ENTERTAINMENT POLICY
It is the policy of Certeza to achieve a balance relative to the receipt/acceptance of gifts from clients or vendors with the avoidance of conflicts of interest or appearances of impropriety. As such, receipt of a holiday gift or expression of thanks from a client for a job well done is not prohibited, provided that the gift is not cash or a cash equivalent, which are prohibited by Certeza. However, all non-cash gifts from vendors, the estimated value of which clearly exceeds $250, must be reported to the CCO utilizing the Quarterly Gifts and Entertainment Report Form, to be submitted through the ComplySci System. The above policy recognizes that the dollar value of attendance at certain functions (dinner, golf outing,
sporting event) will exceed $250 and is not intended to be prohibited by this policy. However, attendance at such vendor sponsored events should be reported to the CCO so that a determination can be made that it (they) is (are) neither excessive nor create(s) the potential for a conflict of interest.